Tembec Inc.: Form 6-K - Filed by newsfilecorp.com

0001062993-13-003754.txt : 20130805 0001062993-13-003754.hdr.sgml : 20130805 20130802180211 ACCESSION NUMBER: 0001062993-13-003754 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20130802 FILED AS OF DATE: 20130805 DATE AS OF CHANGE: 20130802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Tembec Inc. CENTRAL INDEX KEY: 0001512090 STANDARD INDUSTRIAL CLASSIFICATION: PULP MILLS [2611] IRS NUMBER: 000000000 STATE OF INCORPORATION: Z4 FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-172078-02 FILM NUMBER: 131008251 BUSINESS ADDRESS: STREET 1: 800 REN? L?VESQUE BOULEVARD WEST STREET 2: SUITE 1050 CITY: MONTR?AL STATE: A8 ZIP: H3B 1X9 BUSINESS PHONE: 514-871-1473 MAIL ADDRESS: STREET 1: 800 REN? L?VESQUE BOULEVARD WEST STREET 2: SUITE 1050 CITY: MONTR?AL STATE: A8 ZIP: H3B 1X9 6-K 1 form6k.htm FORM 6-K Tembec Inc.: Form 6-K - Filed by newsfilecorp.com

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 August, 2013

Commission File Number: 033-80178-02

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	Interim 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 August 1, 2013

	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: August 2, 2013	By:	/s/ Patrick LeBel

		Patrick LeBel
	Title:	Vice President, General Counsel and Corporate Secretary

EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Tembec Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

Exhibit 99.1

TEMBEC INC.
CONSOLIDATED BALANCE SHEETS

(unaudited) (in millions of Canadian dollars)

		June 29,			Sept. 29,
		2013			2012

ASSETS

Current assets:
Cash and cash equivalents	$	94		$	87
Restricted cash		-			5
Trade and other receivables		153			200
Inventories (note 3)		238			255
Prepaid expenses		8			7
		493			554

Property, plant and equipment (note 4)		462			485
Biological assets		4			4
Other long-term receivables		11			12
Deferred tax assets		2			4
	$	972		$	1,059

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Operating bank loans (note 5)	$	57		$	68
Trade, other payables and accrued charges		185			230
Interest payable		2			10
Income tax payable		5			3
Provisions (note 7)		6			3
Current portion of long-term debt (note 6)		16			16
		271			330

Long-term debt (note 6)		365			323
Provisions (note 7)		12			17
Employee future benefits		152			285
Other long-term liabilities		2			2
		802			957
Shareholders' equity:
Share capital (note 8)		567			564
Deficit		(400	)		(453	)
Accumulated other comprehensive earnings (loss)		3			(9	)
		170			102
	$	972		$	1,059

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

- 1 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF NET EARNINGS (LOSS)

Quarters and nine months ended June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars, unless otherwise noted)

		Quarters						Nine months
		2013			2012			2013			2012
Sales	$	399		$	415		$	1,182		$	1,223
Freight and other deductions		54			59			158			169
Lumber export taxes		1			1			2			6
Cost of sales (excluding depreciation and amortization)		296			311			892			953
Selling, general and administrative		18			18			56			54
Share-based compensation (note 8)		-			(1	)		1			-
Depreciation and amortization		9			11			29			33
Other items (note 9)		4			2			28			(1	)
Operating earnings		17			14			16			9

Interest, foreign exchange and other		6			7			19			27
Exchange loss on long-term debt		11			8			21			-
Net finance costs (note 10)		17			15			40			27
Loss before income taxes		-			(1	)		(24	)		(18	)

Income tax expense (note 11)		4			4			16			17
Net loss	$	(4	)	$	(5	)	$	(40	)	$	(35	)

Basic and diluted net loss in dollars per share (note 8)	$	(0.04	)	$	(0.05	)	$	(0.40	)	$	(0.35	)

TEMBEC INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

Quarters and nine months ended June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)

		Quarters						Nine months
		2013			2012			2013			2012
Net loss	$	(4	)	$	(5	)	$	(40	)	$	(35	)

Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans and other benefit plans (note 12)		30			-			93			-
Foreign currency translation differences for foreign operations		8			(5	)		12			(10	)

Total comprehensive earnings (loss)	$	34		$	(10	)	$	65		$	(45	)

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 June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)

		Quarter ended June 29, 2013
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of period, March 30, 2013	$	567	$	(5	)	$	(426	)	$	136

Net loss for the period		-		-			(4	)		(4	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans and other benefit plans (note 12)		-		-			30			30
Foreign currency translation differences for foreign operations		-		8			-			8
Issue of warrants (note 8)		-		-			-			-

Balance - end of period, June 29, 2013	$	567	$	3		$	(400	)	$	170

		Quarter ended June 23, 2012
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of period, March 24, 2012	$	564	$	(3	)	$	(363	)	$	198

Net loss for the period		-		-			(5	)		(5	)
Other comprehensive earnings (loss), net of income taxes:
Foreign currency translation differences for foreign operations		-		(5	)		-			(5	)

Balance - end of period, June 23, 2012	$	564	$	(8	)	$	(368	)	$	188

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

- 3 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Nine months ended June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)

		Nine months ended June 29, 2013
				Translation
		Share		of foreign						Shareholders'
		capital		operations			Deficit			equity
Balance - beginning of year, September 29, 2012	$	564	$	(9	)	$	(453	)	$	102

Net loss for the period		-		-			(40	)		(40	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans and other benefit plans (note 12)		-		-			93			93
Foreign currency translation differences for foreign operations		-		12			-			12
Issue of warrants (note 8)		3		-			-			3

Balance - end of period, June 29, 2013	$	567	$	3		$	(400	)	$	170

		Nine months ended June 23, 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 period		-		-			(35	)		(35	)
Other comprehensive earnings (loss), net of income taxes:
Foreign currency translation differences for foreign operations		-		(10	)		-			(10	)

Balance - end of period, June 23, 2012	$	564	$	(8	)	$	(368	)	$	188

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

- 4 -

TEMBEC INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarters and nine months ended June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)

		Quarters						Nine months
		2013			2012			2013			2012
Cash flows from operating activities:
Net loss	$	(4	)	$	(5	)	$	(40	)	$	(35	)
Adjustments for:
Depreciation and amortization		9			11			29			33
Net finance costs (note 10)		17			15			40			27
Income tax expense (note 11)		4			4			16			17
Income tax paid		(5	)		(3	)		(13	)		(13	)
Excess cash contributions over employee future benefits expense		(8	)		(6	)		(25	)		(23	)
Provisions		-			-			-			9
Impairment loss (note 9)		-			-			22			17
Loss (gain) on sale of assets (note 9)		2			-			-			(28	)
Other		1			-			(3	)		(2	)
		16			16			26			2
Changes in non-cash working capital:
Trade and other receivables		19			(1	)		23			(21	)
Inventories		34			20			3			(49	)
Prepaid expenses		4			(1	)		(1	)		(4	)
Trade, other payables and accrued charges		(36	)		(15	)		(34	)		(17	)
		21			3			(9	)		(91	)
		37			19			17			(89	)
Cash flows from investing activities:
Disbursements for property, plant and equipment		(31	)		(24	)		(93	)		(75	)
Proceeds from sale of net assets (note 9)		97			1			99			84
Other		1			3			2			6
		67			(20	)		8			15
Cash flows from financing activities:
Change in operating bank loans		(29	)		(1	)		(11	)		62
Change in restricted cash		1			6			5			4
Increase in long-term debt		4			-			28			55
Repayments of long-term debt		(3	)		(6	)		(5	)		(9	)
Interest paid		(19	)		(18	)		(38	)		(33	)
Other		-			1			-			-
		(46	)		(18	)		(21	)		79
		58			(19	)		4			5
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies		2			(1	)		3			(4	)
Net increase (decrease) in cash and cash equivalents		60			(20	)		7			1

Cash and cash equivalents, beginning of period		34			120			87			99
Cash and cash equivalents, end of period	$	94		$	100		$	94		$	100

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

- 5 -

TEMBEC INC.
BUSINESS SEGMENT INFORMATION

Quarters and nine months ended June 29, 2013 and June 23, 2012

(unaudited) (in millions of Canadian dollars)

The Company operates an integrated forest products business, which is managed in four segments. During the December 2012 quarter, the Company reorganized its internal reporting structure. The High-Yield Pulp segment was renamed the Paper Pulp segment and now includes the chemical pulp mill that was previously part of the Specialty Cellulose and Chemical Pulp segment. The latter was then renamed the Specialty Cellulose Pulp segment. The Forest Products and the Paper segments were unaffected by the organizational changes. The segments are:

The Forest Products segment consists primarily of forest and sawmills operations, which produce lumber and building materials.
The Specialty Cellulose Pulp segment consists primarily of manufacturing and marketing activities of specialty cellulose including the transformation and sale of resins and pulp by-products. A significant portion of chemical products sales are related to by-products generated by the two specialty cellulose pulp mills.
The Paper Pulp segment includes the manufacturing and marketing activities of high-yield pulps and chemical 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 note 2 and 3 of the Company’s audited consolidated financial statements for the year ended September 29, 2012. Comparative prior period segment information has been restated to conform with the new segment presentation.

The performance of each segment is evaluated by management of the Company against short-term and long-term financial objectives as well as environmental, safety and other key criteria. The financial performance 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 June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)

		Quarter ended June 29, 2013
				Specialty
		Forest		Cellulose		Paper								Consolidation
		Products		Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	95	$	120	$	98		$	86	$	-		$	-		$	399
Internal		15		-		8			-		2			(25	)		-
		110		120		106			86		2			(25	)		399
Freight and other deductions		10		11		20			13		-			-			54
Lumber export taxes		1		-		-			-		-			-			1
Cost of sales		89		85		81			65		1			(25	)		296
Selling, general and administrative		3		5		2			2		6			-			18
Share-based compensation		-		-		-			-		-			-			-
Earnings (loss) before the following (adjusted EBITDA):		7		19		3			6		(5	)		-			30
Depreciation and amortization		2		4		3			-		-			-			9
Other items (note 9)		-		-		2			-		2			-			4
Operating earnings (loss)	$	5	$	15	$	(2	)	$	6	$	(7	)	$	-		$	17
Additions to property, plant and equipment	$	1	$	24	$	2		$	3	$	-		$	-		$	30
Total assets	$	159	$	468	$	148		$	119	$	78		$	-		$	972
Total liabilities	$	57	$	210	$	41		$	123	$	371		$	-		$	802

		Quarter ended June 23, 2012
					Specialty
		Forest			Cellulose		Paper							Consolidation
		Products			Pulp		Pulp		Paper		Corporate			adjustments			Consolidated
Sales:
External	$	72		$	124	$	133	$	86	$	-		$	-		$	415
Internal		14			-		11		-		4			(29	)		-
		86			124		144		86		4			(29	)		415
Freight and other deductions		8			11		29		11		-			-			59
Lumber export taxes		1			-		-		-		-			-			1
Cost of sales		76			91		106		63		4			(29	)		311
Selling, general and administrative		3			5		3		3		4			-			18
Share-based compensation		-			-		-		-		(1	)		-			(1	)
Earnings (loss) before the following (adjusted EBITDA):		(2	)		17		6		9		(3	)		-			27
Depreciation and amortization		2			3		6		-		-			-			11
Other items (note 9)		-			-		-		-		2			-			2
Operating earnings (loss)	$	(4	)	$	14	$	-	$	9	$	(5	)	$	-		$	14
Additions to property, plant and equipment	$	-		$	22	$	-	$	1	$	1		$	-		$	24
Total assets	$	209		$	369	$	359	$	120	$	32		$	-		$	1,089
Total liabilities	$	61		$	172	$	69	$	128	$	471		$	-		$	901

- 7 -

TEMBEC INC.
BUSINESS SEGMENT INFORMATION

Nine months ended June 29, 2013 and June 23, 2012
(unaudited) (in millions of Canadian dollars)

		Nine months ended June 29, 2013
				Specialty
		Forest		Cellulose		Paper								Consolidation
		Products		Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	266	$	343	$	322		$	251	$	-		$	-		$	1,182
Internal		49		-		23			-		8			(80	)		-
		315		343		345			251		8			(80	)		1,182
Freight and other deductions		29		27		67			35		-			-			158
Lumber export taxes		2		-		-			-		-			-			2
Cost of sales		259		250		265			191		7			(80	)		892
Selling, general and administrative		9		15		6			8		18			-			56
Share-based compensation		-		-		-			-		1			-			1
Earnings (loss) before the following (adjusted EBITDA):		16		51		7			17		(18	)		-			73
Depreciation and amortization		6		10		11			2		-			-			29
Other items (note 9)		-		-		24			-		4			-			28
Operating earnings (loss)	$	10	$	41	$	(28	)	$	15	$	(22	)	$	-		$	16
Additions to property, plant and equipment	$	3	$	72	$	8		$	6	$	1		$	-		$	90
Total assets	$	159	$	468	$	148		$	119	$	78		$	-		$	972
Total liabilities	$	57	$	210	$	41		$	123	$	371		$	-		$	802

		Nine months ended June 23, 2012
					Specialty
		Forest			Cellulose		Paper								Consolidation
		Products			Pulp		Pulp			Paper		Corporate			adjustments			Consolidated
Sales:
External	$	258		$	380	$	335		$	250	$	-		$	-		$	1,223
Internal		66			-		32			-		8			(106	)		-
		324			380		367			250		8			(106	)		1,223
Freight and other deductions		32			30		74			33		-			-			169
Lumber export taxes		6			-		-			-		-			-			6
Cost of sales		299			266		301			185		8			(106	)		953
Selling, general and administrative		11			14		6			9		14			-			54
Share-based compensation		-			-		-			-		-			-			-
Earnings (loss) before the following (adjusted EBITDA):		(24	)		70		(14	)		23		(14	)		-			41
Depreciation and amortization		8			7		17			1		-			-			33
Other items (note 9)		(22	)		-		-			-		21			-			(1	)
Operating earnings (loss)	$	(10	)	$	63	$	(31	)	$	22	$	(35	)	$	-		$	9
Additions to property, plant and equipment	$	8		$	53	$	8		$	5	$	1		$	-		$	75
Total assets	$	209		$	369	$	359		$	120	$	32		$	-		$	1,089
Total liabilities	$	61		$	172	$	69		$	128	$	471		$	-		$	901

- 8 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

(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

	These unaudited interim consolidated financial statements and the notes thereto have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) applicable to the preparation of interim financial statements, including International Accounting Standard (IAS) 34 – Interim Financial Reporting.

	The accounting policies and the basis of presentation applied in these unaudited interim consolidated financial statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended September 29, 2012. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss. The Company’s interim results are not necessarily indicative of its results for a full year.

	These unaudited interim consolidated financial statements do not include all of the information and disclosures required in the annual financial statements and, accordingly, should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 29, 2012.

	These unaudited interim consolidated financial statements were authorized for issue by the Board of Directors on August 1, 2013.

	Accounting estimates and judgments

	The preparation of unaudited interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expense. Actual results may differ from those estimates.

	In preparing these unaudited interim consolidated financial statements, the significant judgments made by management in applying the Company’s significant accounting policies and key sources of information were the same as those applied to the consolidated financial statements for the year ended September 29, 2012.

3.	Inventories

		June 29,		Sept. 29,
		2013		2012
Finished goods	$	113	$	118
Logs and wood chips		55		61
Supplies and materials		70		76
	$	238	$	255

Inventories carried at net realizable value	$	17	$	48

During the quarters ended in June 2013 and 2012, cost of sales consists primarily of inventories recognized as an expense. Inventories at June 29, 2013, were written down by $2 million (September 29, 2012 - $6 million) to reflect net realizable value being lower than cost. The write-down and reversal, if any, are included in cost of sales.

- 9 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

4.	Property, plant and equipment

		Net book value
		June 29,		Sept. 29,
		2013		2012
Land	$	10	$	11
Buildings		44		53
Production equipment:
Pulp and paper		234		300
Sawmill		17		19
Forest access roads		7		6
Assets under construction		150		96
	$	462	$	485

	On May 17, 2013, the Company sold its pulp mill located in Skookumchuck, British Columbia (BC). The net book value of the property, plant and equipment sold was $79 million (note 9).

	On March 16, 2012, the Company announced a $190 million capital investment to upgrade its specialty cellulose manufacturing facility at Temiscaming, Quebec. The Company has recently completed a detailed re-estimation exercise for the project and is now forecasting a total estimated cost of $235 million. As at the end of June 2013, the Company had incurred $113 million of capital expenditures for this project and had $49 million of outstanding commitments. During the nine-month period ended June 29, 2013, the Company had total additions to property, plant and equipment of $90 million (June 2013 quarter - $30 million), of which $54 million (June 2013 quarter - $19 million) was for the upgrade to the specialty cellulose manufacturing facility.

	During the March 2013 quarter, the Company recorded an impairment charge of $22 million related to its pulp mill located in Skookumchuck, BC (note 9).

5.	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 March 2016. On March 25, 2013, the Company disclosed that it had reached an agreement with existing ABL lenders to amend and extend the facility. The maturity date was extended by one year and is now set to expire in March 2017. The Company also negotiated a reduction of the aggregate revolving loan commitments from $200 million to $175 million and related adjustments to certain thresholds due to a reduction in the number of mills it operates. The Company had previously disclosed that the ABL lenders had expressed concern regarding their security position on collateral related to Ontario operations. The recent decision by the Supreme Court of Canada regarding the “Indalex” case led to satisfactory resolution of potential security issues regarding the Company’s Ontario collateral. As a result, full access to the ABL facility is effectively restored.

	As at June 29, 2013, the amount available, based on eligible receivables and inventories, was $128 million of which $57 million was drawn and $52 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.

	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 June 2013, the amount available was $24 million of which a negligible amount was drawn.

	The Company’s exposure to liquidity risk is disclosed in note 13.

- 10 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

6.	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.

			June 29,		Sept. 29,
	Maturity		2013		2012
Tembec Industries Inc. - US $305 million - 11.25% senior secured notes	12/2018	$	321	$	300
Tembec Tartas SAS	Various		19		22
Tembec Energy LP - 6.35% secured term loan	06/2022		20		20
Tembec Energy LP - 5.5% secured term loan	10/2027		28		-
Kirkland Lake Engineered Wood Products Inc.	Various		8		8
Other	Various		2		2
		$	398	$	352
Less current portion			16		16
Less unamortized financing costs			17		13
		$	365	$	323

	In connection with the specialty cellulose project in Temiscaming, Quebec, the Company entered into 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 is secured by a second ranking charge on the project assets. During the December 2012 quarter, the Company received three tranches totalling $24 million and during the June 2013 quarter the Company received another tranche of $4 million on the term loan.

	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.

7.	Provisions

		June 29,		Sept. 29,
		2013		2012
Site restoration	$	12	$	13
Reforestation		1		2
Other		5		5
	$	18	$	20

Current	$	6	$	3
Non-current		12		17
	$	18	$	20

- 11 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

8.	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.

	Warrants

	In connection with the $75 million term loan facility, the Company has granted the lender an option to acquire 3 million common shares of the Corporation at a price of $7 per share. The warrants expire on August 30, 2017. During the December 2012 quarter, concurrently with the first disbursement under the term loan facility, the Company recorded the estimated value of the warrants, which was determined to be $3 million.

	Issued and fully paid

		June 29,		Sept. 29,
		2013		2012
100,000,000 common shares	$	564	$	564
3,000,000 warrants		3		-
	$	567	$	564

Net loss per share

The following table provides the reconciliation between basic and diluted net loss per share:

		Quarters						Nine months
		2013			2012			2013			2012
Net loss	$	(4	)	$	(5	)	$	(40	)	$	(35	)
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	$	(0.04	)	$	(0.05	)	$	(0.40	)	$	(0.35	)

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.

- 12 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

8.	Share capital (continued)

	Shareholder Rights Plan

	At the Annual and Special Meeting of Shareholders held on January 31, 2013, the Shareholder Rights Plan (the “Plan”), which had been previously adopted by the Board of Directors (the “Board”) of the Corporation, was approved and ratified by a majority of the Shareholders. The Plan is designed to encourage the fair treatment of the Company’s shareholders in the event of any take-over bid for the Company’s common shares. It provides the Board with sufficient time to assess and evaluate any unsolicited take-over bid, and to explore and develop, if appropriate, alternatives that enhance shareholder value and to give shareholders adequate time to consider any such transaction. Accordingly, as of the close of business on January 31, 2013, one right was issued and attached to each common share of the Corporation. Each right entitles the holder of the right to purchase from the Corporation an additional share of the Corporation subject to the terms and conditions of the Plan.

	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:

			Weighted average
	Options		exercise price
Balance, beginning of year, September 29, 2012	104,987	$	66.13
Options expired	3,492		184.59
Balance, end of period, December 29, 2012	101,495	$	62.06
Options expired	389		210.96
Options cancelled	3,263		97.51
Balance, end of period, March 30, 2013	97,843	$	60.29
Options cancelled	1,409		63.85
Balance, end of period, June 29, 2013	96,434	$	60.23

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, 5,905 during the December 2012 quarter, and 30,866 during the March 2013 quarter. On November 15, 2012, an additional 726,803 DSUs were granted of which 60,308 were forfeited during the March 2013 quarter.

The following table summarizes the details of share-based compensation expenses (credits) relating to its different plans:

		Quarters					Nine months
		2013		2012			2013		2012
Directors' share award plan	$	-	$	(1	)	$	1	$	-
Performance-conditioned share unit plan		-		-			-		-
	$	-	$	(1	)	$	1	$	-

- 13 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

9.	Other items

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

		Quarters				Nine months
		2013		2012		2013			2012
Forest Products:
Gain on sale of BC sawmills	$	-	$	-	$	-		$	(24	)
Loss on sale/closure of hardwood flooring plants		-		-		-			2
		-		-		-			(22	)
Paper Pulp:
Loss on sale of Skookumchuck, BC, pulp mill		2		-		2			-
Impairment loss - Skookumchuck, BC, pulp mill		-		-		22			-
		2		-		24			-
Corporate:
Costs for permanently idled facilities		2		2		6			9
Gain on sale of assets		-		-		(2	)		-
Impairment loss - Temlam loan receivable		-		-		-			16
Gain on sale of minority equity investment		-		-		-			(4	)
		2		2		4			21
	$	4	$	2	$	28		$	(1	)

2013

On May 17, 2013, the Company sold its pulp mill located in Skookumchuck, BC, for proceeds of $97 million. As a result of the sale, the Company recorded a loss of $2 million in the June 2013 quarter. The following table provides information related to Balance Sheet items of the mill at time of sale:

Current assets	$	41
Long-term assets		79
Current liabilities		(12	)
Employee future benefits and other		(9	)
	$	99

During the June 2013 quarter, the Company recorded a charge of $2 million relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. For the nine-month period ended June 29, 2013, these charges amount to $6 million.

During the March 2013 quarter, the Company announced that it had reached an agreement to sell its pulp mill located in Skookumchuck, BC. The Company recorded an impairment charge of $22 million on the non-current assets to reflect anticipated net proceeds of sale.

During the December 2012 quarter, the Company recorded a gain of $2 million relating to the sale of land and building in Cranbrook, BC.

- 14 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

9.	Other items (continued)

	2012

	During the June 2012 quarter, the Company recorded a charge of $2 million relating to several permanently idled facilities. The costs relate to custodial, site security, legal and remediation activities. For the nine-month period ended June 23, 2012, these charges amount to $9 million.

	During the March 2012 quarter, the Company recorded an impairment charge 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 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

	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.

10.	Net finance costs

		Quarters						Nine months
		2013			2012			2013			2012
Interest on long-term debt	$	10		$	10		$	30		$	26
Interest on short-term debt		1			-			2			1
Bank charges and other financing expenses		1			-			2			2
Net foreign exchange loss (gain), excluding exchange on long-term debt		(2	)		(2	)		(3	)		-
Interest income		-			(1	)		-			(1	)
Exchange loss (gain) on long-term debt		11			8			21			-
Expected return on plan assets less accretion of employee future benefits obligation (note 12)		(2	)		-			(6	)		-
Interest capitalized on assets under construction		(2	)		-			(6	)		(1	)
	$	17		$	15		$	40		$	27

Finance costs	$	21		$	18		$	49		$	28
Finance income		(4	)		(3	)		(9	)		(1	)
Net finance costs	$	17		$	15		$	40		$	27

- 15 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

11.	Income taxes

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

		Quarters						Nine months
		2013			2012			2013			2012
Loss before income taxes	$	-		$	(1	)	$	(24	)	$	(18	)
Income tax recovery based on combined federal and provincial income tax rates of 26.3% (2012 - 26.3%) Increase (decrease) resulting from:	$	-		$	-		$	(6	)	$	(5	)
Unrecognized (recognized) tax asset arising from current losses and other tax adjustments		(1	)		4			12			16
Difference in statutory income tax rate		1			1			5			4
Non-deductible (taxable) portion of exchange loss (gain) on long-term debt		1			1			2			-
Other permanent differences		3			(2	)		3			2
		4			4			22			22
Income tax expense	$	4		$	4		$	16		$	17
Income taxes:
Current	$	4		$	2		$	14		$	9
Deferred		-			2			2			8
Income tax expense	$	4		$	4		$	16		$	17

12.	Employee future benefits

	The Company measures its defined benefit obligations and the fair value of plan assets at year-end. At the end of each interim reporting period, the Company estimates changes in its accrued benefit liabilities based upon variations in discount rates and rates of return on plan assets, as well as any significant changes to the plans, if any. Adjustments are also made for payments made and current service and interest costs.

	The following table presents the Company’s employee future benefit costs included in net loss:

		Quarters						Nine months
		2013			2012			2013			2012
Defined benefit pension plans	$	3		$	3		$	8		$	7
Defined contribution and other retirement plans		1			2			5			7
Other benefit plans		-			-			1			1
Current service cost	$	4		$	5		$	14		$	15

Interest cost	$	9		$	10		$	26		$	29
Expected return on plan assets		(11	)		(10	)		(32	)		(29	)
Net finance income	$	(2	)	$	-		$	(6	)	$	-

Curtailment gain	$	(1	)	$	-		$	(1	)	$	(2	)

- 16 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

12.	Employee future benefits (continued)

	The variation in discount rate on obligations and the difference between the actual rate of return and the expected rate of return on plan assets generated an actuarial gain (loss) on employee future benefits, included in comprehensive earnings, as follows:

		Quarters					Nine months
		2013			2012		2013		2012

Actuarial gain - variation in discount rate	$	41		$	-	$	83	$	-
Actuarial gain (loss) - actual rate of return exceeds (is below) expected rate of return		(11	)		-		10		-
	$	30		$	-	$	93	$	-

	The actuarial gain on variation in discount rate recognized in the statement of comprehensive earnings (loss) at June 29, 2013, was based on an increase of the discount rate from 3.69% used at September 29, 2012 and December 29, 2012, to 4.14% at March 30, 2013 and 4.48% at June 29, 2013. The actual rate of return on assets for the nine-month period was 6.2% (annualized 8.3%), which is 1.4% higher than the expected rate of return of 4.8% (annualized 6.4%).

13.	Financial instruments

	Fair value

	The carrying amount of cash and cash equivalents, restricted cash, trade and other receivables, 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 value of the long-term loans receivable and other long-term liabilities also approximates their fair values.

	The carrying value and the fair value of long-term debt are as follows:

		June 29,		Sept. 29,
		2013		2012
Carrying value	$	381	$	339
Fair value	$	425	$	369

The fair value of the senior secured notes was estimated using quoted market prices; the fair value of the other long-term debts were estimated based on discounted cash flows using period-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 June 29, 2013 and September 29, 2012.

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:

		June 29,		Sept. 29,
		2013		2012
Loans and receivables, other than cash, cash equivalents and restricted cash	$	164	$	212
Cash, cash equivalents and restricted cash	$	94	$	92

- 17 -

TEMBEC INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Quarters and nine months ended June 29, 2013 and June 23, 2012

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

13.	Financial instruments (continued)

	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 amount to 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 June 29, 2013, totalled $137 million. In addition, the Company had entered into two secured term loan facilities totalling $105 million of which $57 million was undrawn. Repayment of amounts due within one year may also be funded by normal collection of current trade accounts receivable and cash on hand.

	The following are the contractual maturities of financial liabilities, including interest payments:

		June 29, 2013
		Carrying			Contractual								After
		amount			cash flows		Year 1		Years 2-3		Years 4-5		5 years
Secured bank loans	$	384	⁽¹⁾	$	606	$	41	$	85	$	85	$	395
Unsecured loans		14			15		6		6		2		1
Operating bank loans		57			57		57		-		-		-
Trade and others		187			187		187		-		-		-
	$	642		$	865	$	291	$	91	$	87	$	396

⁽¹⁾ before financing costs

14.	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 restricted cash.

	Total capitalization includes net debt plus provisions, accrued benefit liability, deferred income taxes, other long-term liabilities, and shareholders’ equity.

	The Company’s long-term objective is to maintain the net debt to total capitalization ratio at 40% or less. A strong balance sheet provides the Company with the ability to access capital markets at favourable rates. The net debt to total capitalization ratio of the Company was 52% as at June 29, 2013 (September 29, 2012 – 45%). The increase was due to a higher debt borrowed primarily to finance the Temiscaming specialty cellulose project combined with the significant contributions that are being made to fund defined benefit pension plans. 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.

- 18 -

EX-99.2 3 exhibit99-2.htm EXHIBIT 99.2 Tembec Inc.: Exhibit 99.2 - Filed by newsfilecorp.com

Exhibit 99.2

Management’s Discussion and Analysis
for the quarter ended June 29, 2013

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 third fiscal quarter ended June 29, 2013. The MD&A should be read in conjunction with the interim consolidated financial statements for the period ended June 29, 2013, and the audited consolidated financial statements and annual MD&A for the fiscal year ended September 29, 2012, 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). 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 August 1, 2013, the date of filing in conjunction with the Company’s press release announcing its results for the third fiscal quarter. Disclosure contained in this document is current to that date, unless otherwise stated.

CONSOLIDATED RESULTS

	Quarterly Results ($ millions)
	Fiscal 2012								Fiscal 2013
	Dec 11		Mar 12		Jun 12		Sep 12		Dec 12		Mar 13		Jun 13		Sep 13
Sales	401		407		415		443		376		407		399		-
Freight and other deductions	53		57		59		63		50		54		54		-
Lumber export taxes	2		3		1		1		1		-		1		-
Cost of sales	316		326		311		337		286		310		296		-
SG&A	18		18		18		20		19		19		18		-
Share-based compensation	-		1		(1	)	(1	)	1		-		-		-
Adjusted EBITDA	12		2		27		23		19		24		30		-
Depreciation & amortization	12		10		11		13		11		9		9		-
Other items	2		(5	)	2		51		1		23		4		-
Operating earnings (loss)	(2	)	(3	)	14		(41	)	7		(8	)	17		-
Interest, foreign exchange & other	10		10		7		14		7		6		6		-
Exchange loss (gain) on long-term debt	(2	)	(6	)	8		(13	)	4		6		11		-
Pre-tax loss	(10	)	(7	)	(1	)	(42	)	(4	)	(20	)	-		-
Income tax expense	6		7		4		5		6		6		4		-
Net loss	(16	)	(14	)	(5	)	(47	)	(10	)	(26	)	(4	)	-

-1-

BUSINESS SEGMENTS

During the December 2012 quarter, the Company reorganized its internal reporting structure, which impacted segment disclosure included in the current period financial statements and MD&A. Prior to the change, the Company had reported the results of the Skookumchuck, BC, Northern Bleached Softwood Kraft (NBSK) pulp mill as part of the Specialty Cellulose and Chemical Pulp segment. Subsequent to the organizational change, the mill has been regrouped with the high-yield pulp mills in a new segment called Paper Pulp. The Specialty Cellulose and Chemical Pulp segment has been renamed Specialty Cellulose Pulp. Comparative prior period segment information has been restated in the interim financial statements to conform to the new presentation. The following summarizes fiscal 2012 quarterly and total year financial results of the two new segments that will be utilized as comparables in fiscal 2013.

	($ millions)
								TOTAL
	Dec 11		Mar 12		Jun 12	Sep 12		2012
Specialty Cellulose Pulp
Sales	123		133		124	127		507
Freight and other deductions	10		9		11	10		40
Cost of sales	84		91		91	86		352
SG&A	4		5		5	6		20
Adjusted EBITDA	25		28		17	25		95
Depreciation and amortization	2		2		3	4		11
Operating earnings	23		26		14	21		84

Paper Pulp
Sales	103		120		144	140		507
Freight and other deductions	20		25		29	31		105
Cost of sales	88		107		106	126		427
SG&A	2		1		3	1		7
Adjusted EBITDA	(7	)	(13	)	6	(18	)	(32	)
Depreciation and amortization	6		5		6	6		23
Other item - impairment of Chetwynd pulp mill	-		-		-	50		50
Operating loss	(13	)	(18	)	-	(74	)	(105	)

-2-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

CONSOLIDATED SUMMARY

SALES
$ millions	March		June		Total		Price		Volume & Mix
	2013		2013		Variance		Variance		Variance
Forest Products	104		110		6		(1	)	7
Specialty Cellulose Pulp	120		120		-		-		-
Paper Pulp	122		106		(16	)	5		(21	)
Paper	87		86		(1	)	-		(1	)
Corporate	2		2		-		-		-
	435		424		(11	)	4		(15	)
Less: Intersegment Sales	(28	)	(25	)	3
Sales	407		399		(8	)

Sales decreased by $8 million as compared to the prior quarter. Currency had a small positive effect on pricing as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior quarter. Forest Products segment sales increased by $6 million due to higher lumber shipments. Specialty Cellulose Pulp segment sales were flat. Paper Pulp segment sales decreased by $16 million due to lower shipments, partially offset by higher prices. Paper segment sales decreased by $1 million due to lower shipments.

ADJUSTED EBITDA
$ millions	March		June		Total		Price		Cost & Volume
	2013		2013		Variance		Variance		Variance
Forest Products	7		7		-		(1	)	1
Specialty Cellulose Pulp	14		19		5		-		5
Paper Pulp	4		3		(1	)	5		(6	)
Paper	5		6		1		-		1
Corporate	(6	)	(5	)	1		-		1
	24		30		6		4		2

Adjusted EBITDA increased by $6 million as compared to the prior quarter. The Forest Products segment adjusted EBITDA did not change. Specialty Cellulose Pulp segment adjusted EBITDA increased by $5 million due to lower costs. Paper Pulp segment adjusted EBITDA declined by $1 million due to higher costs, partially offset by higher prices. Paper segment adjusted EBITDA increased by $1 million as a result of lower costs.

OPERATING EARNINGS (LOSS)
						Adjusted
$ millions	March		June		Total	EBITDA		Depreciation		Other Items
	2013		2013		Variance	Variance		Variance		Variance
Forest Products	5		5		-	-		-		-
Specialty Cellulose Pulp	11		15		4	5		(1	)	-
Paper Pulp	(21	)	(2	)	19	(1	)	-		20
Paper	4		6		2	1		1		-
Corporate	(7	)	(7	)	-	1		-		(1	)
	(8	)	17		25	6		-		19

The Company generated operating earnings of $17 million compared to an operating loss of $8 million in the prior quarter. In addition to the previously noted increase in adjusted EBITDA, other items also provided a positive variance. The prior quarter results included a $22 million impairment charge related to the Skookumchuck, BC, NBSK pulp mill. A more detailed explanation of segment variances is included in the analysis that follows.

-3-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

SEGMENT RESULTS – FOREST PRODUCTS

	March	June
	2013	2013	Variance
Financial ($ millions)
Sales ⁽¹⁾	104	110	6

Freight and other deductions	10	10	-
Lumber export taxes	-	1	(1	)
Cost of sales ⁽¹⁾	84	89	(5	)
SG&A	3	3	-
Adjusted EBITDA	7	7	-
Depreciation and amortization	2	2	-
Operating earnings	5	5	-

Shipments
SPF lumber (mmbf)	171	188	17

Reference Prices
KD #2 & better delivered G.L. (US $ per mbf)	484	436	(48	)
KD stud delivered G.L. (US $ per mbf)	426	438	12

(1) Includes intersegment sales eliminated on consolidation

Market conditions were strong at the beginning of the quarter, but declined in May and June. US $ reference prices for random lumber decreased by US $48 per mbf while stud lumber increased by US $12 per mbf. This is a seasonally stronger period for stud lumber as the impact of the housing construction season is more pronounced on this grade of lumber. Currency was favourable as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior quarter. The net effect decreased sales and adjusted EBITDA by $1 million or $4 per mbf. Lumber shipments were equal to 83% of capacity versus 76% in the prior quarter. Sawmill costs decreased by $2 million. The summer months are seasonally higher productivity and lower cost periods.

During the June 2013 quarter, the Company incurred $340,000 of lumber export taxes, on shipments of lumber to the United States, up from $290,000 in 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 June 2013 quarter, the Company incurred a tax of 0.9% on its lumber shipments, up from 0.8% in the prior quarter.

The Forest Products segment generated operating earnings of $5 million, unchanged from the prior quarter.

-4-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

SEGMENT RESULTS – SPECIALTY CELLULOSE PULP

	March	June
	2013	2013	Variance
Financial ($ millions)
Sales - Pulp	95	93	(2	)
Sales - Chemicals	25	27	2
	120	120	-

Freight and other deductions	9	11	(2	)
Cost of sales	92	85	7
SG&A	5	5	-
Adjusted EBITDA	14	19	5

Depreciation and amortization	3	4	(1	)
Operating earnings	11	15	4

Shipments
Specialty grades (000's tonnes)	47	45	(2	)
Viscose grades (000's tonnes)	15	16	1
	62	61	(1	)

Average prices
Specialty grades (C $ per tonne)	1,708	1,717	9
Viscose grades (C $ per tonne)	941	979	38

Demand for specialty grades was flat while US and euro prices were relatively unchanged quarter-over-quarter. However, with the Canadian dollar weakening by 1.4% versus the US dollar, Canadian dollar equivalent pricing increased by $9 per tonne. While viscose grade pricing improved, this market remains oversupplied and prices remain relatively low. Overall, pricing was favourable, improving adjusted EBITDA by $1 million. Mill manufacturing costs were unchanged quarter-over-quarter. The current quarter cost of sales was reduced by $1 million due to a favourable net realizable value increase on the carrying values of viscose grade finished goods inventories. This is the opposite of the prior quarter when cost of sales had absorbed a charge of $1 million related to the net realizable value of viscose grade inventories. Higher profitability in Chemicals increased adjusted EBITDA by $1 million. Finished goods inventories of pulp were at approximately 41 days of supply at the end of June 2013, unchanged from the end of the prior quarter.

The Specialty Cellulose Pulp segment generated operating earnings of $15 million compared to operating earnings of $11 million in the prior quarter. The previously noted increase in adjusted EBITDA accounted for the higher operating earnings.

-5-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

SEGMENT RESULTS – PAPER PULP

	March		June
	2013		2013		Variance
Financial ($ millions)
Sales ⁽¹⁾	122		106		(16	)

Freight and other deductions	24		20		4
Cost of sales ⁽¹⁾	92		81		11
SG&A	2		2		-
Adjusted EBITDA	4		3		(1	)

Depreciation and amortization	3		3		-
Other item - impairment of Skookumchuck pulp mill	22		-		22
Other item - loss on sale of Skookumchuck pulp mill	-		2		(2	)
Operating loss	(21	)	(2	)	19

Shipments
NBSK pulp (000's tonnes)	75		33		(42	)
High-yield pulp (000's tonnes)	113		125		12
Internal (000's tonnes)	16		16		-
Total	204		174		(30	)

Reference Prices
NBSK - delivered China (US $ per tonne)	678		700		22
BEK - delivered China (US $ per tonne)	677		705		28

(1) Includes intersegment sales eliminated on consolidation

Market conditions for paper pulp remained relatively weak although demand was stable. The benchmark price (delivered China) for NBSK increased by US $22 per tonne while reference prices for bleached eucalyptus kraft (BEK) increased by US $28 per tonne. Currency was also positive as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior quarter. Overall, average paper pulp prices increased by $29 per tonne, improving adjusted EBITDA by $5 million. Paper pulp shipments were equal to 98% of capacity, unchanged from the prior quarter. Manufacturing costs increased by $3 million, primarily for energy at the NBSK mill and chemicals at the two high-yield pulp mills. Adjusted EBITDA was also negatively impacted by $4 million due to a volume variance associated with lower shipments of NBSK pulp. Paper Pulp inventories were at 23 days of supply at the end of June 2013, as compared to 24 days at the end of March 2013.

The Paper Pulp segment generated an operating loss of $2 million compared to an operating loss of $21 million in the prior quarter. The prior quarter results include a $22 million impairment charge related to the Skookumchuck, BC, NBSK pulp mill. The current quarter results include a loss of $2 million related to the sale of the Skookumchuck pulp mill.

-6-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

SEGMENT RESULTS – PAPER

	March	June
	2013	2013	Variance
Financial ($ millions)
Sales	87	86	(1	)

Freight and other deductions	11	13	(2	)
Cost of sales	68	65	3
SG&A	3	2	1
Adjusted EBITDA	5	6	1

Depreciation and amortization	1	-	1
Operating earnings	4	6	2

Shipments
Coated bleached board (000's tonnes)	44	45	1
Newsprint (000's tonnes)	59	55	(4	)
Total	103	100	(3	)

Reference Prices
16 pt. Coated bleached board (US $ per short ton)	1,090	1,123	33
Newsprint - 48.8 gram East Coast
(US $ per tonne)	615	607	(8	)

In terms of markets, coated bleached board improved slightly. The newsprint market weakened due to continued lower North American demand combined with the restart of previously idled capacity. The US $ reference prices for coated bleached board increased by US $33 per short ton while the US $ reference price for newsprint declined by US $8 per tonne. Currency was positive as the Canadian dollar averaged US $0.977, a 1.4% decrease from US $0.991 in the prior quarter. The net effect was a small increase in average coated bleached board price, increasing adjusted EBITDA by $1 million. Coated bleached board shipments were equal to 102% of capacity as compared to 97% in the prior quarter. The shipment to capacity percentage for newsprint was 91%, compared to 99% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter with lower energy costs offset by higher fiber and freight costs.

The Paper segment generated operating earnings of $6 million, compared to operating earnings of $4 million in the prior quarter. The previously noted increase in adjusted EBITDA contributed to the higher operating earnings.

-7-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

SEGMENT RESULTS – CORPORATE

	March	June
	2013	2013
Financial ($ millions)
General and administrative expenses	6	5
Share-based compensation	-	-
Other items:
Custodial - idled facilities	1	2
Operating expenses	7	7

The Company recorded a negligible expense for share-based compensation in the current quarter and in 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.

-8-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

INTEREST, FOREIGN EXCHANGE AND OTHER

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

	$ millions
	March		June
	2013		2013
Interest on debt	10		11
Capitalized interest	(2	)	(2	)
Foreign exchange items	(1	)	(2	)
Employee future benefits	(2	)	(2	)
Bank charges and other	1		1
	6		6

There were no significant interest expense variances quarter-over-quarter. The expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. Capitalized interest relates primarily to the large capital project currently under construction at the Temiscaming, QC, specialty cellulose mill. Foreign exchange items are primarily caused by 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 last two quarters, gains are generated. The credit for employee future benefits results from the anticipated return on plan assets exceeding the amount of obligation accretion.

TRANSLATION OF FOREIGN DEBT

During the June 2013 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 $0.984 to US $0.951.

During the March 2013 quarter, the Company recorded a loss of $6 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.004 to US $0.984.

INCOME TAXES

During the June 2013 quarter, the Company recorded an income tax expense of $4 million on “nil” earnings before income taxes. 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 higher corporate tax rates applicable to the Company’s French operations generated an unfavourable variance of $1 million. The non-deductible portion of the exchange loss on the translation of foreign debt also generated an unfavourable variance of $1 million.

During the March 2013 quarter, the Company recorded an income tax expense of $6 million on a loss before income taxes of $20 million. The income tax expense reflected an $11 million unfavourable variance versus an anticipated income tax recovery of $5 million based on the Company’s effective tax rate of 26.3% . The March 2013 quarter absorbed an $8 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The higher corporate tax rates applicable to the Company’s French operations generated an unfavourable variance of $2 million.

-9-

JUNE 2013 QUARTER VS MARCH 2013 QUARTER

NET LOSS

The Company generated a net loss of $4 million or $0.04 per share for the quarter ended June 29, 2013. This compares to a net loss of $26 million or $0.26 per share for the quarter ended March 30, 2013. 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
	March 30, 2013				June 29, 2013
	$ millions		$ per share		$ millions		$ per share
Net loss as reported - in accordance with IFRS	(26	)	(0.26	)	(4	)	(0.04	)
Specific items (after-tax):
Loss on translation of foreign debt	5		0.05		9		0.09
Impairment - Skookumchuck pulp mill	16		0.16		-		-
Loss on sale of Skookumchuck pulp mill	-		-		1		0.01
Costs for permanently idled facilities	1		0.01		1		0.01
Unrecognized deferred tax assets on above items	7		0.07		2		0.02
Net earnings excluding specific items - not in accordance with IFRS	3		0.03		9		0.09

COMPREHENSIVE EARNINGS

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

	$ millions
	March		June
	2013		2013
Net loss	(26	)	(4	)
Foreign currency translation gain (loss) on foreign operations	(2	)	8
Employee future benefit gain	63		30
Total comprehensive earnings	35		34

Comprehensive items 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 changes in the end of period exchange rates. During the June 2013 quarter, the currency translation of the French operations generated a gain of $8 million. During the March 2013 quarter, the currency translation of the French operations generated a loss of $2 million.

During the June 2013 quarter, the Company recognized a gain of $30 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 4.14% to 4.48%, thereby reducing estimated future obligations by $41 million. This was partially offset by the actual return on plan assets being $11 million below the expected return. During the March 2013 quarter, the Company recognized a gain of $63 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 3.69% to 4.14%, thereby reducing estimated future obligations by $42 million. As well, the actual return on plan assets exceeded the expected return by $21 million.

-10-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

CONSOLIDATED SUMMARY

SALES
$ millions	June		June		Total		Price		Volume & Mix
	2012		2013		Variance		Variance		Variance
Forest Products	86		110		24		11		13
Specialty Cellulose Pulp	124		120		(4	)	2		(6	)
Paper Pulp	144		106		(38	)	5		(43	)
Paper	86		86		-		(3	)	3
Corporate	4		2		(2	)	-		(2	)
	444		424		(20	)	15		(35	)
Less: Intersegment Sales	(29	)	(25	)	4
Sales	415		399		(16	)

Sales decreased by $16 million from the same quarter a year ago. Currency was a positive factor as the Canadian dollar averaged US $0.977, a 1.4% decrease from US $0.991 in the year ago quarter. Forest Products segment sales increased by $24 million as a result of higher shipments and prices. Specialty Cellulose Pulp segment sales decreased by $4 million due to lower shipments. Paper Pulp segment sales declined by $38 million due to lower shipments. Paper segment sales were flat, with higher shipments offset by lower prices.

ADJUSTED EBITDA
$ millions	June		June		Total		Price		Cost & Volume
	2012		2013		Variance		Variance		Variance
Forest Products	(2	)	7		9		11		(2	)
Specialty Cellulose Pulp	17		19		2		2		-
Paper Pulp	6		3		(3	)	5		(8	)
Paper	9		6		(3	)	(3	)	-
Corporate	(3	)	(5	)	(2	)	-		(2	)
	27		30		3		15		(12	)

Adjusted EBITDA increased by $3 million from the prior year quarter. Forest Products segment adjusted EBITDA improved by $9 million from the prior year quarter due to higher prices. Specialty Cellulose Pulp segment adjusted EBITDA increased by $2 million due to higher prices. Paper Pulp segment adjusted EBITDA decreased by $3 million due to higher costs, partially offset by higher prices. Paper segment adjusted EBITDA decreased by $3 million due to lower prices.

OPERATING EARNINGS (LOSS)
							Adjusted
$ millions	June		June		Total		EBITDA		Depreciation		Other Items
	2012		2013		Variance		Variance		Variance		Variance
Forest Products	(4	)	5		9		9		-		-
Specialty Cellulose Pulp	14		15		1		2		(1	)	-
Paper Pulp	-		(2	)	(2	)	(3	)	3		(2	)
Paper	9		6		(3	)	(3	)	-		-
Corporate	(5	)	(7	)	(2	)	(2	)	-		-
	14		17		3		3		2		(2	)

The Company generated operating earnings of $17 million compared to operating earnings of $14 million in the same quarter a year ago. The previously noted increase in adjusted EBITDA led to the increase in operating earnings. The impairment and sale of the Skookumchuck pulp mill reduced depreciation expense by $3 million. The Paper Pulp segment also absorbed a $2 million loss on the sale of the pulp mill in the June 2013 quarter. A more detailed explanation of segment variances is included in the analysis that follows.

-11-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – FOREST PRODUCTS

	June		June
	2012		2013	Variance
Financial ($ millions)
Sales ⁽¹⁾	86		110	24

Freight and other deductions	8		10	(2	)
Lumber export taxes	1		1	-
Cost of sales ⁽¹⁾	76		89	(13	)
SG&A	3		3	-
Adjusted EBITDA	(2	)	7	9

Depreciation and amortization	2		2	-
Operating earnings (loss)	(4	)	5	9

Shipments
SPF lumber (mmbf)	165		188	23

Reference Prices
KD #2 & better delivered G.L. (US $ per mbf)	392		436	44
KD stud delivered G.L. (US $ per mbf)	387		438	51

(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $7 million on sales of $110 million. This compares to negative adjusted EBITDA of $2 million on sales of $86 million in the comparable quarter of the prior year. Higher lumber prices and shipments increased sales by $19 million. Higher shipments of wood chips generated the balance of the increase.

Demand for SPF lumber improved with shipments equal to 83% of capacity, as compared to 72% in the year ago quarter. US $ reference prices for random lumber increased by US $44 per mbf while the reference price for stud lumber was up US $51 per mbf. Currency was also favourable as the Canadian dollar averaged US $0.977, a 1.4% decline from US $0.991 in the prior year quarter. As a result, the average selling price of SPF lumber increased by $59 per mbf, increasing adjusted EBITDA by $11 million. Cost of sales for the sawmills increased by $3 million, primarily for fibre.

During the June 2013 quarter, the Company incurred $340,000 of lumber export taxes on shipments of lumber from its Eastern sawmills to the United States, down from $1,210,000 in the prior year quarter. The effective tax rate was 0.9% versus 5.1% in the year ago quarter. The higher selling prices for SPF lumber led to a lower export tax rate.

The Forest Products segment generated operating earnings of $5 million, as compared to an operating loss of $4 million in the prior year quarter. The previously noted increase in adjusted EBITDA generated the improvement in operating results.

-12-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – SPECIALTY CELLULOSE PULP

	June	June
	2012	2013	Variance
Financial ($ millions)
Sales - Pulp	98	93	(5	)
Sales - Chemicals	26	27	1
	124	120	(4	)

Freight and other deductions	11	11	-
Cost of sales	91	85	6
SG&A	5	5	-
Adjusted EBITDA	17	19	2

Depreciation and amortization	3	4	(1	)
Operating earnings	14	15	1

Shipments
Specialty grades (000's tonnes)	52	45	(7	)
Viscose grades (000's tonnes)	10	16	6
	62	61	(1	)

Average prices
Specialty grades (C $ per tonne)	1,672	1,717	45
Viscose grades (C $ per tonne)	1,114	979	(135	)

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $120 million. This compares to adjusted EBITDA of $17 million on sales of $124 million in the year ago quarter. The $5 million decline in pulp sales was due to lower shipments of specialty grade pulp, partially offset by increased shipments of viscose grade pulp.

Demand for specialty grades was weaker than in the prior year quarter. Despite weaker market conditions, US dollar and euro prices were relatively unchanged. The $45 per tonne improvement in Canadian dollar prices was largely due to currency as the Canadian dollar weakened by 1.4% versus the US dollar and 3.0% versus the euro. However, this increase was offset by a $135 per tonne decrease in viscose grade prices. The 6,000 tonne increase in viscose grade shipments was not due to increased demand, but rather to lower demand for specialty grades. The viscose market remains oversupplied and prices have weakened considerably since 2011. Overall, pricing was unchanged and did not cause a variance in adjusted EBITDA. Mill manufacturing costs decreased by $3 million, primarily for energy and maintenance material at the Tartas mill. Adjusted EBITDA was negatively impacted by $3 million due to a mix variance associated with shipping lower volumes of specialty grade pulp and higher volumes of viscose grade pulp. Higher profitability in Chemicals increased adjusted EBITDA by $1 million.

The Specialty Cellulose Pulp segment generated operating earnings of $15 million compared to operating earnings of $14 million in the comparable quarter of the prior year. The previously noted increase in adjusted EBITDA led to the higher operating earnings.

-13-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – PAPER PULP

	June	June
	2012	2013		Variance
Financial ($ millions)
Sales ⁽¹⁾	144	106		(38	)

Freight and other deductions	29	20		9
Cost of sales ⁽¹⁾	106	81		25
SG&A	3	2		1
Adjusted EBITDA	6	3		(3	)

Depreciation and amortization	6	3		3
Other item - loss on sale of Skookumchuck pulp mill	-	2		(2	)
Operating earnings (loss)	-	(2	)	(2	)

Shipments
NBSK pulp (000's tonnes)	57	33		(24	)
High-yield pulp (000's tonnes)	164	125		(39	)
Internal (000's tonnes)	20	16		(4	)
Total	241	174		(67	)

Reference Prices
NBSK - delivered China (US $ per tonne)	690	700		10
BEK - delivered China (US $ per tonne)	667	705		38

(1) Includes intersegment sales eliminated on consolidation

The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $106 million. This compares to adjusted EBITDA of $6 million on sales of $144 million in the year ago quarter. The $38 million decrease in sales was caused by lower shipments of pulp. The Chetwynd, BC, high-yield pulp mill did not operate during the June 2013 quarter. In the prior year quarter, the mill had shipped 48,500 tonnes and had recorded sales of $28 million. In May 2013, the Company completed the sale of its remaining NBSK mill located in Skookumchuck, BC. During the most recent quarter, the mill generated sales of $23 million and adjusted EBITDA of $3 million. In the prior year quarter, the mill had generated sales of $43 million and adjusted EBITDA of $2 million.

The reference price for NBSK pulp increased by US $10 per tonne. While the reference price for BEK increased by US $38 per tonne, the increase in high-yield pulp prices was a more modest US $17 per tonne. Currency was a positive factor as the Canadian dollar averaged US $0.977, a 1.4% decline from the year ago quarter. Overall, Canadian dollar prices improved by $29 per tonne increasing adjusted EBITDA by $5 million. Paper pulp shipments were equal to 98% of capacity as compared to 90% in the prior year quarter. The prior year percentage includes the capacity of the Chetwynd high-yield pulp mill. Mill level manufacturing costs increased by $1 million. In the prior year quarter, the high-yield pulp mills had benefited from an $8 million reduction to cost of sales related to a positive net realizable value adjustment on the carrying values of finished goods pulp inventories. The current quarter benefited from a favourable net realizable value adjustment of $1 million.

The Paper Pulp segment generated an operating loss of $2 million compared to nil operating earnings in the comparable quarter of the prior year. The current quarter includes a $2 million loss related to the sale of the Skookumchuck pulp mill.

-14-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – PAPER

	June	June
	2012	2013	Variance
Financial ($ millions)
Sales	86	86	-

Freight and other deductions	11	13	(2	)
Cost of sales	63	65	(2	)
SG&A	3	2	1
Adjusted EBITDA	9	6	(3	)

Depreciation and amortization	-	-	-
Operating earnings	9	6	(3	)

Shipments
Coated bleached board (000's tonnes)	43	45	2
Newsprint (000's tonnes)	53	55	2
Total	96	100	4

Reference Prices
16 pt. Coated bleached board (US $ per short ton)	1,130	1,123	(7	)
Newsprint - 48.8 gram East Coast
(US $ per tonne)	640	607	(33	)

The Paper segment generated adjusted EBITDA of $6 million on sales of $86 million. This compares to adjusted EBITDA of $9 million on sales of $86 million in the same quarter a year ago. Higher shipments offset lower selling prices and the total dollar value of sales was unchanged.

In terms of markets, coated bleached board was relatively stable. Newsprint was weaker due to a combination of lower North American demand and the restart of previously idled capacity. The US $ reference price for coated bleached board declined by US $7 per short ton while the reference price for newsprint declined by US $33 per tonne. Currency was favourable as the Canadian dollar declined by 1.4% from US $0.991 to US $0.977. The net effect was that pricing for newsprint declined, reducing adjusted EBITDA by $3 million. Coated bleached board shipments were equal to 102% of capacity as compared to 96% in the year ago quarter. Newsprint shipment to capacity was 91% compared to 87% in the prior year quarter. Costs were unchanged quarter-over-quarter.

The Paper segment generated operating earnings of $6 million, compared to $9 million in the prior year quarter. The previously noted drop in adjusted EBITDA led to the lower operating earnings.

-15-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

SEGMENT RESULTS – CORPORATE

	June		June
	2012		2013
Financial ($ millions)
General and administrative expenses	4		5
Share-based compensation	(1	)	-
Other items:
Custodial - idled facilities	2		2
Operating expenses	5		7

The Company recorded a negligible expense for share-based compensation in the current quarter, compared to a $1 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 for the share-based compensation plan 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.

-16-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

INTEREST, FOREIGN EXCHANGE AND OTHER

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

	$ millions
	June		June
	2012		2013
Interest on debt	10		11
Interest income	(1	)	-
Capitalized interest	-		(2	)
Foreign exchange items	(2	)	(2	)
Employee future benefits	-		(2	)
Bank charges and other	-		1
	7		6

There were no significant interest expense variances quarter-over-quarter. The interest expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. The increase in capitalized interest is related to the Temiscaming, QC, specialty cellulose project. 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 both June quarters, gains are generated. The credit for employee future benefits results from the anticipated return on plan assets exceeding the amount of obligation accretion.

TRANSLATION OF FOREIGN DEBT

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 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. The higher corporate tax rates applicable to the Company’s French operations generated an unfavourable variance of $1 million. The non-deductible portion of the exchange loss on the translation of foreign debt generated an unfavourable variance of $1 million.

-17-

JUNE 2013 QUARTER VS JUNE 2012 QUARTER

NET LOSS

The Company generated a net loss of $4 million or $0.04 per share for the quarter ended June 29, 2013, compared 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				June 29, 2013
	$ millions		$ per share		$ millions		$ per share
Net loss as reported - in accordance with IFRS	(5	)	(0.05	)	(4	)	(0.04	)
Specific items (after-tax):
Loss on translation of foreign debt	7		0.07		9		0.09
Loss on sale of Skookumchuck pulp mill	-		-		1		0.01
Costs for permanently idled facilities	2		0.02		1		0.01
Unrecognized deferred tax asset on above items	1		0.01		2		0.02
Net earnings excluding specific items - not in accordance with IFRS	5		0.05		9		0.09

COMPREHENSIVE EARNINGS (LOSS)

The following table summarizes the impact of items affecting the reported total comprehensive earnings (loss) during the June 2013 quarter and the comparable period a year ago:

	$ millions
	June		June
	2012		2013
Net loss	(5	)	(4	)
Foreign currency translation gain (loss) on foreign operations	(5	)	8
Employee future benefit gain	-		30
Total comprehensive earnings (loss)	(10	)	34

Comprehensive items 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 June 2013 quarter, the currency translation of the French operations generated a gain of $8 million. In the June 2012 quarter, the currency translation of the French operations generated a loss of $4 million. The currency translation of the U.S. operations generated a loss of $1 million.

-18-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

CONSOLIDATED SUMMARY

SALES
$ millions	June		June		Total		Price		Volume & Mix
	2012		2013		Variance		Variance		Variance
Forest Products	324		315		(9	)	44		(53	)
Specialty Cellulose Pulp	380		343		(37	)	(3	)	(34	)
Paper Pulp	367		345		(22	)	1		(23	)
Paper	250		251		1		(11	)	12
Corporate	8		8		-		-		-
	1,329		1,262		(67	)	31		(98	)
Less: Intersegment Sales	(106	)	(80	)	26
Sales	1,223		1,182		(41	)

Sales decreased by $41 million as compared to the same period a year ago. Currency was not a significant factor as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the prior year period. Forest Products segment sales decreased by $9 million as a result of lower shipments, partially offset by higher prices. Specialty Cellulose Pulp segment sales decreased by $37 million due primarily to lower shipments. Paper Pulp segment sales decreased by $22 million due to lower shipments. Paper segment sales increased by $1 million due to higher shipments, partially offset by lower prices.

ADJUSTED EBITDA
$ millions	June		June		Total		Price		Cost & Volume
	2012		2013		Variance		Variance		Variance
Forest Products	(24	)	16		40		44		(4	)
Specialty Cellulose Pulp	70		51		(19	)	(3	)	(16	)
Paper Pulp	(14	)	7		21		1		20
Paper	23		17		(6	)	(11	)	5
Corporate	(14	)	(18	)	(4	)	-		(4	)
	41		73		32		31		1

Adjusted EBITDA increased by $32 million from the prior year nine-month period. Forest Products segment adjusted EBITDA improved by $40 million from the prior year period due to higher prices. Specialty Cellulose Pulp segment adjusted EBITDA decreased by $19 million due to higher costs and lower prices. Paper Pulp segment adjusted EBITDA improved by $21 million due to lower costs. Paper segment adjusted EBITDA decreased by $6 million because of lower prices, partially offset by lower costs.

OPERATING EARNINGS (LOSS)
							Adjusted
$ millions	June		June		Total		EBITDA		Depreciation		Other Items
	2012		2013		Variance		Variance		Variance		Variance
Forest Products	(10	)	10		20		40		2		(22	)
Specialty Cellulose Pulp	63		41		(22	)	(19	)	(3	)	-
Paper Pulp	(31	)	(28	)	3		21		6		(24	)
Paper	22		15		(7	)	(6	)	(1	)	-
Corporate	(35	)	(22	)	13		(4	)	-		17
	9		16		7		32		4		(29	)

The Company generated operating earnings of $16 million compared to operating earnings of $9 million in the same period a year ago. The previously noted increase in adjusted EBITDA was partially offset by a $29 million unfavourable variance in other items. In the prior year period, the Company had sold its two BC sawmills and had recorded a gain of $24 million. This was partially offset by a $16 million charge relating to the impairment of a loan receivable. In the nine-month period ended June 2013, the Paper Pulp segment absorbed a $22 million impairment charge related to the Skookumchuck, BC, NBSK pulp mill and a subsequent $2 million loss was also recorded when the mill was sold in May 2013. A more detailed explanation of segment variances is included in the analysis that follows.

-19-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

SEGMENT RESULTS – FOREST PRODUCTS

	June		June
	2012		2013	Variance
Financial ($ millions)
Sales ⁽¹⁾	324		315	(9	)

Freight and other deductions	32		29	3
Lumber export taxes	6		2	4
Cost of sales ⁽¹⁾	299		259	40
SG&A	11		9	2
Adjusted EBITDA	(24	)	16	40

Depreciation and amortization	8		6	2
Other item - gain on sale of BC sawmills	(24	)	-	(24	)
Other item - loss on sale/closure of flooring operations	2		-	2
Operating earnings (loss)	(10	)	10	20

Shipments
SPF lumber (mmbf) - East	470		550	80
SPF lumber (mmbf) - West	171		-	(171	)
Total	641		550	(91	)

Reference Prices
KD #2 & better delivered G.L. (US $ per mbf)	359		449	90
KD stud delivered G.L. (US $ per mbf)	339		413	74

(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $16 million on sales of $315 million. This compares to negative adjusted EBITDA of $24 million on sales of $324 million in the comparable nine-month period of the prior year. The sale of the Company’s two BC sawmills at the end of the March 2012 quarter had a significant impact on sales. The sawmills had shipped 171 million board feet of lumber in the prior year period and had generated lumber, chip and by-product revenues of $79 million. Sales also decreased by $9 million due to the divestiture of the hardwood flooring operations in November 2011. Higher SPF lumber prices and shipments from the Company’s Eastern sawmills increased sales by $78 million, partially offsetting the previously noted decreases.

Demand for SPF lumber improved with Eastern lumber shipments equal to 81% of capacity, as compared to 69% in the year ago period. US $ reference prices for random lumber increased by US $90 per mbf while the reference price for stud lumber was up US $74 per mbf. Currency was relatively unchanged as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the comparable nine-month period a year ago. The average selling price of SPF lumber increased by $80 per mbf, increasing adjusted EBITDA by $44 million. Cost of manufacturing for the Eastern sawmills increased by $2 million, primarily for fibre.

During the nine-month period ended June 2013, the Company incurred $2 million of lumber export taxes on shipments of lumber from its Eastern sawmills to the United States, down from $3 million in the prior year nine-month period. The effective tax rate was 1.7% versus 5.5% in the year ago period. The prior year period also included $3 million of export taxes for Western sawmill lumber shipments to the United States.

The Forest Products segment generated operating earnings of $10 million, as compared to an operating loss of $10 million in the prior year period. The previously noted improvement in adjusted EBITDA accounted for the improvement in operating results. In the prior year period, the Company sold its two BC sawmills and recorded a gain of $24 million. The Company also sold its Toronto, Ontario, flooring plant and announced the closure of its Huntsville, Ontario, flooring plant. The combined effect was a charge of $2 million.

-20-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

SEGMENT RESULTS – SPECIALTY CELLULOSE PULP

	June	June
	2012	2013	Variance
Financial ($ millions)
Sales - Pulp	306	269	(37	)
Sales - Chemicals	74	74	-
	380	343	(37	)

Freight and other deductions	30	27	3
Cost of sales	266	250	16
SG&A	14	15	(1	)
Adjusted EBITDA	70	51	(19	)

Depreciation and amortization	7	10	(3	)
Operating earnings	63	41	(22	)

Shipments
Specialty grades (000's tonnes)	158	139	(19	)
Viscose grades (000's tonnes)	34	35	1
	192	174	(18	)

Average prices
Specialty grades (C $ per tonne)	1,651	1,693	42
Viscose grades (C $ per tonne)	1,316	967	(349	)

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $51 million on sales of $343 million. This compares to adjusted EBITDA of $70 million on sales of $380 million in the year ago period. The $37 million decline in pulp sales was due to lower shipments of specialty grades as well as lower prices for viscose grades.

Demand for specialty grades was weaker than in the prior year nine-month period even though realized Canadian dollar prices increased by $42 per tonne. However, this increase was more than offset by a $349 per tonne decrease in viscose grade prices. The latter market has weakened considerably since 2011. Overall, pricing was lower and reduced adjusted EBITDA by $7 million. Mill manufacturing costs increased by $6 million, primarily for chemicals and under-absorption of fixed costs as the two mills have produced 6% fewer tonnes in the current nine-month period. Adjusted EBITDA was also negatively impacted by $8 million due to a volume variance associated with lower shipments of specialty grade pulp.

The Specialty Cellulose Pulp segment generated operating earnings of $41 million compared to operating earnings of $63 million in the comparable nine-month period of the prior year. The previously noted decline in adjusted EBITDA led to the lower operating earnings.

-21-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

SEGMENT RESULTS – PAPER PULP

	June		June
	2012		2013		Variance
Financial ($ millions)
Sales ⁽¹⁾	367		345		(22	)

Freight and other deductions	74		67		7
Cost of sales ⁽¹⁾	301		265		36
SG&A	6		6		-
Adjusted EBITDA	(14	)	7		21

Depreciation and amortization	17		11		6
Other item - impairment and sale of Skookumchuck pulp mill	-		24		(24	)
Operating loss	(31	)	(28	)	3

Shipments
NBSK pulp (000's tonnes)	147		164		17
High-yield pulp (000's tonnes)	416		372		(44	)
Internal (000's tonnes)	58		47		(11	)
Total	621		583		(38	)

Reference Prices
NBSK - delivered China (US $ per tonne)	697		680		(17	)
BEK - delivered China (US $ per tonne)	606		670		64

(1) Includes intersegment sales eliminated on consolidation

The Paper Pulp segment generated adjusted EBITDA of $7 million on sales of $345 million. This compares to negative adjusted EBITDA of $14 million on sales of $367 million in the year ago period. The $22 million decrease in sales was caused by lower shipments of high-yield pulp. The Chetwynd, BC, high-yield pulp mill did not operate in the first nine months of fiscal 2013, reducing sales by 130,000 tonnes. This was partially offset by increased shipments from the Company’s two other high-yield pulp mills.

The reference price for NBSK declined by US $17 per tonne. While the reference price for BEK increased by US $64 per tonne, the increase in high-yield pulp prices was a more modest US $15 per tonne. Currency was relatively unchanged as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the comparable nine-month period a year ago. Overall, Canadian dollar prices increased by $2 per tonne increasing adjusted EBITDA by $1 million. Paper pulp shipments were equal to 98% of capacity as compared to 77% in the prior year period. The prior year percentage includes the capacity of the Chetwynd, BC, high-yield pulp mill. Mill level manufacturing costs declined by $13 million, primarily at the Skookumchuck NBSK pulp mill. In the prior year period, the mill had absorbed costs related to 17 days of unplanned downtime due to problems associated with its recovery boiler. Profitability also improved due to the closure of the Chetwynd high-yield pulp mill, which generated negative adjusted EBITDA of $8 million in the year ago period.

The Paper Pulp segment generated an operating loss of $28 million compared to an operating loss of $31 million in the comparable nine-month period of the prior year. The impairment and sale of the Skookumchuck pulp mill was the primary cause of the $6 million decline in depreciation expense. The previously noted improvements in adjusted EBITDA and depreciation expense were partially offset by a $22 million impairment charge related to the Skookumchuck, BC, NBSK, pulp mill and a subsequent $2 million loss recorded when the mill was sold in May 2013.

-22-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

SEGMENT RESULTS – PAPER

	June	June
	2012	2013	Variance
Financial ($ millions)
Sales	250	251	1

Freight and other deductions	33	35	(2	)
Cost of sales	185	191	(6	)
SG&A	9	8	1
Adjusted EBITDA	23	17	(6	)

Depreciation and amortization	1	2	(1	)
Operating earnings	22	15	(7	)

Shipments
Coated bleached board (000's tonnes)	121	128	7
Newsprint (000's tonnes)	160	167	7
Total	281	295	14

Reference Prices
16 pt. Coated bleached board (US $ per short ton)	1,137	1,108	(29	)
Newsprint - 48.8 gram East Coast
(US $ per tonne)	640	621	(19	)

The Paper segment generated adjusted EBITDA of $17 million on sales of $251 million. This compares to adjusted EBITDA of $23 million on sales of $250 million in the same nine-month period a year ago. The $1 million increase in sales was due to higher shipments, offset by lower prices.

In terms of markets, coated bleached board was relatively stable. Newsprint was weaker due to a combination of lower North American demand and the restart of previously idled capacity. The US $ reference price for coated bleached board declined by US $29 per short ton while the reference price for newsprint dropped by US $19 per tonne. Currency was relatively unchanged as the Canadian dollar averaged US $0.992, a 0.3% increase from US $0.989 in the comparable nine-month period a year ago. The combined effect was that overall pricing for both products declined, reducing adjusted EBITDA by $11 million. Coated bleached board shipments were equal to 95% of capacity as compared to 90% in the year ago period. Newsprint shipment to capacity was 93% compared to 89% in the prior year period. Costs provided a partial offset to the lower prices, declining by $5 million over the year ago period. Favourable variances were generated in energy costs, productivity and overhead costs.

The Paper segment generated operating earnings of $15 million compared to operating earnings of $22 million in the prior year period. The previously noted decrease in adjusted EBITDA led to the lower operating earnings.

-23-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

SEGMENT RESULTS – CORPORATE

	June		June
	2012		2013
Financial ($ millions)
General and administrative expenses	14		17
Share-based compensation	-		1
Other items:
Custodial - idled facilities	9		6
Sale of BC office	-		(2	)
Impairment of loan receivable	16		-
Gain on sale of minority equity investment	(4	)	-
Operating expenses	35		22

The Company recorded a $1 million charge for share-based compensation in the current period, compared to a negligible amount in the year ago period. 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 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 $6 million in the most recent nine-month period, compared to $9 million in the year ago period. The current period also includes a gain of $2 million relating to the sale of the Cranbrook, BC, office. The prior year period results include a $16 million charge relating to the impairment of a loan receivable. The nine-month period ended June 2012 also includes a gain of $4 million generated by the sale of a minority equity interest in two dissolving pulp mills.

-24-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

INTEREST, FOREIGN EXCHANGE AND OTHER

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

	$ millions
	June		June
	2012		2013
Interest on debt	27		32
Interest income	(1	)	-
Capitalized interest	(1	)	(6	)
Foreign exchange items	-		(3	)
Employee future benefits	-		(6	)
Bank charges and other	2		2
	27		19

The interest expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. In the prior nine-month period, the amount of outstanding notes was US $255 million for the first five months. The increase in capitalized interest was caused by the Temiscaming specialty cellulose project. 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 most recent nine-month period, gains are generated. The credit for employee future benefits results from the anticipated return on plan assets exceeding the amount of obligation accretion.

TRANSLATION OF FOREIGN DEBT

During the nine-month period ended June 2013, the Company recorded a loss of $21 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar decreased from US $1.017 to US $0.951.

During the nine-month period ended June 2012, the Company did not record a gain or a loss on the translation of its US $ denominated debt as the relative value of the Canadian dollar increased from US $0.971 to US $0.976.

INCOME TAXES

During the nine-month period ended June 2013, the Company recorded an income tax expense of $16 million on a loss before income taxes of $24 million. The income tax expense reflected a $22 million unfavourable variance versus an anticipated income tax recovery of $6 million based on the Company’s effective tax rate of 26.3% . The nine-month period ended June 2013 absorbed a $12 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 higher corporate tax rates applicable to the Company’s French operations generated an unfavourable variance of $5 million.

During the nine-month period ended June 2012, the Company recorded an income tax expense of $17 million on a loss before income taxes of $18 million. The income tax expense reflected a $22 million unfavourable variance versus an anticipated income tax recovery of $5 million based on the Company’s effective tax rate of 26.3% . The nine-month period ended June 2012 absorbed a $16 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The higher corporate tax rates applicable to the Company’s French operations generated an unfavourable variance of $4 million.

-25-

NINE MONTH ENDED JUNE 2013 VS NINE MONTHS ENDED JUNE 2012

NET LOSS

The Company generated a net loss of $40 million or $0.40 per share for the nine-month period ended June 29, 2013, compared to a net loss of $35 million or $0.35 per share for the nine-month period 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.

	Nine months ended				Nine months ended
	June 23, 2012				June 29, 2013
	$ millions		$ per share		$ millions		$ per share
Net loss as reported - in accordance with IFRS	(35	)	(0.35	)	(40	)	(0.40	)
Specific items (after-tax):
Loss on translation of foreign debt	-		-		18		0.18
Impairment of Temlam loan receivable	14		0.14		-		-
Sale of minority equity investment	(4	)	(0.04	)	-		-
Sale/closure of hardwood flooring plants	2		0.02		-		-
Gain on sale of BC sawmills	(18	)	(0.18	)	-		-
Impairment and sale of Skookumchuck pulp mill	-		-		17		0.17
Gain on sale of BC office	-		-		(1	)	(0.01	)
Costs for permanently idled facilities	7		0.07		4		0.04
Unrecognized deferred tax asset (liability) on above items	(2	)	(0.02	)	10		0.10
Net earnings (loss) excluding specific items - not in accordance with IFRS	(36	)	(0.36	)	8		0.08

COMPREHENSIVE EARNINGS (LOSS)

The following table summarizes the impact of items affecting the reported total comprehensive earnings (loss) during the nine-month period ended June 2013 and the comparable period a year ago:

	$ millions
	June		June
	2012		2013
Net loss	(35	)	(40	)
Foreign currency translation gain (loss) on foreign operation	(10	)	12
Employee future benefit gain	-		93
Total comprehensive earnings (loss)	(45	)	65

Comprehensive items 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 nine-month period ended June 2013, the currency translation of the French operations generated a gain of $13 million, partially offset by a loss of $1 million relating to U.S. operations. In the prior year period, the currency translation of the French operations generated a loss of $10 million.

During the nine-month period ended June 2013, the Company recognized a gain of $93 million relating to the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations increased from 3.69% to 4.48%, thereby reducing estimated future obligations by $83 million. As well, the actual return on plan assets for the first nine months of the fiscal year exceeded the expected return by $10 million. There were no employee future benefit gains or losses in the prior year period.

-26-

SELECTED QUARTERLY INFORMATION

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

	$ millions (except as otherwise noted)
	Sept 11		Dec 11		Mar 12		Jun 12		Sept 12		Dec 12		Mar 13		June 13
Sales	421		401		407		415		443		376		407		399
Adjusted EBITDA	19		12		2		27		23		19		24		30
Depreciation and amortization	12		12		10		11		13		11		9		9
Other items	2		2		(5	)	2		51		1		23		4
Operating earnings (loss)	5		(2	)	(3	)	14		(41	)	7		(8	)	17
Net loss	(17	)	(16	)	(14	)	(5	)	(47	)	(10	)	(26	)	(4	)
Basic and fully diluted net loss per share ($)	(0.17	)	(0.16	)	(0.14	)	(0.05	)	(0.47	)	(0.10	)	(0.26	)	(0.04	)
Comprehensive earnings (loss)	(83	)	(21	)	(14	)	(10	)	(86	)	(4	)	35		34

FINANCIAL POSITION

	($ millions)
	Fiscal 2012								Fiscal 2013
	Dec 11		Mar 12		Jun 12		Sept 12 .		Dec 12		Mar 13		Jun 13		Sept 13
Cash flow from operations before working capital changes	2		(16	)	16		11		(1	)	11		16		-
Less:
Additions to property, plant and equipment	23		28		24		45		34		26		30		-
Interest on debt	8		9		10		11		11		10		10		-
Free cash flow (negative)	(29	)	(53	)	(18	)	(45	)	(46	)	(25	)	(24	)	-

Cash Flow – Operations

Cash flow from operations before working capital changes in the first nine months of fiscal 2013 was $26 million, compared to $2 million in the same period a year ago. After allowing for capital expenditures of $90 million and interest on debt of $31 million, free cash flow in the first nine months of fiscal 2013 was negative $95 million compared to negative $100 million in the prior year. In the first nine months of fiscal 2013, non-cash working capital items used $9 million.

Capital Expenditures

During the first nine months of fiscal 2013, capital expenditures totalled $90 million compared to $75 million in the same period a year ago. The Company estimates that annual capital expenditures of $35 million to $40 million are required to adequately maintain its facilities. The higher level of capital expenditures relates to one relatively large capital project. In March 2012, the Company announced a major 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. The total estimated cost of the project is currently $235 million. During the first nine months of fiscal 2013, $54 million was spent on the project, bringing total cumulative project expenditures to $113 million.

-27-

FINANCIAL POSITION

The completion of the boiler portion of the project is scheduled for April 2014 and the start-up of the turbine should occur in September 2014. The Company anticipates that the Temiscaming specialty cellulose project will improve annual adjusted EBITDA by approximately $48 million. The improvement will include approximately $28 million of incremental electricity revenues, $7 million of operating and maintenance cost reduction and $13 million of productivity and margin enhancements associated with the production increase of 15,000 tonnes of specialty pulp per year.

The following table summarizes capital expenditures by segment:

Nine months ended	June	June
$ millions	2012	2013
Forest Products	8	3
Specialty Cellulose Pulp - Cogen project	28	54
Specialty Cellulose Pulp - Other	25	18
Paper Pulp	8	8
Paper	5	6
Corporate	1	1
	75	90

Liquidity

The Company has set an objective of maintaining a minimum liquidity of $135 million to $150 million. At the end of June 2013, the Company had total cash of $94 million plus unused operating lines of $43 million, for total liquidity of $137 million. At September 2012, the date of the last audited financial statements, the Company had net cash of $92 million and unused operating lines of $48 million. In addition, the Company has entered into two secured term loan facilities totalling $105 million to fund a portion of the Temiscaming Cogen project, of which $57 million was undrawn at the end of the June 2013 quarter. The Company is currently negotiating with its two project lenders to increase the amount of financing by $28 million, bringing it to $133 million in total. There remains an amount of $122 million to be spent over the next five quarters to complete the Temiscaming Cogen project. During this period, the Company’s liquidity will likely fall below its stated objective.

Liquidity is being negatively impacted by the significant contributions that are being made to fund defined benefit pension plans. The Province of Quebec has recently announced pension funding relief measures that will apply to calendar 2014 and 2015. The Company is currently attempting to obtain similar funding relief measures for certain Ontario registered plans.

The following table summarizes operating line availability and utilization:

Operating Lines
$ millions	September		December		March		June
	2012		2012		2013		2013
Borrowing base	187		170		196		173
Less: availability reserve	(23	)	(19	)	(22	)	(21	)
Net availability	164		151		174		152

Outstanding letters of credit	(48	)	(48	)	(47	)	(52	)
Amount drawn	(68	)	(69	)	(86	)	(57	)
Unused amount	48		34		41		43

-28-

FINANCIAL POSITION

In March 2011, the Company entered into a five-year $200 million ABL (asset-based loan) facility expiring in March 2016. On March 25, 2013, the Company disclosed that it had reached an agreement with existing ABL lenders to amend and extend the facility. The maturity date was extended by one year and is now set to expire in March 2017. The Company also negotiated a reduction of the aggregate revolving loan commitment from $200 million to $175 million and related adjustments to certain thresholds due to a reduction in the number of mills it operates. 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 $6 million at the end of the June 2013 quarter.

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 2012				Fiscal 2013
	Dec 11	Mar 12	Jun 12	Sept 12	Dec 12	Mar 13	Jun 13	Sept 13
Net debt / total capitalization	34%	37%	40%	45%	50%	55%	52%	-
Adjusted EBITDA / interest on indebtedness (times)	1.5	0.4	2.9	2.2	1.9	2.4	3.0	-

In March 2012, 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 3 million common shares of Tembec at a price of $7 per share. As at the end of June 2013, the Company had drawn $28 million on the facility. The Company is currently in discussions with the lender to increase the facility by $18 million, bringing it to $93 million in total. At time of writing, the Company had obtained a commitment letter from the lender and was actively negotiating an amended loan agreement. While the Company believes it will be successful in securing these additional funds, there can be no assurance that it will ultimately reach a satisfactory agreement with the lender at this time.

In June 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 is scheduled to be advanced in the September 2013 quarter. The Company is currently in discussions with the lender to increase the facility by $10 million, bringing it to $40 million in total. At time of writing, the Company had obtained a commitment letter from the lender and was actively negotiating an amended loan agreement. While the Company believes it will be successful in securing these additional funds, there can be no assurance that it will ultimately reach a satisfactory agreement with the lender at this time.

The Company’s long-term objective is to maintain the net debt to total capitalization ratio at 40% or less. A strong balance sheet provides the Company with the ability to access capital markets at favourable rates. The net debt to total capitalization ratio of the Company was 52% as at June 29, 2013, as compared to 45% at the end of the prior fiscal year. The increase is due primarily to increased debt levels 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.

-29-

FINANCIAL POSITION

Credit Ratings

Moody’s Investors Service (Moody’s) has assigned a B3 rating to the senior secured notes and the same level for the Company’s corporate credit rating. Standard and Poor’s (S&P) has assigned a CCC+ rating to the senior secured notes as well as the Company’s corporate credit rating. Moody’s has a “negative” outlook with respect to its rating. S&P has a “developing” outlook with respect to its rating.

CAPITAL STOCK INFORMATION

As at August 1, 2013, issued and outstanding capital shares consisted of 100,000,000 common shares (100,000,000 as at September 29, 2012). During the December 2012 quarter, the Company granted an option to acquire 3 million common shares of the Company at a price of $7 per share. The option expires on August 30, 2017.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the quarter ended June 29, 2013, 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.

-30-

OUTLOOK

Overall, the June 2013 quarterly results were in line with expectations. The sharp decline in lumber prices was offset by a weaker than forecast Canadian dollar. While the Company had anticipated a price correction in lumber, the US $100 per thousand board feet decline between April and June was larger than expected. The very high prices in March and April led to increased supply at a time when none was required. Pricing has recently stabilized and some modest improvement is expected in the coming quarters, supported by a continued gradual recovery in United States new home construction. Specialty Cellulose Pulp segment results continue to be negatively impacted by a relatively high percentage of viscose grade shipments. While pricing for specialty grades remained stable, demand has been softer than anticipated. We continue to assess the market with our customers and are adjusting our production plans accordingly. We anticipate that it will be one or two quarters before we see an increase in demand for specialty grades. Market conditions for viscose grade pulp remained weak. The latter market is currently under pressure as new capacity is exceeding demand growth. The Company will continue to maintain a relatively modest exposure of 30,000 to 40,000 tonnes per year to the viscose market. The Paper Pulp segment had positive results, but the market remains relatively soft with no clear direction. While we have seen the implementation of small increment price increases, we expect new capacity will cause this market to remain challenging. Paper segment results were unchanged despite declining newsprint prices. Recently restarted newsprint capacity combined with continued declining North American demand have had a predictable effect on prices. The Company continues with its capital expenditure program, with a strong emphasis on its two specialty cellulose mills. The cornerstone of the program is the high-pressure boiler and turbine currently under construction at the Temiscaming, Quebec, site. The project will materially improve the mill’s cost structure and margins. A total of $113 million has been spent on the Temiscaming specialty cellulose project to the end of the June 2013 quarter. During the quarter, the Company closed the sale of the Skookumchuck, BC, NBSK pulp mill for cash proceeds of $97 million. This represents a milestone in the ongoing transformation plan as the Company no longer owns or operates a chemical grade paper pulp facility.

FINANCIAL PERFORMANCE & OTHER DATA

		Fiscal 2012				Fiscal 2013
		Dec 11	Mar 12	Jun 12	Sep 12	Dec 12	Mar 13	Jun 13	Sep 13
Shares outstanding - end of quarter (millions)		100	100	100	100	100	100	100	-
Book value per share ($)		2.12	1.98	1.88	1.02	1.01	1.36	1.70	-
Foreign exchange:
1 C $ = US $	- average	0.977	0.998	0.991	1.003	1.009	0.991	0.977	-
	- period end	0.980	1.001	0.976	1.017	1.004	0.984	0.951	-

1 euro = US $	- average	1.350	1.309	1.286	1.250	1.297	1.319	1.307	-
	- period end	1.304	1.326	1.256	1.284	1.322	1.282	1.302	-

1 euro = C $	- average	1.382	1.312	1.298	1.246	1.286	1.332	1.337	-
	- period end	1.331	1.325	1.287	1.263	1.317	1.302	1.369	-

-31-

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 2012							Fiscal 2013
	Dec 11		Mar 12		Jun 12	Sep 12		Dec 12	Mar 13		Jun 13	Sep 13
Operating earnings (loss)	(2	)	(3	)	14	(41	)	7	(8	)	17	-
Depreciation and amortization	12		10		11	13		11	9		9	-
Other items	2		(5	)	2	51		1	23		4	-
Adjusted EBITDA	12		2		27	23		19	24		30	-

Free cash flow refers to cash provided by operating activities before changes in non-cash working capital balances less interest expense and capital expenditures. 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, restricted cash and cash equivalents.

Total capitalization refers to net debt plus deferred 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 2012								Fiscal 2013
	Dec 11		Mar 12		Jun 12		Sep 12		Dec 12	⁽¹⁾	Mar 13	⁽¹⁾	Jun 13		Sep 13
Long-term debt	269		314		318		323		348		353		365		-
Net unamortized financing costs	13		11		12		13		16		16		17		-
Current portion of long-term debt	18		19		16		16		16		16		16		-
Operating bank loans / Bank indebtedness	48		69		68		68		69		86		57		-
Less: total cash	(86	)	(127	)	(101	)	(92	)	(57	)	(35	)	(94	)	-
Net debt	262		286		313		328		392		436		361		-

Other long-term liabilities and credits	292		282		277		304		292		222		166		-
Shareholders' equity	212		198		188		102		101		136		170		-
Total capitalization	766		766		778		734		785		794		697		-

Net debt to total capitalization ratio	34%		37%		40%		45%		50%		55%		52%		-

⁽¹⁾ Ratio is calculated excluding "held for sale" reclassifications

-32-

EX-99.3 4 exhibit99-3.htm EXHIBIT 99.3 Tembec Inc.: Exhibit 99.3 - Filed by newsfilecorp.com

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 June 29, 2013.

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 1992).

	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 March 31, 2013 and ended on June 29, 2013 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: August 1, 2013

(s) James Lopez

______________________________________
James Lopez
President and Chief Executive Officer

EX-99.4 5 exhibit99-4.htm EXHIBIT 99.4 Tembec Inc.: Exhibit 99.4 - Filed by newsfilecorp.com

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 June 29, 2013.

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 1992).

	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 March 31, 2013 and ended on June 29, 2013 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: August 1, 2013

(s) Michel Dumas

__________________________________
Michel Dumas
Executive Vice President, Finance and Chief
Financial Officer

EX-99.5 6 exhibit99-5.htm EXHIBIT 99.5 Tembec Inc.: Exhibit 99.5 - Filed by newsfilecorp.com

Exhibit 99.5

PRESS RELEASE

TEMBEC REPORTS FINANCIAL RESULTS FOR ITS THIRD QUARTER ENDED JUNE 29, 2013

Montreal, Quebec, August 1, 2013: Consolidated sales for the three-month period ended June 29, 2013, were $399 million, as compared to $415 million in the same quarter a year ago. The Company generated a net loss of $4 million or $0.04 per share in the June 2013 quarter compared to a net loss of $5 million or $0.05 per share in the June 2012 quarter. Operating earnings before depreciation, amortization and other items (adjusted EBITDA) was $30 million for the three-month period ended June 29, 2013, as compared to adjusted EBITDA of $27 million a year ago and adjusted EBITDA of $24 million in the prior quarter.

Business Segment Results

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $120 million for the quarter ended June 29, 2013, compared to adjusted EBITDA of $14 million on sales of $120 million in the prior quarter. Demand for specialty grades was flat while US and euro prices were relatively unchanged quarter-over-quarter. However, with the Canadian dollar weakening by 1.4% versus the US dollar, Canadian dollar equivalent pricing increased by $9 per tonne. While viscose grade pricing improved, this market remains oversupplied and prices remain relatively low. Overall, pricing was favourable, improving adjusted EBITDA by $1 million. Mill manufacturing costs were unchanged quarter-over-quarter. The current quarter cost of sales was reduced by $1 million due to a favourable net realizable value increase on the carrying values of viscose grade finished goods inventories. This is the opposite of the prior quarter when cost of sales had absorbed a charge of $1 million related to the net realizable value of viscose grade inventories. Higher profitability in Chemicals increased adjusted EBITDA by $1 million.

The Forest Products segment generated adjusted EBITDA of $7 million on sales of $110 million for the quarter ended June 29, 2013, compared to adjusted EBITDA of $7 million on sales of $104 million in the prior quarter. Sales increased by $6 million due to higher lumber shipments. Market conditions were strong at the beginning of the quarter, but declined in May and June. US $ reference prices for random lumber decreased by US $48 per mbf while stud lumber increased by US $12 per mbf. This is a seasonally stronger period for stud lumber as the impact of the housing construction season is more pronounced on this grade of lumber. Currency was favourable as the Canadian dollar weakened versus the US dollar. The net effect decreased sales and adjusted EBITDA by $1 million or $4 per mbf. Lumber shipments were equal to 83% of capacity versus 76% in the prior quarter. Sawmill costs decreased by $2 million. The summer months are seasonally higher productivity and lower cost periods.

The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $106 million for the quarter ended June 2013, compared to adjusted EBITDA of $4 million on sales of $122 million in the prior quarter. The $16 million decrease in sales was due to lower shipments of Northern Bleached Softwood Kraft (NBSK) pulp, partially offset by higher shipments of high-yield pulp. In May 2013, the Company completed the sale of its remaining NBSK mill located in Skookumchuck, BC. During the most recent quarter, the mill generated sales of $23 million and adjusted EBITDA of $3 million. In the prior quarter, the mill had generated sales of $50 million and adjusted EBITDA of $6 million. Market conditions for paper pulp remained relatively weak although demand was stable. The benchmark price (delivered China) for NBSK increased by US $22 per tonne while reference prices for bleached eucalyptus kraft (BEK) increased by US $28 per tonne. Currency was also positive as the Canadian dollar weakened versus the US dollar. Overall, average paper pulp prices increased by $29 per tonne, improving adjusted EBITDA by $5 million. Paper pulp shipments were equal to 98% of capacity, unchanged from the prior quarter. Manufacturing costs increased by $3 million, primarily for energy at the NBSK mill and chemicals at the two high-yield pulp mills. Adjusted EBITDA was also negatively impacted by $4 million due to a volume variance associated with lower shipments of NBSK pulp.

The Paper segment generated adjusted EBITDA of $6 million on sales of $86 million for the quarter ended June 2013, compared to adjusted EBITDA of $5 million on sales of $87 million in the prior quarter. Lower newsprint shipments led to the $1 million decrease in sales. In terms of markets, coated bleached board improved slightly. The newsprint market weakened due to continued lower North American demand combined with the restart of previously idled capacity. The US $ reference prices for coated bleached board increased by US $33 per short ton while the US $ reference price for newsprint declined by US $8 per tonne. The weaker Canadian dollar was a positive. The net effect was a small increase in average coated bleached board price, increasing adjusted EBITDA by $1 million. Coated bleached board shipments were equal to 102% of capacity as compared to 97% in the prior quarter. The shipment to capacity percentage for newsprint was 91%, compared to 99% in the prior quarter. Manufacturing costs were relatively unchanged quarter-over-quarter with lower energy costs offset by higher fiber and freight costs.

Outlook

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 3,700 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 June 29, 2013, 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 7 exhibit99-6.htm EXHIBIT 99.6 Tembec Inc.: Exhibit 99.6 - Filed by newsfilecorp.com

Exhibit 99.6

Unaudited supplemental condensed consolidating financial information of

TEMBEC INC.

Periods ended June 29, 2013 and June 23, 2012

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

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 June 29, 2013, September 29, 2012 and June 23, 2012, the statements of comprehensive earnings (loss) and the statements of cash flows for the nine-month periods ended June 29, 2013 and June 23, 2012, 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.

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 third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Balance Sheets
(unaudited)(in millions of Canadian dollars)
													June 29, 2013
		Parent			Subsidiary			Guarantor			Other		Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	-		$	58		$	36	$	-		$	94
Restricted cash		-			-			-			-		-			-
Trade and other receivables		36			324			233			77		(517	)		153
Inventories		-			-			198			40		-			238
Prepaid expenses		-			1			6			1		-			8
		36			325			495			154		(517	)		493

Investments		205			407			-			-		(612	)		-
Property, plant and equipment		-			6			338			118		-			462
Biological assets		-			-			4			-		-			4
Employee future benefits		-			-			-			-		-			-
Other long-term receivables		-			9			-			2		-			11
Deferred tax assets		1			(2	)		-			3		-			2
	$	242		$	745		$	837		$	277	$	(1,129	)	$	972

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	57		$	-	$	-		$	57
Trade, other payables and accrued charges		70			168			411			53		(517	)		185
Interest payable		-			1			1			-		-			2
Income tax payable		-			(1	)		-			6		-			5
Provisions		-			6			-			-		-			6
Current portion of long-term debt		1			-			-			15		-			16
		71			174			469			74		(517	)		271

Long-term debt		1			310			41			21		(8	)		365
Provisions		-			-			12			-		-			12
Employee future benefits		-			112			14			26		-			152
Other long-term liabilities		-			-			2			-		-			2
		72			596			538			121		(525	)		802

Shareholders' equity:
Share capital		567			555			731			40		(1,326	)		567
Retained earnings (deficit)		(400	)		(409	)		(432	)		113		728			(400	)
Accumulated other comprehensive earnings (loss)		3			3			-			3		(6	)		3
		170			149			299			156		(604	)		170
	$	242		$	745		$	837		$	277	$	(1,129	)	$	972

TEMBEC Supplemental Information for third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Balance Sheets (continued)
(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
Restricted cash		-			-			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 third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Balance Sheets (continued)
(unaudited)(in millions of Canadian dollars)
														June 23, 2012
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	-		$	38		$	62		$	-		$	100
Restricted cash		-			-			1			-			-			1
Trade and other receivables		36			282			166			50			(349	)		185
Inventories		-			-			247			25			-			272
Prepaid expenses		-			3			5			2			-			10
		36			285			457			139			(349	)		568

Investments		159			450			-			-			(609	)		-
Property, plant and equipment		-			6			393			99			-			498
Biological assets		-			-			4			-			-			4
Employee future benefits		-			-			-			1			-			1
Other long-term receivables		-			9			1			2			-			12
Deferred tax assets		-			-			(1	)		7			-			6
	$	195		$	750		$	854		$	248		$	(958	)	$	1,089

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	65		$	3		$	-		$	68
Trade, other payables and accrued charges		5			104			397			60			(349	)		217
Interest payable		-			1			-			-			-			1
Income tax payable		-			-			-			2			-			2
Provisions		-			1			1			-			-			2
Current portion of long-term debt		2			-			-			14			-			16
		7			106			463			79			(349	)		306

Long-term debt		-			301			-			23			(6	)		318
Provisions		-			5			10			-			-			15
Employee future benefits		-			171			51			38			-			260
Other long-term liabilities		-			-			2			-			-			2
		7			583			526			140			(355	)		901

Shareholders' equity:
Share capital		564			555			668			40			(1,263	)		564
Retained earnings (deficit)		(368	)		(380	)		(340	)		76			644			(368	)
Accumulated other comprehensive earnings (loss)		(8	)		(8	)		-			(8	)		16			(8	)
		188			167			328			108			(603	)		188
	$	195		$	750		$	854		$	248		$	(958	)	$	1,089

TEMBEC Supplemental Information for third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(unaudited)(in millions of Canadian dollars, unless otherwise noted)
											Nine months ended June 29, 2013
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Sales	$	-		$	2		$	1,009		$	188		$	(17	)	$	1,182
Freight and other deductions		-			-			149			13			(4	)		158
Lumber export taxes		-			-			2			-			-			2
Cost of sales (excluding depreciation and amortization)		-			-			794			111			(13	)		892
Selling, general and administrative		-			6			39			11			-			56
Share-based compensation		-			1			-			-			-			1
Depreciation and amortization		-			-			23			6			-			29
Other items		-			1			26			1			-			28
Operating earnings (loss)		-			(6	)		(24	)		46			-			16

Interest, foreign exchange and other		4			(9	)		11			(3	)		16			19
Exchange loss (gain) on long-term debt		-			21			-			-			-			21
Net finance costs (income)		4			12			11			(3	)		16			40
Earnings (loss) before income taxes and share of results for equity accounting		(4	)		(18	)		(35	)		49			(16	)		(24	)
Income tax expense (recovery)		(1	)		1			-			16			-			16
Share of results for equity accounting		(37	)		(20	)		-			-			57			-
Net earnings (loss)		(40	)		(39	)		(35	)		33			41			(40	)
Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans and other benefit plans		93			93			32			11			(136	)		93
Foreign currency translation differences for foreign operations		12			12			-			12			(24	)		12
Total comprehensive earnings (loss)	$	65		$	66		$	(3	)	$	56		$	(119	)	$	65
Basic and diluted net loss in dollars per share																$	(0.40	)

TEMBEC Supplemental Information for third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Comprehensive Earnings (Loss) (continued)
(unaudited)(in millions of Canadian dollars, unless otherwise noted)
											Nine months ended June 23, 2012
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Sales	$	-		$	1		$	1,029		$	208		$	(15	)	$	1,223
Freight and other deductions		-			-			158			15			(4	)		169
Lumber export taxes		-			-			6			-			-			6
Cost of sales (excluding depreciation and amortization)		-			-			830			134			(11	)		953
Selling, general and administrative		-			4			46			4			-			54
Share-based compensation		-			-			-			-			-			-
Depreciation and amortization		-			-			29			4			-			33
Other items		(1	)		19			(19	)		-			-			(1	)
Operating earnings (loss)		1			(22	)		(21	)		51			-			9
Interest, foreign exchange and other		-			2			25			-			-			27
Exchange loss (gain) on long-term debt		-			-			-			-			-			-
Net finance costs		-			2			25			-			-			27
Earnings (loss) before income taxes and share of results for equity accounting		1			(24	)		(46	)		51			-			(18	)
Income tax expense		-			-			-			17			-			17
Share of results for equity accounting		(36	)		(13	)		-			-			49			-
Net earnings (loss)		(35	)		(37	)		(46	)		34			49			(35	)

Other comprehensive earnings (loss), net of income taxes:
Defined benefit pension plans and other benefit plans		-			-			-			-			-			-
Foreign currency translation differences for foreign operations		(10	)		(10	)		-			(10	)		20			(10	)
Total comprehensive earnings (loss)	$	(45	)	$	(47	)	$	(46	)	$	24		$	69		$	(45	)
Basic and diluted net loss in dollars per share																$	(0.35	)

TEMBEC Supplemental Information for third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Cash Flows
(unaudited)(in millions of Canadian dollars)
											Nine months ended June 29, 2013
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(40	)	$	(39	)	$	(35	)	$	33		$	41		$	(40	)
Adjustments for:
Depreciation and amortization		-			-			23			6			-			29
Net finance costs		4			12			11			(3	)		16			40
Income tax expense (recovery)		(1	)		1			-			16			-			16
Income tax paid		-			-			-			(13	)		-			(13	)
Excess cash contributions over employee future benefits expense		-			(20	)		(4	)		(1	)		-			(25	)
Provisions		-			-			-			-			-			-
Impairment loss		-			-			22			-			-			22
Gain on sale of assets		-			-			-			-			-			-
Share of results for equity accounting		37			20			-			-			(57	)		-
Other		-			(1	)		1			(3	)		-			(3	)
		-			(27	)		18			35			-			26
Change in non-cash working capital:
Trade and other receivables		-			(29	)		(50	)		(10	)		112			23
Inventories		-			-			13			(10	)		-			3
Prepaid expenses		-			-			(1	)		-			-			(1	)
Trade, other payables and accrued charges		33			55			(3	)		(7	)		(112	)		(34	)
		33			26			(41	)		(27	)		-			(9	)
		33			(1	)		(23	)		8			-			17
Cash flows from investing activities:
Disbursements for property, plant and equipment		-			(1	)		(84	)		(8	)		-			(93	)
Proceeds from sale of net assets		-			-			99			-			-			99
Investments in a subsidiary		(31	)		-			-			-			31			-
Interest received		-			36			3			1			(40	)		-
Other		-			2			-			-			-			2
		(31	)		37			18			(7	)		(9	)		8
Cash flow from financing activities:
Change in operating bank loans		-			-			(8	)		(3	)		-			(11	)
Change in restricted cash		-			-			5			-			-			5
Increase in long-term debt		-			-			28			-			-			28
Repayments of long-term debt		-			-			-			(5	)		-			(5	)
Proceeds from issue of share capital		-			-			31			-			(31	)		-
Interest paid		(2	)		(37	)		(23	)		(16	)		40			(38	)
Other		-			-			1			(1	)		-			-
		(2	)		(37	)		34			(25	)		9			(21	)
		-			(1	)		29			(24	)		-			4
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies		-			-			-			3			-			3
Net increase (decrease) in cash and cash equivalents		-			(1	)		29			(21	)		-			7

Cash and cash equivalents, beginning of period		-			1			29			57			-			87
Cash and cash equivalents, end of period	$	-		$	-		$	58		$	36		$	-		$	94

TEMBEC Supplemental Information for third quarter 2013

TEMBEC INC.

SUPPLEMENTAL INFORMATION

June 29, 2013

Supplemental condensed consolidating financial information

Condensed Consolidated Statements of Cash Flows (continued)
(unaudited)(in millions of Canadian dollars)
											Nine months ended June 23, 2012
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(35	)	$	(37	)	$	(46	)	$	34		$	49		$	(35	)
Adjustments for:
Depreciation and amortization		-			-			29			4			-			33
Net finance costs		-			2			25			-			-			27
Income tax expense		-			-			-			17			-			17
Income tax paid		-			-			-			(13	)		-			(13	)
Excess cash contributions over employee future benefits expense		-			(10	)		(10	)		(3	)		-			(23	)
Provisions		-			6			3			-			-			9
Impairment loss		-			16			1			-			-			17
Gain on sale of assets		(1	)		(3	)		(24	)		-			-			(28	)
Share of results of for equity accounting		36			13			-			-			(49	)		-
Other		-			(1	)		(2	)		1			-			(2	)
		-			(14	)		(24	)		40			-			2
Change in non-cash working capital:
Trade and other receivables		-			57			72			(4	)		(146	)		(21	)
Inventories		-			-			(51	)		2			-			(49	)
Prepaid expenses		-			(2	)		-			(2	)		-			(4	)
Trade, other payables and accrued charges		3			(87	)		(65	)		(14	)		146			(17	)
		3			(32	)		(44	)		(18	)		-			(91	)
		3			(46	)		(68	)		22			-			(89	)
Cash flows from investing activities:
Disbursements for property, plant and equipment		-			(2	)		(57	)		(16	)		-			(75	)
Proceeds from sale of net assets		1			3			80			-			-			84
Investment in a subsidiary		-			-			-			-			-			-
Interest received		-			27			2			-			(29	)		-
Other		-			-			5			1			-			6
		1			28			30			(15	)		(29	)		15
Cash flow from financing activities:
Change in operating bank loans		-			-			65			(3	)		-			62
Change in restricted cash		-			-			(1	)		5			-			4
Increase in long-term debt		-			51			-			4			-			55
Repayments of long-term debt		(4	)		-			-			(5	)		-			(9	)
Proceeds from issue of share capital		-			-			-			-			-			-
Interest paid		-			(33	)		(28	)		(1	)		29			(33	)
Other		-			-			-			-			-			-
		(4	)		18			36			-			29			79
		-			-			(2	)		7			-			5
Foreign exchange gain (loss) on cash and cash equivalents held in foreign currencies		-			-			-			(4	)		-			(4	)
Net increase (decrease) in cash and cash equivalents		-			-			(2	)		3			-			1

Cash and cash equivalents, beginning of period		-			-			40			59			-			99
Cash and cash equivalents, end of period	$	-		$	-		$	38		$	62		$	-		$	100

TEMBEC Supplemental Information for third quarter 2013

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