Exhibit 99.2

Management’s Discussion and Analysis
for the quarter ended June 28, 2014

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 28, 2014. The MD&A should be read in conjunction with the unaudited interim consolidated financial statements for the period ended June 28, 2014, and the audited consolidated financial statements and annual MD&A for the fiscal year ended September 28, 2013, 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 to total capitalization, free cash flow and certain other financial measures utilized in the MD&A are non-IFRS financial measures. As they have no standardized meaning prescribed by IFRS, they may not be comparable to similar measures presented by other companies. Non-IFRS financial measures are described in the 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, including under the “risk factors” section of the Company’s most recent Annual Information Form. 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 July 31, 2014, 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 2013								Fiscal 2014
	Dec 12		Mar 13		Jun 13		Sep 13		Dec 13		Mar 14		Jun 14		Sep 14

Sales	376		407		399		352		354		362		404		-
Freight and other deductions	50		54		54		43		44		44		55		-
Lumber export taxes	1		-		1		1		1		(1	)	-		-
Cost of sales	286		310		296		268		278		284		302		-
SG&A	19		19		18		16		17		18		15		-
Share-based compensation	1		-		-		-		1		(1	)	2		-
Adjusted EBITDA	19		24		30		24		13		18		30		-

Depreciation and amortization	11		9		9		11		8		9		9		-
Other items	1		24		3		1		(14	)	6		(13	)	-
Operating earnings (loss)	7		(9	)	18		12		19		3		34		-
Interest, foreign exchange and other	12		10		10		13		9		9		10		-
Exchange loss (gain) on long-term debt	4		6		11		(7	)	12		11		(12	)	-
Pre-tax earnings (loss)	(9	)	(25	)	(3	)	6		(2	)	(17	)	36		-
Income tax expense (recovery)	6		6		4		(8	)	(4	)	11		6		-
Net earnings (loss)	(15	)	(31	)	(7	)	14		2		(28	)	30		-

-1-

IMPACT OF CHANGE IN ACCOUNTING STANDARD

In fiscal 2014, the Company adopted International Accounting Standard (IAS) 19, Employee Benefits. The adoption of the new standard had limited impact on adjusted EBITDA and operating results. The prior year comparative amounts have been restated. The following summarizes the impact on fiscal 2013 quarterly and total year operating results.

	($ millions)
						TOTAL
	Dec 12	Mar 13		Jun 13	Sep 13	2013
Adjusted EBITDA
As reported	19	24		30	25	98
Restated	19	24		30	24	97

Operating earnings (loss)
As reported	7	(8	)	17	13	29
Restated	7	(9	)	18	12	28

A more detailed review of the impact of the new standard is included in Note 2 of the unaudited interim consolidated financial statements.

-2-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

CONSOLIDATED SUMMARY

SALES
$ millions	March		June		Total		Price		Volume & Mix
	2014		2014		Variance		Variance		Variance
Forest Products	112		108		(4	)	(1	)	(3	)
Specialty Cellulose Pulp	128		126		(2	)	(3	)	1
Paper Pulp	62		102		40		(2	)	42
Paper	84		89		5		(1	)	6
Corporate	4		4		-		-		-
	390		429		39		(7	)	46
Less: Intersegment Sales	(28	)	(25	)	3
Sales	362		404		42

Sales increased by $42 million as compared to the prior quarter. Currency had a negative effect on pricing as the Canadian dollar averaged US $0.917, a 1.1% increase from US $0.907 in the prior quarter. Forest Products segment sales decreased by $4 million due to lower shipments and lumber selling prices. Specialty Cellulose Pulp segment sales decreased by $2 million due to lower prices. Paper Pulp segment sales increased by $40 million due to significantly higher shipments. Paper sales increased by $5 million due to higher shipments.

ADJUSTED EBITDA
$ millions	March		June		Total		Price		Cost & Volume
	2014		2014		Variance		Variance		Variance
Forest Products	3		5		2		(1	)	3
Specialty Cellulose Pulp	18		19		1		(3	)	4
Paper Pulp	2		3		1		(2	)	3
Paper	(1	)	8		9		(1	)	10
Corporate	(4	)	(5	)	(1	)	-		(1	)
	18		30		12		(7	)	19

Adjusted EBITDA increased by $12 million as compared to the prior quarter. The Forest Products segment adjusted EBITDA improved by $2 million as a result of lower costs. Specialty Cellulose Pulp segment adjusted EBITDA increased by $1 million due to lower costs, partially offset by lower prices. Paper Pulp segment adjusted EBITDA improved by $1 million due to lower costs, partially offset by lower prices. Paper segment adjusted EBITDA increased by $9 million as a result of lower costs.

OPERATING EARNINGS (LOSS)
					Adjusted
$ millions	March		June	Total	EBITDA		Depreciation		Other Items
	2014		2014	Variance	Variance		Variance		Variance
Forest Products	1		4	3	2		1		-
Specialty Cellulose Pulp	15		15	-	1		(1	)	-
Paper Pulp	(1	)	1	2	1		1		-
Paper	(2	)	7	9	9		-		-
Corporate	(10	)	7	17	(1	)	(1	)	19
	3		34	31	12		-		19

The Company generated operating earnings of $34 million compared to operating earnings of $3 million in the prior quarter. In addition to the previously noted improvement in adjusted EBITDA, the current quarter other items include a gain of $14 million relating to the sale of land. In the prior quarter, the Company had absorbed a $7 million charge on the termination of a defined benefit pension plan. A more detailed explanation of segment variances is included in the analysis that follows.

-3-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

SEGMENT RESULTS – FOREST PRODUCTS

	March		June
	2014		2014	Variance
Financial ($ millions)
Sales ⁽¹⁾	112		108	(4	)

Freight and other deductions	11		11	-
Lumber export taxes	(1	)	-	(1	)
Cost of sales	96		89	7
SG&A	3		3	-
Adjusted EBITDA	3		5	2

Depreciation and amortization	2		1	1

Operating earnings	1		4	3

Shipments

SPF lumber (mmbf)	177		178	1

Benchmark Prices
KD #2 & better delivered G.L. (US $ per mbf)	457		433	(24	)
KD stud delivered G.L. (US $ per mbf)	393		404	11
(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $5 million on sales of $108 million for the quarter ended June 2014, compared to adjusted EBITDA of $3 million on sales of $112 million in the prior quarter. Sales decreased by $4 million due to lower shipments of logs and selling prices.

Lumber shipments were equal to 84% of capacity versus 83% in the prior quarter. During the quarter, the random length lumber reference price declined by US $24 per mbf while the reference price for stud lumber increased by US $11 per mbf. The gap between the two grades narrowed as expected. Currency was unfavourable as the Canadian dollar averaged US $0.917, a 1.1% increase from US $0.907 in the prior quarter. The net effect decreased sales and adjusted EBITDA by $1 million or $6 per mbf. Costs decreased by $4 million. The spring and summer months are also seasonally lower operating cost periods.

During the June 2014 quarter, the Company did not incur a charge related to lumber export taxes as compared to a credit of $1 million 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 prior quarter, an arbitration ruling reduced the export tax payable by Ontario and Quebec producers. The ruling applied retroactively to shipments since October 13, 2013. The reversal of prior period export taxes resulted in the $1 million recovery recognized in the prior quarter. At current price levels, the Company does not incur export taxes on lumber shipped to the U.S.

The Forest Products segment generated operating earnings of $4 million, compared to operating earnings of $1 million in the prior quarter. The increase in adjusted EBITDA led to the improvement in operating results.

-4-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

SEGMENT RESULTS – SPECIALTY CELLULOSE PULP

	March	June
	2014	2014	Variance
Financial ($ millions)
Sales - Pulp	101	93	(8	)
Sales - Chemicals	27	33	6
	128	126	(2	)

Freight and other deductions	11	11	-
Cost of sales	94	91	3
SG&A	5	5	-
Adjusted EBITDA	18	19	1

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

Shipments
Specialty grades (000's tonnes)	49	46	(3	)
Viscose grades (000's tonnes)	14	16	2
	63	62	(1	)

Average prices
Specialty grades (C $ per tonne)	1,802	1,725	(77	)
Viscose grades (C $ per tonne)	924	873	(51	)

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $126 million for the quarter ended June 2014, compared to adjusted EBITDA of $18 million on sales of $128 million in the prior quarter. The pulp sales decrease of $8 million was due to lower prices. The increase in chemical sales was due to a combination of higher prices and shipments.

Demand for specialty grades was flat while US and euro prices were relatively unchanged quarter-over-quarter. The prior quarter sales included a $2 million favourable adjustment for volume penalties paid by customers relating to the calendar 2013 period. Currency was unfavourable during the quarter as the Canadian dollar strengthened by 1.1% versus the US dollar and the euro. Overall, Canadian dollar equivalent pricing for specialty grades declined by $77 per tonne. US dollar prices for viscose grades also declined. Combined with the unfavourable currency effect, prices declined by $51 per tonne. The viscose market remains oversupplied and prices are relatively low. Overall, pricing reduced adjusted EBITDA by $4 million. Shipments were equal to 80% of capacity as compared to 81% in the prior quarter. Costs declined by $3 million due to the reversal of net realizable value write-downs as the Temiscaming mill shipped more viscose grade pulp than it had produced. Higher profitability in the chemicals business increased adjusted EBITDA by a further $2 million. Finished goods inventories of specialty cellulose pulp were at approximately 38 days of supply at the end of June 2014, compared to 34 days at the end of the prior quarter.

The Specialty Cellulose Pulp segment generated operating earnings of $15 million, unchanged from the prior quarter.

-5-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

SEGMENT RESULTS – PAPER PULP

	March		June
	2014		2014	Variance
Financial ($ millions)
Sales ⁽¹⁾	62		102	40

Freight and other deductions	11		21	(10	)
Cost of sales	47		77	(30	)
SG&A	2		1	1
Adjusted EBITDA	2		3	1

Depreciation and amortization	3		2	1
Operating earnings (loss)	(1	)	1	2

Shipments
High-yield pulp (000's tonnes)	85		150	65
Internal (000's tonnes)	14		15	1
Total	99		165	66

Benchmark Prices
BEK - delivered China (US $ per tonne)	637		588	(49	)
(1) Includes intersegment sales eliminated on consolidation

The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $102 million for the quarter ended June 2014, compared to adjusted EBITDA of $2 million on sales of $62 million in the prior quarter. The $40 million increase in sales was caused by higher shipments.

Market conditions for paper pulp remained relatively weak although demand was stable. Pulp shipments were equal to 117% of capacity as compared to 70% in the prior quarter. Export shipments in the prior quarter were negatively impacted by winter storms that led to delays and congestion at several East Coast ports normally utilized by the Company. The shortfall in shipments was made up in the June 2014 quarter. The benchmark price (delivered China) for bleached eucalyptus kraft (BEK) decreased by US $49 per tonne. However, this decline did not impact US $ high-yield pulp prices. Currency was unfavourable as the Canadian dollar averaged US $0.917, a 1.1% increase from US $0.907 in the prior quarter. Average selling prices declined by $12 per tonne, reducing adjusted EBITDA by $2 million. Manufacturing costs decreased by $3 million, primarily due to lower fibre costs. Paper Pulp inventories were at 28 days of supply at the end of June 2014, as compared to 48 days at the end of March 2014.

The Paper Pulp segment generated operating earnings of $1 million, compared to an operating loss of $1 million in the prior quarter.

-6-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

SEGMENT RESULTS – PAPER

	March		June
	2014		2014	Variance
Financial ($ millions)
Sales	84		89	5

Freight and other deductions	11		12	(1	)
Cost of sales	71		66	5
SG&A	3		3	-
Adjusted EBITDA	(1	)	8	9

Depreciation and amortization	1		1	-
Operating earnings (loss)	(2	)	7	9

Shipments
Coated bleached board (000's tonnes)	42		43	1
Newsprint (000's tonnes)	49		54	5
Total	91		97	6

Benchmark Prices
16 pt. Coated bleached board (US $ per short ton)	1,163		1,195	32
Newsprint - 48.8 gram East Coast (US $ per tonne)	605		605	-

The Paper segment generated adjusted EBITDA of $8 million on sales of $89 million for the quarter ended June 2014, compared to negative adjusted EBITDA of $1 million on sales of $84 million in the prior quarter. Higher shipments led to the $5 million increase in sales.

The coated bleached board market improved slightly. The shipment to capacity ratio was 96% compared to 94% in the prior quarter. The US $ benchmark price for coated bleached board increased by US $32 per short ton. Currency was negative as the Canadian dollar averaged US $0.917, a 1.1% increase from US $0.907 in the prior quarter. Overall, average selling prices for coated bleached board were unchanged quarter-over-quarter. Bleached board costs increased by $1 million, primarily for freight. The newsprint market remained weak with continued decreases in North American demand. The shipment to capacity ratio was 89% compared to 81% in the prior quarter. The US $ benchmark price for newsprint was unchanged at US $605 per tonne. The stronger Canadian dollar resulted in a $7 per tonne decline in newsprint realizations. Manufacturing costs at the Kapuskasing newsprint mill decreased by $10 million, primarily for energy. The prior quarter’s costs had been negatively affected by the abnormally cold weather that led to a shortage of natural gas, which in turn caused significant increases to the cost of purchased electricity in the Province of Ontario. The newsprint mill also took six days of unplanned downtime in the prior quarter to mitigate the impact of the higher electricity rates.

The Paper segment generated operating earnings of $7 million, compared to an operating loss of $2 million in the prior quarter. The previously noted increase in adjusted EBITDA led to the increase in operating earnings.

-7-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

SEGMENT RESULTS – CORPORATE

	March		June
	2014		2014
Financial ($ millions)
General and administrative expenses	5		3
Share-based compensation	(1	)	2
Depreciation and amortization	-		1
Other items:
Custodial - idled facilities	-		1
Gain on sale of BC lands	-		(14	)
Gain on sale of Chetwynd pulp mill	(1	)	-
Loss on termination of BC defined benefit pension plan	7		-
Operating loss (earnings)	10		(7	)

The Company recorded a $2 million charge for share-based compensation in the current quarter as compared to a $1 million credit 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.

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

In September 2013, the Company launched its BC Land Sales Initiative. The Company has set an objective of realizing up to $70 million in land sales by December 2014. During the June 2014 quarter, the Company recorded three land sales transactions for total proceeds of $16 million and recorded a gain of $14 million. As at the end of June 2014, the Company had generated total proceeds of $39 million from the BC Land Sales Initiative. The remaining BC lands have been classified as assets held for sale.

In March 2014, the Company completed the sale of the Chetwynd, British-Columbia (BC), high-yield pulp mill for a nominal amount. The sale generated a $1 million gain as the buyer assumed certain liabilities associated with the facility. The Company also terminated its BC defined benefit pension plan and recorded a charge of $7 million. The Company entered into an agreement with an insurance company to settle a $55 million pension obligation for an amount of $62 million, which was equivalent to the amount of plan assets held in trust at the time of the settlement.

-8-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

INTEREST, FOREIGN EXCHANGE AND OTHER

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

	$ millions
	March		June
	2014		2014
Interest on debt	12		13
Capitalized interest	(3	)	(5	)
Foreign exchange items	(1	)	-
Employee future benefits	1		1
Bank charges and other	-		1
	9		10

The interest 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. The charge for employee future benefits relates to interest accretion on net unfunded obligations.

TRANSLATION OF FOREIGN DEBT

During the June 2014 quarter, the Company recorded a gain of $12 million on the translation of its US $ denominated debt as the relative value of the Canadian dollar increased from US $0.904 to US $0.938.

During the March 2014 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 $0.934 to US $0.904.

INCOME TAXES

The following table reconciles the anticipated income tax expense/recovery based on the statutory rate to the actual income tax expense/recovery:

	$ millions
	March		June
	2014		2014
Earnings (loss) before income taxes	(17	)	36
Anticipated income tax expense (recovery)	(4	)	9

Increase (decrease):
Difference in statutory rates	1		2
Recognition of previously unrecognized tax asset	-		(3	)
Unrecognized tax asset arising from current period losses	12		-
Permanent differences and other tax adjustments	2		(2	)
Income tax expense	11		6

-9-

JUNE 2014 QUARTER VS MARCH 2014 QUARTER

During the June 2014 quarter, the Company recorded an income tax expense of $6 million on earnings before income taxes of $36 million. The income tax expense reflected a $3 million favourable variance versus an anticipated income tax expense of $9 million based on the Company’s effective tax rate of 26.2% . The difference in statutory income tax rates increased the income tax expense by $2 million. This was caused by the higher corporate tax rate applicable to the Company’s French operations. During the June 2014 quarter, the income tax expense was decreased by $3 million as the result of the recognition of previously unrecognized tax assets relating to the Canadian operations. The Company currently has a significant balance of unrecognized tax assets relating to its Canadian operations since it has not been determined that the future realization of these assets is probable. Permanent differences and other tax adjustments decreased the income tax expense by $2 million.

During the March 2014 quarter, the Company recorded an income tax expense of $11 million on a loss before income taxes of $17 million. The income tax expense reflected a $15 million unfavourable variance versus an anticipated income tax recovery of $4 million based on the Company’s effective tax rate of 26.2% . The difference in statutory income tax rates increased the income tax expense by $1 million. This was caused by the higher corporate tax rate applicable to the Company’s French operations. During the March 2014 quarter, the income tax expense was increased by $12 million as the result of the non-recognition of tax assets relating to the Canadian operations based on the financial results for the current quarter. The Company currently has a significant balance of unrecognized tax assets relating to its Canadian operations since it has not been determined that the future realization of these assets is probable. Permanent differences and other tax adjustments increased the income tax expense by $2 million.

NET EARNINGS (LOSS)

The Company generated net earnings of $30 million or $0.30 per share for the quarter ended June 28, 2014. This compares to a net loss of $28 million or $0.28 per share for the quarter ended March 29, 2014.

COMPREHENSIVE EARNINGS (LOSS)

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

	$ millions
	March		June
	2014		2014
Net earnings (loss)	(28	)	30
Employee future benefit loss	(20	)	(2	)
Income tax recovery	5		1
Foreign currency translation gain (loss) on foreign operations	7		(9	)
Total comprehensive earnings (loss)	(36	)	20

During the June 2014 quarter, the Company recognized a loss of $2 million relating to the increase of the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations decreased from 4.34% to 4.16%, thereby increasing estimated future obligations by $20 million. The adoption of revised mortality projections further increased the estimated present value of future obligations by $2 million. The return on plan assets exceeded the expected return, providing a partial offset of $20 million to the above items.

During the March 2014 quarter, the Company recognized a loss of $20 million relating to the increase of the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations decreased from 4.70% to 4.34%, thereby increasing estimated future obligations by $38 million. The adoption of revised mortality projections further increased the estimated present value of future obligations by $14 million. The return on plan assets exceeded the expected return, providing a partial offset of $32 million to the above items.

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 2014 quarter, the currency translation of the French operations generated a loss of $9 million. During the March 2014 quarter, the currency translation of the French operations generated a gain of $7 million.

-10-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

CONSOLIDATED SUMMARY

SALES
$ millions	June		June		Total		Price	Volume & Mix
	2013		2014		Variance		Variance	Variance
Forest Products	110		108		(2	)	2	(4	)
Specialty Cellulose Pulp	120		126		6		4	2
Paper Pulp	106		102		(4	)	5	(9	)
Paper	86		89		3		6	(3	)
Corporate	2		4		2		-	2
	424		429		5		17	(12	)
Less: Intersegment Sales	(25	)	(25	)	-
Sales	399		404		5

Sales increased by $5 million from the same quarter a year ago. Currency was a positive factor as the Canadian dollar averaged US $0.917, a 6.1% decrease from US $0.977 in the year ago quarter. Forest Products segment sales decreased by $2 million as a result of lower shipments, partially offset by higher prices. Specialty Cellulose Pulp segment sales increased by $6 million due to higher prices and shipments. Paper Pulp segment sales decreased by $4 million due to lower shipments, partially offset by higher prices. Paper segment sales increased by $3 million due to higher prices, partially offset by lower shipments.

ADJUSTED EBITDA
$ millions	June		June		Total		Price	Cost & Volume
	2013		2014		Variance		Variance	Variance
Forest Products	7		5		(2	)	2	(4	)
Specialty Cellulose Pulp	19		19		-		4	(4	)
Paper Pulp	3		3		-		5	(5	)
Paper	6		8		2		6	(4	)
Corporate	(5	)	(5	)	-		-	-
	30		30		-		17	(17	)

Adjusted EBITDA was unchanged from the prior year quarter. Forest Products segment adjusted EBITDA declined by $2 million from the prior year quarter due to higher costs, partially offset by higher selling prices. Specialty Cellulose Pulp segment adjusted EBITDA was unchanged with higher prices offsetting higher costs. Paper Pulp segment adjusted EBITDA was also unchanged as higher prices offset higher costs. Paper segment adjusted EBITDA increased by $2 million due to higher prices, partially offset by higher costs.

OPERATING EARNINGS (LOSS)
						Adjusted
$ millions	June		June	Total		EBITDA		Depreciation		Other Items
	2013		2014	Variance		Variance		Variance		Variance
Forest Products	5		4	(1	)	(2	)	1		-
Specialty Cellulose Pulp	15		15	-		-		-		-
Paper Pulp	(1	)	1	2		-		1		1
Paper	6		7	1		2		(1	)	-
Corporate	(7	)	7	14		-		(1	)	15
	18		34	16		-		-		16

The Company generated operating earnings of $34 million compared to operating earnings of $18 million in the same quarter a year ago. The improvement in operating results is due to a favourable variance in other items. The current quarter other items include a gain of $14 million relating to the sale of land.

-11-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

SEGMENT RESULTS – FOREST PRODUCTS

	June	June
	2013	2014	Variance
Financial ($ millions)
Sales ⁽¹⁾	110	108	(2	)

Freight and other deductions	10	11	(1	)
Lumber export taxes	1	-	1
Cost of sales	89	89	-
SG&A	3	3	-
Adjusted EBITDA	7	5	(2	)

Depreciation and amortization	2	1	1
Operating earnings	5	4	(1	)

Shipments
SPF lumber (mmbf)	188	178	(10	)

Benchmark Prices
KD #2 & better delivered G.L. (US $ per mbf)	436	433	(3	)
KD stud delivered G.L. (US $ per mbf)	438	404	(34	)
(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $5 million on sales of $108 million. This compares to adjusted EBITDA of $7 million on sales of $110 million in the comparable quarter of the prior year. Lower shipments, partially offset by higher prices, led to the $2 million decrease in sales.

Demand for SPF lumber was stable with shipments equal to 84% of capacity, as compared to 83% in the year ago quarter. US $ benchmark prices for random lumber decreased by US $3 per mbf while the benchmark price for stud lumber was down US $34 per mbf. Currency more than offset the decline in US $ prices as the Canadian dollar averaged US $0.917, a 6.1% decline from US $0.977 in the prior year quarter. As a result, the average selling price of SPF lumber increased by $11 per mbf, increasing adjusted EBITDA by $2 million. Costs increased by $4 million. Fibre costs accounted for $3 million of the increase.

During the June 2014 quarter, the Company did not incur a charge related to lumber export taxes as compared to a charge of $1 million in the prior year quarter. At current price levels, the Company does not incur export taxes on lumber shipped to the U.S.

The Forest Products segment generated operating earnings of $4 million, as compared to operating earnings of $5 million in the prior year quarter. The previously noted decrease in adjusted EBITDA led to the decline in operating results.

-12-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

SEGMENT RESULTS – SPECIALTY CELLULOSE PULP

	June	June
	2013	2014	Variance
Financial ($ millions)
Sales - Pulp	93	93	-
Sales - Chemicals	27	33	6
	120	126	6

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

Depreciation and amortization	4	4	-
Operating earnings	15	15	-

Shipments
Specialty grades (000's tonnes)	45	46	1
Viscose grades (000's tonnes)	16	16	-
	61	62	1

Average prices
Specialty grades (C $ per tonne)	1,717	1,725	8
Viscose grades (C $ per tonne)	979	873	(106	)

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $19 million on sales of $126 million. This compares to adjusted EBITDA of $19 million on sales of $120 million in the year ago quarter. The $6 million increase in chemical sales was due to a combination of higher prices and shipments.

Demand for specialty grades was comparable with the prior year quarter, while US $ and euro prices were lower. The $8 per tonne improvement in Canadian dollar prices was largely due to currency as the Canadian dollar weakened by 6.1% versus the US dollar and 10.6% versus the euro. The significant decline in viscose grade US $ prices was also partially offset by the weaker Canadian dollar. The viscose market remains oversupplied and prices are relatively low. Overall, pulp pricing declined, decreasing adjusted EBITDA by $1 million. Shipments were equal to 80% of capacity as compared to 79% in the prior year quarter. Cost of sales were relatively unchanged quarter-over-quarter. Higher profitability in the chemicals business increased adjusted EBITDA by $2 million.

The Specialty Cellulose Pulp segment generated operating earnings of $15 million, unchanged from the prior year quarter.

-13-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

SEGMENT RESULTS – PAPER PULP

	June		June
	2013		2014	Variance
Financial ($ millions)
Sales ⁽¹⁾	106		102	(4	)

Freight and other deductions	20		21	(1	)
Cost of sales	81		77	4
SG&A	2		1	1
Adjusted EBITDA	3		3	-

Depreciation and amortization	3		2	1
Other item - loss on sale of Skookumchuck pulp mill	1		-	1
Operating earnings (loss)	(1	)	1	2

Shipments
NBSK pulp (000's tonnes)	33		-	(33	)
High-yield pulp (000's tonnes)	125		150	25
Internal (000's tonnes)	16		15	(1	)
Total	174		165	(9	)

Benchmark Prices
BEK - delivered China (US $ per tonne)	705		588	(117	)
(1) Includes intersegment sales eliminated on consolidation

The Paper Pulp segment generated adjusted EBITDA of $3 million on sales of $102 million. This compares to adjusted EBITDA of $3 million on sales of $106 million in the year ago quarter. The $4 million decrease in sales was caused by lower shipments. In May 2013, the Company completed the sale of its remaining NBSK pulp mill located in Skookumchuck, BC. During the prior year quarter, the pulp mill had shipped 32,800 tonnes and had recorded sales of $23 million. Higher shipments and prices for high-yield pulp offset most of the previously noted NBSK pulp reduction.

Market conditions for paper pulp were similar to those of the year ago quarter. Pulp shipments were equal to 117% of capacity as compared to 98% in the year ago quarter. Export shipments in the March 2014 quarter were negatively impacted by winter storms that led to delays and congestion at several East Coast ports normally utilized by the Company. The shortfall was made up in the June 2014 quarter. The benchmark price for BEK decreased by US $117 per tonne. However, this decline did not affect US $ high-yield pulp prices, which were relatively unchanged year-over-year. Currency was a positive factor as the Canadian dollar averaged US $0.917, a 6.1% decline from the year ago quarter. As a result, Canadian dollar prices for high-yield pulp improved by $30 per tonne increasing adjusted EBITDA by $5 million. Freight costs increased by $2 million as the previously noted weather issues led to alternate shipping and logistics arrangements. The sale of the Skookumchuck NBSK pulp mill impacted comparative operating results. In the prior year quarter, the pulp mill had generated adjusted EBITDA of $3 million.

The Paper Pulp segment generated operating earnings of $1 million compared to an operating loss of $1 million in the comparable quarter of the prior year.

-14-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

SEGMENT RESULTS – PAPER

	June	June
	2013	2014	Variance
Financial ($ millions)
Sales	86	89	3

Freight and other deductions	13	12	1
Cost of sales	65	66	(1	)
SG&A	2	3	(1	)
Adjusted EBITDA	6	8	2

Depreciation and amortization	-	1	(1	)
Operating earnings	6	7	1

Shipments
Coated bleached board (000's tonnes)	45	43	(2	)
Newsprint (000's tonnes)	55	54	(1	)
Total	100	97	(3	)

Benchmark Prices
16 pt. Coated bleached board (US $ per short ton)	1,123	1,195	72
Newsprint - 48.8 gram East Coast (US $ per tonne)	607	605	(2	)

The Paper segment generated adjusted EBITDA of $8 million on sales of $89 million. This compares to adjusted EBITDA of $6 million on sales of $86 million in the same quarter a year ago. The $3 million increase in sales was due to higher prices for coated bleached board, partially offset by lower shipments.

The coated bleached board market improved year-over-year. The shipments to capacity ratio was 96% compared to 102% in the prior year quarter. The US $ benchmark price for coated bleached board increased by US $72 per short ton. Currency was also a positive as the Canadian dollar averaged US $0.917, a 6.1% decrease from US $0.977 in the year ago quarter. Overall, average selling prices for coated bleached board improved by $116 per tonne, increasing adjusted EBITDA by $5 million. Costs increased by $2 million, primarily for purchased fibre. The newsprint market remained weak with lower North American demand. The shipment to capacity ratio was 89% compared to 91% in the prior year quarter. The US $ benchmark price declined by US $2 per tonne. The Company’s average US $ price realizations declined by US $21 per tonne. The weaker Canadian dollar more than offset this decrease and newsprint prices increased by $19 per tonne over the prior year quarter, increasing adjusted EBITDA by $1 million. Manufacturing costs at the newsprint mill increased by $2 million, primarily for energy. In the prior year period, the mill had benefited from load shedding initiatives that had reduced the cost of purchased electricity.

The Paper segment generated operating earnings of $7 million, compared to operating earnings of $6 million in the prior year quarter. The previously noted increase in adjusted EBITDA led to the improvement in operating results.

-15-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

SEGMENT RESULTS – CORPORATE

	June	June
	2013	2014
Financial ($ millions)
General and administrative expenses	5	3
Share-based compensation	-	2
Depreciation and amortization	-	1
Other items:
Custodial - idled facilities	2	1
Gain on sale of BC lands	-	(14	)
Operating loss (earnings)	7	(7	)

The Company recorded a $2 million charge for share-based compensation in the most recent quarter compared to a negligible expense in the prior year 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 change 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 $1 million in the most recent quarter compared to $2 million in the comparable period a year ago.

-16-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

INTEREST, FOREIGN EXCHANGE AND OTHER

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

	$ millions
	June		June
	2013		2014
Interest on debt	11		13
Capitalized interest	(2	)	(5	)
Foreign exchange items	(2	)	-
Employee future benefits	2		1
Bank charges and other	1		1
	10		10

The interest expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. The $2 million increase in interest expense is due to new project debt taken on to fund the Temiscaming, QC, specialty cellulose project, which had reached $123 million at the end of the June 2014 quarter. The increase in capitalized interest is also related to the Temiscaming, QC, specialty cellulose project. Foreign exchange items are primarily caused by gains or losses on the translation of US $ net monetary assets. The charge for employee future benefits relates to interest accretion on net unfunded obligations.

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.

INCOME TAXES

The following table reconciles the anticipated income tax expense/recovery based on the statutory rate to the actual income tax expense/recovery:

	$ millions
	June		June
	2013		2014

Earnings (loss) before income taxes	(3	)	36

Anticipated income tax expense (recovery)	(1	)	9

Increase:
Difference in statutory rates	-		2
Recognition of previously unrecognized tax assets	-		(3	)
Unrecognized tax asset arising from current period losses	1		-
Permanent differences and other tax adjustments	4		(2	)

Income tax expense	4		6

-17-

JUNE 2014 QUARTER VS JUNE 2013 QUARTER

During the June 2013 quarter, the Company recorded an income tax expense of $4 million on a loss before income taxes of $3 million. The income tax expense reflected a $5 million unfavourable variance versus an anticipated income tax recovery of $1 million based on the Company’s effective tax rate of 26.3% . The June 2013 quarter absorbed a $1 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. Permanent differences and other tax adjustments increased the income tax expense by $4 million.

NET EARNINGS (LOSS)

The Company generated net earnings of $30 million or $0.30 per share for the quarter ended June 28, 2014, compared to a net loss of $7 million or $0.07 per share for the quarter ended June 29, 2013.

COMPREHENSIVE EARNINGS

The following table summarizes the impact of items affecting the reported total comprehensive earnings during the June 2014 quarter and the comparable quarter a year ago:

	$ millions
	June		June
	2013		2014
Net earnings (loss)	(7	)	30
Employee future benefit gain (loss)	34		(2	)
Income tax recovery	-		1
Foreign currency translation gain (loss) on foreign operations	8		(9	)
Total comprehensive earnings	35		20

During the June 2014 quarter, the Company recognized a loss of $2 million relating to the increase of the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations decreased from 4.34% to 4.16%, thereby increasing estimated future obligation by $20 million. The adoption of revised mortality projections further increased estimated present value of future obligations by $2 million. The return on plan assets exceeded the expected return by $20 million, which provided a partial offset to the above item.

During the June 2013 quarter, the Company recognized a gain of $34 million relating to the reduction of 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 obligation by $41 million. This was partially offset by the actual return on plan assets being $7 million below the expected return.

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 2014 quarter, the currency translation of the French operations generated a loss of $9 million. In the June 2013 quarter, the currency translation of the French operations generated a gain of $8 million.

-18-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

CONSOLIDATED SUMMARY

SALES
$ millions	June		June		Total		Price	Volume & Mix
	2013		2014		Variance		Variance	Variance
Forest Products	315		319		4		10	(6	)
Specialty Cellulose Pulp	343		380		37		18	19
Paper Pulp	345		237		(108	)	20	(128	)
Paper	251		253		2		13	(11	)
Corporate	8		11		3		-	3
	1,262		1,200		(62	)	61	(123	)
Less: Intersegment Sales	(80	)	(80	)	-
Sales	1,182		1,120		(62	)

Sales decreased by $62 million from the same period a year ago. Currency was a positive factor as the Canadian dollar averaged US $0.925, a 6.8% decrease from US $0.992 in the year ago period. Forest Products segment sales increased by $4 million as a result of higher selling prices, partially offset by lower shipments. Specialty Cellulose Pulp segment sales increased by $37 million due to higher shipments and prices. Paper Pulp segment sales declined by $108 million due to lower shipments, partially offset by higher prices. Paper segment sales were relatively unchanged as higher prices offset lower shipments.

ADJUSTED EBITDA
$ millions	June		June		Total		Price	Cost & Volume
	2013		2014		Variance		Variance	Variance
Forest Products	16		6		(10	)	10	(20	)
Specialty Cellulose Pulp	51		51		-		18	(18	)
Paper Pulp	7		6		(1	)	20	(21	)
Paper	17		14		(3	)	13	(16	)
Corporate	(18	)	(16	)	2		-	2
	73		61		(12	)	61	(73	)

Adjusted EBITDA declined by $12 million from the prior year period. Forest Products segment adjusted EBITDA declined by $10 million due to higher costs, partially offset by higher selling prices. Specialty Cellulose Pulp segment adjusted EBITDA was unchanged, with higher prices offsetting higher costs. Paper Pulp segment adjusted EBITDA declined by $1 million as higher costs were offset by higher prices. Paper segment adjusted EBITDA decreased by $3 million due to higher costs, largely offset by higher prices.

OPERATING EARNINGS (LOSS)
							Adjusted
$ millions	June		June		Total		EBITDA		Depreciation		Other Items
	2013		2014		Variance		Variance		Variance		Variance
Forest Products	10		2		(8	)	(10	)	2		-
Specialty Cellulose Pulp	41		40		(1	)	-		(1	)	-
Paper Pulp	(27	)	(1	)	26		(1	)	4		23
Paper	15		11		(4	)	(3	)	(1	)	-
Corporate	(23	)	4		27		2		(1	)	26
	16		56		40		(12	)	3		49

The Company generated operating earnings of $56 million compared to operating earnings of $16 million in the same period a year ago. The improvement in operating results is due primarily to a favourable variance in other items, which more than offset the decrease in adjusted EBITDA. In the most recent nine-month period, the Company realized a gain of $34 million from the sale of BC lands. A charge of $7 million was also recorded on the termination of the BC defined benefit pension plan. In the prior year period, the Company had absorbed a $23 million charge related to the impairment and sale of the Skookumchuck, NBSK pulp mill.

-19-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

SEGMENT RESULTS – FOREST PRODUCTS

	June	June
	2013	2014	Variance
Financial ($ millions)
Sales ⁽¹⁾	315	319	4

Freight and other deductions	29	31	(2	)
Lumber export taxes	2	-	2
Cost of sales	259	273	(14	)
SG&A	9	9	-
Adjusted EBITDA	16	6	(10	)

Depreciation and amortization	6	4	2
Operating earnings	10	2	(8	)

Shipments
SPF lumber (mmbf)	550	525	(25	)

Benchmark Prices
KD #2 & better delivered G.L. (US $ per mbf)	449	451	2
KD stud delivered G.L. (US $ per mbf)	413	391	(22	)
(1) Includes intersegment sales eliminated on consolidation

The Forest Products segment generated adjusted EBITDA of $6 million on sales of $319 million. This compares to adjusted EBITDA of $16 million on sales of $315 million in the comparable nine-month period of the prior year. Higher selling prices, partially offset by lower lumber shipments, generated the $4 million increase in sales.

Demand for SPF lumber was stable with shipments equal to 82% of capacity, as compared to 81% in the year ago period. US $ benchmark prices for random lumber increased by US $2 per mbf while the benchmark price for stud lumber was down US $22 per mbf. Currency was favourable as the Canadian dollar averaged US $0.925, a 6.8% decline from US $0.992 in the prior year period. As a result, the average selling price of SPF lumber increased by $17 per mbf, increasing adjusted EBITDA by $9 million. Sawmill costs increased by $19 million. Fibre costs accounted for $12 million of the increase.

During the nine-month period ended June 2014, the Company did not incur a charge for lumber export taxes on shipments of lumber from its sawmills to the United States, compared to $2 million in the prior year period.

The Forest Products segment generated operating earnings of $2 million, as compared to operating earnings of $10 million in the prior year period. The previously noted decrease in adjusted EBITDA led to the decline in operating results.

-20-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

SEGMENT RESULTS – SPECIALTY CELLULOSE PULP

	June	June
	2013	2014	Variance
Financial ($ millions)
Sales - Pulp	269	293	24
Sales - Chemicals	74	87	13
	343	380	37

Freight and other deductions	27	32	(5	)
Cost of sales	250	282	(32	)
SG&A	15	15	-
Adjusted EBITDA	51	51	-

Depreciation and amortization	10	11	(1	)
Operating earnings	41	40	(1	)

Shipments
Specialty grades (000's tonnes)	139	147	8
Viscose grades (000's tonnes)	35	38	3
	174	185	11

Average prices
Specialty grades (C $ per tonne)	1,693	1,766	73
Viscose grades (C $ per tonne)	967	890	(77	)

The Specialty Cellulose Pulp segment generated adjusted EBITDA of $51 million on sales of $380 million. This compares to adjusted EBITDA of $51 million on sales of $343 million in the year ago period. The $24 million increase in pulp sales was due to higher shipments of pulp and higher prices for specialty grades. The $13 million increase in chemical sales was due to higher prices and shipments.

While demand for specialty grades was higher than the prior year period, US dollar and euro prices were lower. The $73 per tonne improvement in Canadian dollar prices was largely due to currency as the Canadian dollar weakened by 6.8% versus the US dollar and 10.8% versus the euro. The more favourable rate was not enough to completely offset the 14.3% decline in US $ prices for viscose grade pulp and prices declined by $77 per tonne. The viscose market remains oversupplied and prices remain relatively low. Overall, pulp pricing improved, increasing adjusted EBITDA by $8 million. Shipments were equal to 80% of capacity as compared to 75% in the prior year period. During the most recent nine-month period, the Tartas mill absorbed an extended 12-day annual maintenance shutdown. As well, delays in commissioning new equipment installed during the shutdown affected productivity. Overall, the pulp mill produced 8,600 fewer tonnes and mill costs increased by $10 million as compared to the prior year nine-month period.

The Specialty Cellulose Pulp segment generated operating earnings of $40 million compared to operating earnings of $41 million in the comparable nine-month period of the prior year.

-21-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

SEGMENT RESULTS – PAPER PULP

	June		June
	2013		2014		Variance
Financial ($ millions)
Sales ⁽¹⁾	345		237		(108	)

Freight and other deductions	67		46		21
Cost of sales	265		181		84
SG&A	6		4		2
Adjusted EBITDA	7		6		(1	)

Depreciation and amortization	11		7		4
Other item - impairment and sale of Skookumchuck pulp mill	23		-		23
Operating loss	(27	)	(1	)	26

Shipments
NBSK pulp (000's tonnes)	164		-		(164	)
High-yield pulp (000's tonnes)	372		342		(30	)
Internal (000's tonnes)	47		44		(3	)
Total	583		386		(197	)

Benchmark Prices
BEK - delivered China (US $ per tonne)	670		626		(44	)
(1) Includes intersegment sales eliminated on consolidation

The Paper Pulp segment generated adjusted EBITDA of $6 million on sales of $237 million. This compares to adjusted EBITDA of $7 million on sales of $345 million in the year ago period. The $108 million decrease in sales was caused by lower shipments of pulp. In the prior year nine-month period, the Chetwynd, BC, high-yield pulp mill had shipped 14,100 tonnes and had recorded sales of $8 million. In May 2013, the Company completed the sale of its remaining NBSK pulp mill located in Skookumchuck, BC. During the prior year period, the pulp mill had shipped 164,100 tonnes and had recorded sales of $110 million.

Market conditions for paper pulp were comparable. Pulp shipments from the two mills were equal to 91% of capacity as compared to 95% in the prior year nine-month period. The benchmark price for BEK decreased by US $44 per tonne. However, this decline did not impact high-yield pulp prices, which actually increased by US $9 per tonne over the year ago period. Currency was also a positive factor as the Canadian dollar averaged US $0.925, a 6.8% decline from the year ago period. Overall, Canadian dollar prices for high-yield pulp improved by $51 per tonne increasing adjusted EBITDA by $20 million. Severe weather conditions in the winter of 2014 led to a $3 million increase in freight and logistics costs. As well, the prior year period had benefited from a $3 million favourable adjustment due to the reversal of net realizable value write-down on high-yield pulp inventory. The sale of the Skookumchuck NBSK pulp mill impacted comparative operating results. In the prior year nine-month period, the pulp mill had generated adjusted EBITDA of $14 million.

The Paper Pulp segment generated an operating loss of $1 million compared to an operating loss of $27 million in the comparable nine-month period of the prior year. Depreciation expense declined by $4 million as a result of the sale of the Skookumchuck pulp mill. The year ago period had absorbed a charge of $23 million related to the impairment and subsequent sale of the Skookumchuck, NBSK pulp mill.

-22-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

SEGMENT RESULTS – PAPER

	June	June
	2013	2014	Variance
Financial ($ millions)
Sales	251	253	2

Freight and other deductions	35	34	1
Cost of sales	191	197	(6	)
SG&A	8	8	-
Adjusted EBITDA	17	14	(3	)

Depreciation and amortization	2	3	(1	)
Operating earnings	15	11	(4	)

Shipments
Coated bleached board (000's tonnes)	128	124	(4	)
Newsprint (000's tonnes)	167	156	(11	)
Total	295	280	(15	)

Benchmark Prices
16 pt. Coated bleached board (US $ per short ton)	1,108	1,171	63
Newsprint - 48.8 gram East Coast (US $ per tonne)	621	605	(16	)

The Paper segment generated adjusted EBITDA of $14 million on sales of $253 million. This compares to adjusted EBITDA of $17 million on sales of $251 million in the same period a year ago. Sales were relatively unchanged with higher prices offsetting lower shipments.

The coated bleached board market improved year-over-year. The shipments to capacity ratio was 92% compared to 95% in the prior year nine-month period. The US $ benchmark price for coated bleached board increased by US $63 per short ton. Currency was also a positive as the Canadian dollar averaged US $0.925, a 6.8% decrease from US $0.992 in the prior year period. Overall, average selling prices for coated bleached board increased by $97 per tonne, increasing adjusted EBITDA by $12 million. Mill costs increased by $8 million, primarily for fibre and freight. The newsprint market remained weak with lower North American demand. The shipment to capacity ratio was 86% compared to 93% in the first nine months of the prior fiscal year. The US $ benchmark price declined by US $16 per tonne. The weaker Canadian dollar more than offset this decrease and newsprint prices increased by $6 per tonne, increasing adjusted EBITDA by $1 million. The cold weather experienced in North America in February and March 2014 led to a shortage of natural gas and indirectly impacted the cost of electricity in the Province of Ontario. To partially mitigate the impact, the Kapuskasing newsprint mill took six days of unplanned downtime. Overall, costs increased by $10 million, including $9 million for energy.

The Paper segment generated operating earnings of $11 million, compared to operating earnings of $15 million in the prior year period. The previously noted decrease in adjusted EBITDA led to the lower operating earnings.

-23-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

SEGMENT RESULTS – CORPORATE

	June		June
	2013		2014
Financial ($ millions)
General and administrative expenses	17		14
Share-based compensation	1		2
Depreciation and amortization	-		1
Other items:
Custodial - idled facilities	7		4
Gain on sale of BC office	(2	)	-
Gain on sale of BC lands	-		(34	)
Reorganization - severance costs	-		3
Gain on sale of Chetwynd pulp mill	-		(1	)
Loss on termination of BC defined benefit pension plan	-		7
Operating loss (earnings)	23		(4	)

The Company recorded a $2 million expense for share-based compensation in the most recent nine-month period, compared to a charge of $1 million in the comparable period a year ago. 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 change 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 $4 million in the most recent period compared to $7 million a year ago.

During the prior year period, the Company sold the Cranbrook, BC, office and realized a gain of $2 million.

In September 2013, the Company launched its BC Land Sales Initiative. The Company has set an objective of realizing up to $70 million in land sales by December 2014. During the nine-month period ended June 2014, the Company recorded five BC land sales transactions for total proceeds of $39 million and recorded a gain of $34 million. The remaining BC lands have been classified as assets held for sale.

During the December 2013 quarter, the Company reorganized certain functions and roles and recorded a charge of $3 million relating to severance costs associated with personnel reductions.

In March 2014, the Company completed the sale of the Chetwynd, BC, high-yield pulp mill for a nominal amount. The sale generated a $1 million gain as the buyer assumed certain liabilities associated with the facility.

During the March 2014 quarter, the Company terminated its BC defined benefit pension plan and recorded a charge of $7 million. The Company entered into an agreement with an insurance company to settle a $55 million pension obligation for an amount of $62 million, which was equivalent to the amount of plan assets held in trust at the time of the settlement.

-24-

NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

INTEREST, FOREIGN EXCHANGE AND OTHER

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

	$ millions
	June		June
	2013		2014
Interest on debt	32		36
Capitalized interest	(6	)	(12	)
Foreign exchange items	(3	)	(1	)
Employee future benefits	7		3
Bank charges and other	2		2
	32		28

The interest expense relates primarily to interest on the US $305 million 11.25% senior secured notes maturing in December 2018. The $4 million increase in interest expense is due primarily to new project debt incurred to fund the Temiscaming, QC, specialty cellulose project, which had reached $123 million at the end of the June 2014 quarter. The increase in capitalized interest is also related to the Temiscaming, QC, specialty cellulose project. Foreign exchange items are primarily caused by gains or losses on the translation of US $ net monetary assets. The charge for employee future benefits relates to interest accretion on net unfunded obligations.

TRANSLATION OF FOREIGN DEBT

During the nine-month period ended June 2014, 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 $0.971 to US $0.938.

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.

INCOME TAXES

The following table reconciles the anticipated income tax expense/recovery based on the statutory rate to the actual income tax expense/recovery:

	$ millions
	June		June
	2013		2014

Earnings (loss) before income taxes	(37	)	17

Anticipated income tax expense (recovery)	(9	)	4

Increase:
Difference in statutory rates	4		4
Unrecognized tax asset arising from current period losses	16		3
Permanent differences and other tax adjustments	5		2

Income tax expense	16		13

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NINE MONTHS ENDED JUNE 2014 VS NINE MONTHS ENDED JUNE 2013

During the nine-month period ended June 2014, the Company recorded an income tax expense of $13 million on earnings before income taxes of $17 million. The income tax expense reflected a $9 million unfavourable variance versus an anticipated income tax expense of $4 million based on the Company’s effective tax rate of 26.2% . The difference in statutory income tax rates increased the income tax expense by $4 million. This was caused by the higher corporate tax rate applicable to the Company’s French operations. The nine-month period ended June 2014, absorbed a $3 million unfavourable variance related to period losses for which no deferred tax asset was recognized. The Company currently has a significant balance of unrecognized tax assets relating to its Canadian operations since it has not been determined that the future realization of these assets is probable. Permanent differences and other tax adjustments increased the tax expense by $2 million.

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 $37 million. The income tax expense reflected a $25 million unfavourable variance versus an anticipated income tax recovery of $9 million based on the Company’s effective tax rate of 26.3% . The difference in statutory income tax rates increased the income tax expense by $4 million. This was caused by the higher corporate tax rate applicable to the Company’s French operations. The nine-month period ended June 2013 absorbed a $16 million unfavourable variance related to period losses for which no deferred tax asset was recognized. Based on past financial performance, deferred income tax assets of the Company’s Canadian operations have not been recognized as it has not been determined that future realization of these assets is probable. Permanent differences and other tax adjustments increased the tax expense by $5 million.

NET EARNINGS (LOSS)

The Company generated net earnings of $4 million or $0.04 per share for the nine-month period ended June 28, 2014, compared to a net loss of $53 million or $0.53 per share for the nine-month period ended June 29, 2013.

COMPREHENSIVE EARNINGS

The following table summarizes the impact of items affecting the reported total comprehensive earnings during the nine-month period ended June 2014 and the comparable period a year ago:

	$ millions
	June		June
	2013		2014

Net earnings (loss)	(53	)	4
Employee future benefit gain	107		7
Income tax expense	-		(1	)
Foreign currency translation gain on foreign operations	12		9

Total comprehensive earnings	66		19

During the nine-month period ended June 2014, the Company recognized a gain of $7 million relating to the reduction of the estimated net obligation for employee future benefits. The average discount rate applied to estimate the present value of future obligations decreased from 4.60% to 4.16%, thereby increasing estimated future obligation by $47 million. The adoption of revised mortality projections further increased the estimated present value of future obligations by $16 million. The return on plan assets exceeded the expected return by $70 million, more than offsetting the two previously noted items.

During the nine-month period ended June 2013, the Company recognized a gain of $107 million relating to the reduction of 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 obligation by $83 million. As well, the actual return on plan assets exceeded the expected return by $24 million.

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 nine-month period ended June 2014, the currency translation of the French operations generated a gain of $8 million and the currency translation of U.S. operations generated a gain of $1 million. In the prior year period, the currency translation of the French operations generated a gain of $13 million. The currency translation of the U.S. operations generated a loss of $1 million.

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SELECTED QUARTERLY INFORMATION

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

	$ millions (except as otherwise noted)
	Sept 12	⁽¹⁾	Dec 12		Mar 13		Jun 13		Sept 13	Dec 13		Mar 14		Jun 14
Sales	443		376		407		399		352	354		362		404
Adjusted EBITDA	23		19		24		30		24	13		18		30
Depreciation and amortization	13		11		9		9		11	8		9		9
Other items	51		1		24		3		1	(14	)	6		(13	)
Operating earnings (loss)	(41	)	7		(9	)	18		12	19		3		34
Net earnings (loss)	(47	)	(15	)	(31	)	(7	)	14	2		(28	)	30
Basic and fully diluted net earnings (loss) per share ($)	(0.47	)	(0.15	)	(0.31	)	(0.07	)	0.14	0.02		(0.28	)	0.30
Comprehensive earnings (loss)	(86	)	(4	)	35		35		50	35		(36	)	20
⁽¹⁾Not restated for IAS 19

FINANCIAL POSITION

	($ millions)
	Fiscal 2013								Fiscal 2014
	Dec 12		Mar 13		Jun 13		Sept 13		Dec 13		Mar 14		Jun 14		Sept 14
Cash flow from operations before working capital changes	(1	)	11		16		10		1		(5	)	19		-
Less:
Additions to property, plant and equipment	34		26		30		47		34		42		37		-
Interest on debt	11		10		11		10		11		12		13		-
Free cash flow (negative)	(46	)	(25	)	(25	)	(47	)	(44	)	(59	)	(31	)	-

Cash Flow – Operations

Cash flow from operations before working capital changes for the first nine months of fiscal 2014 was $15 million, compared to $26 million in the comparable period of the prior year. After allowing for capital expenditures of $113 million and interest on debt of $36 million, free cash flow for the first nine months of fiscal 2014 was negative $134 million compared to negative $96 million in the prior year period. During the most recent period, non-cash working capital items used $30 million as compared to $9 million in the comparable period a year ago. The increase in forest products inventory used $18 million in the first nine months of fiscal 2014 as compared to a $7 million increase in the comparative period of the prior year.

Capital Expenditures

During the first nine months of fiscal 2014, capital expenditures totalled $113 million, as compared to $90 million in the comparable period of the prior year. 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. During the first nine months of fiscal 2014, $95 million was spent on the project, bringing total cumulative project expenditures to $232 million.

-27-

FINANCIAL POSITION

The Company had previously indicated that the total construction cost of the Temiscaming Cogen project would be approximately $235 million. Updated projections now indicate that approximately $255 million will be required to complete the project. The overrun is largely due to higher labour costs. The initial estimate contemplated total labour man-hours of 810,000. To the end of June 2014, labour man-hours had reached 775,000 and projections indicate a further 152,000 man-hours will be required to complete the construction work, for a projected total of 927,000 man-hours. As a significant portion of the additional man-hours relate to higher cost specialized trades, the fully-loaded cost per man-hour is forecasted to be 7% higher than originally planned. The boiler erection is essentially completed and the remaining work will focus on piping, insulation and electrical work. The commissioning of several ancillary systems has begun and will accelerate as the summer progresses. The turbine was originally scheduled to produce contract power by mid-October 2014. This is now expected to occur in late-November 2014, a delay of approximately five weeks. 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. While the increased electricity revenues and lower operating costs will occur when the boiler and turbine become operational, the productivity and margin enhancement will be dependent on the Company’s ability to generate additional specialty pulp sales volumes, which may require an extended period of time.

The following table summarizes capital expenditures by segment:

Nine months ended	June	June
$ millions	2013	2014
Forest Products	3	4
Specialty Cellulose Pulp - Cogen project	54	95
Specialty Cellulose Pulp - Other	18	9
Paper Pulp	8	3
Paper	6	2
Corporate	1	-

	90	113

Liquidity

The Company has set an objective of maintaining a minimum liquidity of $135 million to $150 million. At the end of June 2014, the Company had total cash, including restricted cash, of $29 million plus unused operating lines of $40 million, for total liquidity of $69 million. At September 2013, the date of the last audited consolidated financial statements, the Company had net cash of $74 million and unused operating lines of $35 million, for total liquidity of $109 million.

The following table summarizes operating line availability and utilization:

Operating Lines
$ millions	September		December		March		June
	2013		2013		2014		2014

Borrowing base	168		186		200		188
Less: permanent availability reserve	(15	)	(15	)	(15	)	-
Less: variable availability reserve	(5	)	(5	)	(13	)	(5	)
Net availability	148		166		172		183

Outstanding letters of credit	(56	)	(57	)	(53	)	(56	)
Amount drawn	(57	)	(61	)	(81	)	(87	)
Unused amount	35		48		38		40

-28-

FINANCIAL POSITION

In March 2011, the Company entered into a five-year $200 million ABL (asset-based loan) facility expiring in March 2016. In March 2013, the Company reached an agreement with existing ABL lenders to amend and extend the facility. 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 $5 million at the end of the June 2014 quarter.

In June 2014, the Company reached an agreement with its ABL lenders to temporarily suspend the permanent availability reserve of $15 million for a period of one year to June 30, 2015. The availability reserve will be gradually re-instated at a rate of $1.25 million per month from July 2015 to June 2016. The Company also extended the term of the ABL facility by one year from March 2017 to March 2018.

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.

The Company also continued with its BC Land Sales Initiative with an objective of realizing up to $70 million in land sales by December 2014. During the June 2014 quarter, the Company completed three land sales for proceeds of $16 million, bringing total sales to date to $39 million. The Company also has an agreement to sell additional parcels for $20 million. The transaction is conditional on the purchaser obtaining adequate financing. There can be no assurance that the transaction will be consummated or that the Company will attain the stated objective. The Company is also pursuing other alternatives to enhance liquidity including, but not limited to, the potential sale of other assets, the refinancing of existing indebtedness and other capital market initiatives. There can be no assurance that the Company will be successful in its efforts. The Company’s liquidity is also dependent on generating a sufficient amount of adjusted EBITDA and cash flow from operations. These can be significantly impacted by changes to the relative value of the Canadian dollar, product selling prices and the cost of inputs utilized in manufacturing processes. Based on existing liquidity, current initiatives to obtain additional liquidity and anticipated future operating cash flow, the Company believes that it will be able to adequately fund its operations and meet its future obligations as they become due. This determination could be impacted by economic, financial, competitive, legislative and regulatory factors, as well as other events, that are beyond the Company’s control.

The Company has entered into two secured term loan facilities totalling $133 million to fund a portion of the $255 million required for the Temiscaming Cogen project. As at June 2014, the Company had utilized $123 million of the Cogen project debt. There remains $10 million available. There remains an amount of $23 million to be spent over the next two quarters to complete the Temiscaming Cogen project. During this period, the Company’s liquidity will likely remain below its stated objective.

Long-term debt

	Fiscal 2013				Fiscal 2014
	Dec 12	Mar 13	Jun 13	Sept 13	Dec 13	Mar 14	Jun 14	Sept 14

Net debt / total capitalization	50%	55%	52%	52%	55%	59%	59%	-
Adjusted EBITDA / interest on indebtedness (times)	1.9	2.4	3.0	2.4	1.3	1.6	2.5	-

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 59% as at June 2014, as compared to 52% 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

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 15½ -year term consisting of a 42-month 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. This option expires on August 30, 2017. As at the end of June 2014, the Company had drawn the entire $75 million. During the September 2013 quarter, the Company negotiated an additional tranche of project financing, effectively increasing the total funding from the lender to $93 million. This new $18 million tranche is also secured by a second ranking charge on project assets and the interest rate remains at 5.5% . This second tranche is repayable in 48 equal monthly instalments beginning in April 2016. In connection with the additional funding, the Company granted the lender a five-year option to acquire 712,000 common shares of Tembec at a price of $3.783 per share. The option vested on the first loan disbursement date of the second $18 million tranche. This option expires on December 11, 2018. As at the end of June 2014, the Company had drawn $8 million of the $18 million available.

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 is 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 is secured by a first ranking charge on the project assets. In July 2012, the Company received $20 million representing the first advance under the facility. The interest rate on this advance was set at 6.35% . During the September 2013 quarter, the Company increased the size of the facility to $40 million. As part of the loan amendment, the terms of the remaining $10 million to be drawn on the original facility were amended to correspond to those of the new $10 million in funding. The initial $20 million drawn in July 2012 is repayable in blended monthly instalments over an eight-year period beginning in July 2014, with a “balloon” payment of $12 million to be repaid in July 2022. During the December 2013 quarter, the Company received the remaining $20 million on the facility. This second tranche bears interest at a rate of 6.86% and is repayable in blended monthly instalments over a period of eight years beginning in November 2014, with a “balloon” payment of $12 million to be repaid in October 2022.

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 “positive” outlook with respect to its rating.

CAPITAL STOCK INFORMATION

As at July 31, 2014, issued and outstanding capital shares consisted of 100,000,000 common shares (100,000,000 as at September 28, 2013). During the December 2012 quarter, the Company granted a lender a five-year option to acquire 3 million common shares at a price of $7 per share. The option expires on August 30, 2017. During the December 2013 quarter, the Company granted the same lender a five-year option to acquire 712,000 common shares at a price of $3.783 per share. The option expires on December 11, 2018.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the quarter ended June 28, 2014, the Company did not make any changes to its internal controls over financial reporting that would have materially affected, or would likely materially affect, such controls.

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OUTLOOK

Overall, the June 2014 quarterly results were better than anticipated. After experiencing relatively harsh winter conditions in the March 2014 quarter, all four business segments benefited from higher productivity and lower costs. This more than offset the negative effect of a stronger Canadian dollar and lower selling prices. The Specialty Cellulose segment results improved by $1 million due to lower costs at both pulp mills. The decline in specialty pulp prices was expected as the prior quarter had benefited from customer minimum volume penalties. The current quarter reflected the full impact of the lower contract prices that came into effect in January 2014. Prices for viscose grade also dropped in the most recent quarter. This market remains oversupplied and US $ prices are relatively low. Market conditions should remain at this level for the remainder of the calendar year. The improved results in the Forest Products segment were also driven by lower costs as the spring and summer months are normally lower cost periods for the sawmills. Stud lumber prices increased, closing the gap with random lumber as the latter declined. We anticipate similar results in the coming quarter. The Paper Pulp segment results saw a small improvement in profitability due to lower costs. The segment was able to make up for the weather related shortfall in shipments from the prior quarter. The new South American hardwood paper pulp capacity is impacting prices and we anticipate marginal profitability from this segment until the market absorbs this new capacity. The Paper segment rebounded well from what had been a very challenging March quarter, which was impacted by high prices for natural gas and electricity. The coated bleached board market is stable, but the export market for newsprint, on which North American producers are placing greater reliance, is under pressure.

The Company is looking forward to completing the construction of the Temiscaming, QC, specialty cellulose Cogen project in the coming quarter. While the total estimated cost has increased, the project remains a critical element that will materially improve the mill’s cost structure and margins. The Company is placing significant emphasis on training and commissioning in order to ensure a successful start-up of the boiler and turbine. The Company is also looking to complete the BC Land Sales Initiative. To date, $39 million has been realized and the Company will be focused on generating additional land sales in order to reach its $70 million objective.

FINANCIAL PERFORMANCE & OTHER DATA

		Fiscal 2013				Fiscal 2014
		Dec 12	Mar 13	Jun 13	Sep 13	Dec 13	Mar 14	Jun 14	Sep 14

Shares outstanding - end of quarter (millions)		100	100	100	100	100	100	100	-
Book value per share ($)		0.99	1.34	1.69	2.19	2.54	2.18	2.39	-
Foreign exchange:
1 C $ = US $	- average	1.009	0.991	0.977	0.963	0.952	0.907	0.917	-
	- period end	1.004	0.984	0.951	0.971	0.934	0.904	0.938	-

1 euro = US $	- average	1.297	1.319	1.307	1.326	1.360	1.371	1.371	-
	- period end	1.322	1.282	1.302	1.353	1.374	1.375	1.365	-

1 euro = C $	- average	1.286	1.332	1.337	1.377	1.429	1.512	1.495	-
	- period end	1.317	1.302	1.369	1.393	1.471	1.521	1.455	-

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DEFINITIONS – NON-IFRS FINANCIAL MEASURES

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

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

	$ millions
	Fiscal 2013					Fiscal 2014
	Dec 12	Mar 13		Jun 13	Sep 13	Dec 13		Mar 14	Jun 14		Sep 14

Operating earnings (loss)	7	(9	)	18	12	19		3	34		-
Depreciation and amortization	11	9		9	11	8		9	9		-
Other items	1	24		3	1	(14	)	6	(13	)	-

Adjusted EBITDA	19	24		30	24	13		18	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 tax liabilities, employee future benefit liabilities, provisions, other long-term liabilities, and shareholders’ equity.

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

	$ millions
	Fiscal 2013								Fiscal 2014
	Dec 12	⁽¹⁾	Mar 13	⁽¹⁾	Jun 13		Sep 13		Dec 13		Mar 14		Jun 14		Sep 14
Long-term debt	348		353		365		369		414		430		438		-
Net unamortized financing costs	16		16		17		17		17		17		17		-
Current portion of long-term debt	16		16		16		16		16		19		19		-
Operating bank loans / Bank indebtedness	69		86		57		57		61		81		87		-
Less: total cash	(57	)	(35	)	(94	)	(74	)	(52	)	(31	)	(29	)	-
Net debt	392		436		361		385		456		516		532		-

Long-term liabilities	279		210		167		141		122		137		138		-
Shareholders' equity	99		134		169		219		254		218		239		-

Total capitalization	770		780		697		745		832		871		909		-

Net debt to total capitalization ratio	51%		56%		52%		52%		55%		59%		59%		-
⁽¹⁾Ratio is calculated including liabilities classified as "held for sale"

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Tembec Inc. 6-K