U.S. Securities and Exchange Commission
Washington, D.C. 20549

FORM 40-F

[   ]	Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

or

[●]   Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 27, 2003      Commission file number   033-80178

Tembec Industries Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant's name into English (if applicable))

Quebec

(Province or other jurisdiction of incorporation or organization)

2611, 2621, 2631

(Primary Standard Industrial Classification Code Number (if applicable))

N/A

(I.R.S. Employer Identification Number (if applicable))

800, René-Lévesque Blvd., Suite 1050, Montreal, Qc, Canada  H3B 1X9

Tel: (514) 871-0137

(Address and telephone number of Registrant's principal executive offices)

CT Corporation System, 1633 Broadway, New York, NY 10019	
Telephone: (212) 664-1666

Russell S. Berman, EM., Kronish, Lieb, Wiener & Bellman, 1114 Avenue of the Americas
	New York, NY 10036	
	Telephone: (212) 479-6000

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States



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



|N/A                                        |  | N/A                                                                
|------------------------------------------ |  | -------------------------------------------------------------------
|______________________
Title of each class |  | _________________________
Name of each exchange on which registered

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

N/A

(Title of Class)

N/A

(Title of Class)

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

Senior Notes of Tembec Industries Inc. due June 30, 2009	
Senior Notes of Tembec Industries Inc. due February 1, 2011	
Senior Notes of Tembec Industries Inc. due March 15, 2012



(Title of Class)

For annual reports, indicate by check mark the information filed with this Form:

[ ●  ]  Annual Information form		[●]  Audited financial statements

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

536,807,704 common shares



16,627,500 Series 2 Class B shares



9,103,710 Series 4 Class B shares



Indicate by check mark whether the Registrant by filling the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act").  If "Yes" is marked, indicate the filing number assigned to the Registrant in connection with such Rule.

Yes  82-  No   ●





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

Yes        ●                 No



Material included in this Form 40-F:

1. The Annual Information Form of Tembec Industries Inc. for the financial year ended September 27, 2003
2. The Annual Report of Tembec Industries Inc. for the financial year ended September 27, 2003

*************

Disclosure controls and procedures are defined by the Securities and Exchange Commission as those controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.  Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures within 90 days prior to filing of this Annual Report on Form 40-F and have determined that such disclosure controls and procedures are effective.



Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regards to significant deficiencies and material weaknesses.



The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.









TEMBEC INDUSTRIES INC.

ANNUAL INFORMATION FORM

For the fiscal year ended September 27, 2003

January 22, 2004



Table Of Contents





|       |                                                                                                                                                       | Page
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|Item 1 | Date of annual information form ...................................................................                                                   | 3   
|Item 2 | Corporate Structure ........................................................................................                                          | 3   
|       | 2.1    Name and Incorporation .........................................................................                                               | 3   
|       | 2.2    Intercorporate relationships ....................................................................                                              | 3   
|Item 3 | General Development of the Business ............................................................                                                      | 5   
|       | 3.1    Business Overview ..................................................................................                                           | 5   
|       | 3.1.1    Three Year Retrospective .....................................................................                                               | 5   
|       | 3.1.2    Recent Developments ...........................................................................                                              | 7   
|Item 4 | Narrative Description of the Business .............................................................                                                   | 7   
|       | 4.1    Principal Operations ................................................................................                                          | 7   
|       | 4.1.1    Forest products Group ..........................................................................                                             | 8   
|       | 4.1.2    Pulp Group ...........................................................................................                                       | 12  
|       | 4.1.3    Paper Group ..........................................................................................                                       | 14  
|       | 4.2    Capital Expenditures ...............................................................................                                           | 16  
|       | 4.3    Environmental .........................................................................................                                        | 16  
|       | 4.4    Research and Development ....................................................................                                                  | 18  
|       | 4.5    Litigation ................................................................................................                                    | 19  
|       | 4.5.1    Countervailing and Antidumping Duties .............................................                                                          | 19  
|       | 4.6    Risk Factors ............................................................................................                                      | 20  
|Item 5 | Selected Consolidated Financial Information .................................................                                                         | 24  
|Item 6 | Management's Discussion and Analysis of financial
Condition and Results of Operations ............................................................... | 25  
|Item 7 | Market for Securities of the Corporation ........................................................                                                     | 25  
|Item 8 | Directors and Officers .....................................................................................                                          | 25  
|       | 8.1    Information Concerning Directors ..........................................................                                                    | 25  
|       | 8.2    Information Concerning Non-Director Officers ......................................                                                            | 27  
|Item 9 | Additional Information ....................................................................................                                           | 28  



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TEMBEC INC.
ANNUAL INFORMATION FORM



ITEM 1 - DATE OF ANNUAL INFORMATION FORM

This Annual Information Form (the "Form") is dated as of January 22, 2004.  Except as otherwise indicated, the information contained in this Form is stated as at September 27, 2003.

ITEM 2 - CORPORATE STRUCTURE

2.1  Name and Incorporation

Tembec Industries Inc. (the "Corporation") was formed under the Business Corporation Act (Ontario) on August 29, 1995, by amalgamation of Malette Inc. and Tembec Finance Corp. and continued under the Canada Business Corporation Acton February 18, 1999 under the name of "Tembec Industries Inc.  On October 1, 2000, it amalgamated with Crestbrook Forest Industries Ltd and on September 30, 2001, with Pine Falls Paper Company Limited.



The Corporation's head office is located at Suite 1050, 800 René-Lévesque Blvd. West, Montréal, Québec, H3B 1X9, telephone: 514-871-0137.



2.2  Intercorporate Relationships

The subsidiaries and joint-venture investments of the Corporation, with operations in the forest products, pulp and paper sectors, are set out in the following corporate organization chart.  The Corporation holds some of its interests indirectly, through interposed companies.  Unless otherwise indicated, other operations, which in aggregate represent less than 20% of the total consolidated revenues and of the total consolidated assets of the Company, are not specifically discussed herein.



Unless otherwise noted or the context otherwise indicates, references to the "Corporation" in this Form are to Tembec Industries Inc.  References to "Tembec" are to, as the context may require, either the Corporation or the Corporation together with one or more of its subsidiaries (the "Subsidiaries"), associates and its interests in joint ventures and other entities.



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CORPORATE ORGANIZATION CHART OF THE COMPANY(1)(2)







(1)     Indicates indirect ownerships.
(2)  As at January 22, 2004, except as otherwise indicated, 100% of all voting and non-voting securities of the entities mentionned in this chart are held by that Company or by its subsidiaries, as indicated.
(3)  Held through Tembec Investments (U.S.A.) Inc. (Delaware)
(4)  Held through Spruce Falls Acquisition Corp. (Canada)
(5)  Held through Tembec S.A. (France)
(6)  Held through 1398172 Ontario Limited



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ITEM 3 - GENERAL DEVELOPMENT OF THE BUSINESS

3.1  Business Overview

Tembec is a large, diversified and integrated forest products company with the majority of its operations located in Canada and a presence in the United States and in Europe.  Its core business segments are forest, pulp and paper products with Tembec maintaining a small presence in the chemical and paperboard sectors which, in the aggregate, represents less than 10% of its consolidated assets and 10% of its consolidated revenues.  Tembec produces approximately 1.7 billion board feet of lumber, 2.3 million tonnes of market pulp and 1.0 million  tonnes of newsprint and groundwood papers annually.  Tembec's strategy is to (i) be diversified into forest products, pulp products and paper products; (ii) maintain low-cost and efficient operations; and (iii) utilize its technical and operating expertise to develop niche products and markets within such core business segments.



For the fiscal year ended September 27, 2003, Tembec had gross sales of $3.3 billion, net sales of $2.9 billion, EBITDA of $74.9 million, and net earnings of 10.8 million. "EBITDA" refers to earnings before interest, income taxes, depreciation and amortization and other non-operating expenses. Total assets at that date were $3.8 billion and it employed approximately 9,900 people.



3.1.1  Three Year Retrospective

In the last three fiscal years, Tembec was active in pursuing its growth targets, completing a number of acquisitions, participating in joint-ventures, while accessing the high-yield bond markets in the United States.   Selected highlights follows:



- October 31, 2000:    Acquisition of two companies, now called Tembec Tarascon S.A.S. and Tembec Saint-Gaudens S.A., which own two market pulp mills located in southern France  which produce  softwood and hardwood kraft pulp.  As a result of this transaction, Tembec's European pulp production capacity increased to approximately 710,000 tonnes per year, making it the leading pulp producer in France.
- January 11, 2001:   The Corporation issued US$250 million of 8.50% senior notes due 2011 by way of private placement, which were unconditionally guaranteed on a senior unsecured basis by the Tembec Inc.
- February 25, 2001:    Acquisition of the remaining shares of Pine Falls Paper Company Limited held by employees.
- March 19, 2001:    Acquisition of a 50% interest in Excel Forest Products Limited ("Excel"), a sawmill located in Opasatika, Ontario (40km west of Kapuskasing, Ontario).
- June 13, 2001:    Acquisition of the assets of Duratex Hardwood Flooring Inc. which operates a hardwood flooring pre-finishing plant in Toronto, Ontario.



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- June 19, 2001:  Acquisition of a pulp and paper mill located in St. Francisville, Louisiana from Crown Paper Co.  The St. Francisville mill is an integrated pulp and paper facility which produces coated groundwood papers and specialty papers.



- June 19, 2001:  The Corporation issued US$250 million of 8.50% senior notes due 2011 by way of private placement, which were unconditionally guaranteed on a senior unsecured basis by Tembec Inc.



- August 1, 2001:  The Corporation and SGF-Rexfor Inc. ("Rexfor") formed a 50/50 joint venture to develop the engineered wood products business.  The joint venture, Temlam Inc. ("Temlam"), acquired the building systems division of Jager Industries Inc. ("Jager") comprised mainly of the manufacturing and distribution of engineered wood I-beams, truss connector plates and metal webs for roof and floor trusses as well as the distribution of LVL, rim joists, hangers and other ancillary products.  In conjunction with the acquisition of the building systems division of Jager, Temlam also acquired Industries' LVL plant located in Ville-Marie, Québec.



- November 5, 2001:  Industries acquired Davidson Industries Inc. ("Davidson").  Davidson owns three facilities; a pine sawmill and a hardwood sawmill in Davidson, Québec, and a pine sawmill in Woodsville, New Hampshire. The New Hampshire sawmill was permanently shut down in July 2002.  Davidson operates a distribution center in Ireland a well as manages a radiata pine sawmill in Chile.  Davidson Industries was wound-up in 2003 and its assets combined with those of Tembec Industries Inc.



- March 13, 2002:  The Corporation issued US$350 million of 7.75% senior notes due 2012 by way of private placement, which were unconditionally guaranteed on a senior unsecured basis by the Tembec Inc.



- April 5, 2002:  The Corporation formed the Temrex Forest Products, Limited Partnership ("Temrex") in a joint venture with Rexfor to consolidate woodlands and sawmill operations in the Gaspé region of the Province of Québec.  The two parners invested $32.8 million to capitalize Temrex.  The latter then purchased the Corporation's Nouvelle sawmill assets and related net working capital for $41.8 million.  Temrex also purchased the assets and net working capital of the St. Alphonse sawmill from Rexfor for $23.0 million.



- April 9, 2002:  The Corporation completed the redemption of its US$250 million 9.875% Senior Notes due 2005.



- July 1, 2002:  Tembec formed with Les Coopératives Forestières du Sud Massif Central a new enterprise, Tembec Brassac SAS ("Brassac").  The Company holds 75% of Brassac.  Brassac reopened S.A. Boussière & S.A.R.L. Scierie du Haut Languedoc sawmill, located in Brassac and Bez, France.



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- October 7, 2002: Tembec acquired a high yield pulp mill located at Chetwynd in northern British Columbia for nominal consideration.



- March 14, 2003:  The Corporation issued US$100 million of 8.625% senior notes due 2009 by way of private placement, which were unconditionally guaranteed on a senior unsecured basis by the Tembec Inc.



- April 4, 2003:  Tembec was awarded a Forest Stewardship Council certificate with respect to its forest management practices in the five-million acre Gordon Cosens Forest in Northeastern Ontario.





3.1.2  Recent Developments



- November 3, 2003:  Tembec completed the acquisition of two sawmills from Nexfor Inc. located at LaSarre and Senneterre, Québec for $49.7 million plus working capital of $9.4 million.



- December 15, 2003:  Tembec completed the acquisition of a sawmill from Weyerhaueser located at Chapleau, Ontario, for $26.4 million, including certain elements of working capital.







ITEM 4 - NARRATIVE DESCRIPTION OF THE BUSINESS

4.1  Principal Operations

Tembec's business is centered around its ownership interests in the various operations forming part of its Forest Products Group, Pulp Group and Paper Group.



The forest, pulp and paper products industries are commodity markets in which producers compete primarily on the basis of price.  The markets for forest, pulp and paper products are highly competitive and cyclical characterized by (i) periods of excess product supply due to factors, amongst others, such as industry production capacity additions and increased production at existing facilities, and (ii) periods of insufficient demand due to weak general economic activity and inventory destocking by customers.  Demand for forest, pulp and paper products is also influenced to a significant degree by the global level of economic activity.  Prices for Tembec's products have fluctuated significantly in the past and may fluctuate significantly in the future. Tembec's ability to compete in these markets is also dependent upon customer service, product quality, manufacturing costs and currency exchange rates.





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Industry Segment and Geographic Information

Financial information pertaining to industry and geographical segments and export sales for the fiscal year ended September 27, 2003 are presented on pages 39 to 40 of the 2003 Annual Report of the Corporation (the "Annual Report"), including the audited consolidated financial statements and the notes thereto for the fiscal year ended September 27, 2003 and the report of the auditors thereon dated October 28, 2003, which are incorporated by reference herein. North America accounts for approximately two-thirds of the consolidated sales of the Corporation, with the United States being the principal market accounting for close to 50% of consolidated sales.



4.1.1   Forest Products Group

Tembec's Forest Products Group consists of operations employing, as at December 31, 2003, approximately 4,900 people located in Canada and France.  It produces an extensive range of commodity and value-added forest products focusing on three main product groups:  (i) Spruce, Pine, Fir Lumber and Oriented Strand Board ("OSB") Panels, (ii) Specialty Wood products and (iii) Engineered Wood products. For the fiscal year ended September 27, 2003, the Forest Products Group generated net sales of $717.2 million and negative EBITDA of $(37.5) million.  Forest Products Group annual gross sales accounted for approximately 27% of Tembec's total consolidated gross sales in fiscal 2003 compared to 29% for fiscal 2002.



The following table summarizes the normal annual operating levels of each facility by product group:



|Spruce, Pine, Fir Lumber and Panels      |                            
|---------------------------------------- | ---------------------------
|Spruce, Pine, Fir Lumber                 |                            
|Location                                 | MFBM(million board feet)   
|Stud Lumber -
 Taschereau/LaSarre, QC(1) | 185,000                    
|Random Lumber -
 Bearn, QC               | 90,000                     
|Random Lumber -
 Nouvelle, QC(2)         | 70,000                     
|Random Lumber -
 St. Alphonse, QC(2)     | 30,000                     
|Stud Lumber - LaSarre, QC(3)             | 100,000                    
|Stud Lumber - Senneterre, QC(3)          | 150,000                    
|Stud Lumber -
 Kirkland Lake, ON         | 35,000                     
|Random Lumber -
 Timmins, ON             | 125,000                    
|Stud Lumber -
 Cochrane, ON              | 170,000                    
|Stud Lumber -
 Kapuskasing, ON           | 90,000                     
|Stud Lumber -
 Opasatika, ON             | 95,000                     
|Random Lumber -
 Hearst, ON              | 125,000                    
|Random Lumber - Chapleau, ON(3)          | 80,000                     
|Random Lumber -
 Elko, BC                | 180,000                    
|Random Lumber -
 Canal Flats, BC         | 125,000                    
|Random Lumber -
 Cranbrook, BC(4)        | 100,000                    
|Finger Joint Lumber -
 Cranbrook, BC     | 25,000                     
|                                         |                            
|                                         | 1,775,000                  
|                                         |                            
|Oriented Strand Board                    |                            
|Location                                 | Million of Ft2(1/16" basis)
|OSB -
 Saint-Georges, QC                 | 1,700                      





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|Specialty Wood                                |                     
|--------------------------------------------- | --------------------
|Pine, Hardwood Lumber and Hardwood Flooring   |                     
|Location                                      | MFBM                
|Pine and Hardwood Lumber -
 Davidson, QC      | 55,000              
|Pine and Hardwood Lumber -
 Mattawa, ON       | 30,000              
|Pine and Hardwood Lumber -
 Témiscaming, QC   | 15,000              
|Hardwood Lumber -
 Huntsville, ON             | 30,000              
|Hardwood Flooring -
 Huntsville, ON           | 18,000              
|Pre-Finished Hardwood Flooring -
 Toronto, ON | 10,000              
|Remanufactured Lumber -
 Brantford, ON        | 100,000             
|Pine Lumber -
 Brassac, France(5)             | 15,000              
|                                              | 273,000             
|Engineered Wood                               |                     
|Laminated Veneer Lumber                       |                     
|Location                                      | Thousand Ft3        
|LVL -
 Ville-Marie, QC(6)                     | 450                 
|Engineered Finger Joint Lumber                |                     
|Location                                      | MFBM                
|Engineered Finger Joint Lumber -
 LaSarre, QC | 50,000              
|Wood I-Beams                                  |                     
|Location                                      | Thousand Linear Feet
|Wood I-Beam -
 Blainville, QC(6)              | 5,000               
|Wood I-Beam - Bolton, ON(7)                   | 22,500              
|Wood I-Beam -
 Calgary, AB(6)                 | 12,000              
|                                              | 39,500              
|                                              |                     
|Metal Plates and Webs                         | Million lbs         
|Metal Plates and Webs - Bolton, ON(6)         | 10.0                

(1)  Sites are operated as a combined entity.
(2)  Volumes reflect 50% of the actual capacity as the units are part of the Temrex joint venture.
(3)  Acquired since the end of the fiscal year (See Item 3.3.1 - Recent Developments) 
(4)  Dries and planes lumber sawn at the Elko and Canal Flats Sawmills.
(5)  Volumes reflect 75% of the actual plant capacity as the unit is part of the Tembec Brassac joint venture.
(6)  Volumes reflect 50% of the actual plant capacity as the units are part of the Temlam joint venture.

Products and Markets

The spruce, pine and fir lumber ("SPF") sawmills produce various types, species and grades of lumber which are used primarily for residential and commercial construction.  Higher value SPF lumber products include J-Grade, TemPlusTM and TemSelectTM and machine stress rated grades.   Pine and hardwood lumber are used in a wide variety of applications including furniture, flooring and specialty residential and commercial applications.  OSB panels are used in residential





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construction and industrial applications.  Hardwood flooring products are targeted for residential, commercial and recreational applications.  The engineered wood products segment of the Forest Products Group principally manufactures Jager Building Systems products, laminated veneer lumber and finger-jointed flange stock which is used in specialized residential and commercial construction applications such as roof and floor truss systems as well as beam and header applications.  In addition, the Forest Products Group produces and ships approximately 2 million tonnes of wood chips, approximately 84% of which are directed to Tembec's pulp and paper facilities.



The cyclical nature of the lumber industry and the seasonal nature of the construction industry lead to fluctuations in the demand and supply of lumber.  The biggest issue which plagues lumber markets is the surplus of production capacity and the substantial rationalization which will be required to bring it back in line with demand.  North American solid wood products demand is largely dependant on the level of consumer confidence.  Over 75% of wood products consumption ends up in residential housing, with interest rates and employment continuity being the two major determinants of home purchases.  While in many applications lumber competes with other products such as steel, plastic and engineered wood products, lumber is typically used for residential construction. Tembec competes with both small independent operators and larger integrated corporations.



In the United States, the market for engineered wood products is dominated by Weyerhaeuser, Boise Cascade and Louisiana Pacific who control a majority of the production capacity.  In Canada, Jager and Weyerhaeuser are the largest suppliers of engineered wood products.



Sales Distribution

In North America, products are sold by Tembec's own internal sales force to wholesalers and distributors as well as directly to large retailers and end-users.



Competition

Competition among Canadian and U.S. producers of softwood lumber is intense. Canadian producers of softwood lumber are very dependent on open access to export markets.  The Canada/U.S. Softwood Lumber Agreement, which imposed quotas on the duty-free volumes sold by mills in British Columbia, Alberta, Ontario and Québec, expired on March 31, 2001.  Antidumping and countervailing duties on softwood lumber totalling 29% are imposed by the U.S. Department of Commerce ("USDOC") and the U.S. International Trade Commission ("USITC") on products sold by Tembec into the United States.  See Item 4.5.1 - Countervailing and Antidumping Duties.



Fiber Supply

Tembec's forestry operations are managed by the Forest Resources Management Group.  This includes the harvesting of timber, either directly or through contractors, and all silviculture and regeneration work required to ensure a sustainable supply of wood fibre to the manufacturing units.  The Forest Resources Management Group is also responsible for third-party timber





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purchases and wood chip production from whole log chippers which are required to supplement total requirements.  Its main objective is the optimization of the flow of timber to the various manufacturing units.  Tembec seeks to maximize the utilization of timberlands for which it is responsible through efficient management and by following sustainable forest management practices so that the timberlands provide a continuous supply of wood for future needs.  Site preparation, planting and harvesting techniques are continually improved through a variety of methods, including genetic research and computerization.



As Tembec's forestry activity in Canada is conducted primarily on Crown land, the Forest Resources Management Group works closely with provincial governments to ensure harvesting plans and operations comply with established regulations.



Québec

Tembec has timber supply and forest management agreements (commonly known as "CAAFs") with the Ministry of Natural Resources (Québec) for the supply of its Québec sawmills. Each CAAF has a term of 25 years and is subject to review and renewal every five years.  Renewal at the end of each five-year period remains at the discretion of the Ministry of Natural Resources (Québec) and is subject to its determination that Tembec has satisfied the obligations specified under the relevant CAAF.



Ontario

Tembec's cutting rights are provided through several deemed Sustainable Forest Licences.  These licences expire at different dates and have 20 year terms, renewable every five years, based on satisfactory performance as determined by independent audits and approval of the Ministry of Natural Resources (Ontario).



Manitoba

In Manitoba, Forest Management Licence Agreements ("FMLs") enable holders to harvest to sustainable levels.  The FMLs are for 20 year terms and are renewable every 10 years upon approval of a ten year forest management plan.  An environmental licencing process accompanies the submission of the long-term forest management plan resulting in the issuing of a ten-year environmental licence.  The Province of Manitoba is undertaking a broad area land use planning initiative ("LUPI") that includes a portion of the Tembec FML.  Renewal of the long-term tenure agreements will begin after the LUPI is complete.  In the interim, short-term extensions to the FMLs are being approved.



British Columbia

Approximately 95% of all timberlands in the Province of British Columbia are Crown lands.  Subject to the British Columbia Forest Actand Forest Practices Code of British Columbia Actand related regulations, rights to harvest Crown timber may be granted on behalf of the Crown in the form of forest tenures.  The forms of forest tenures held by Tembec are one tree farm licence (25-year term replaced every 5 years) and three forest licences (15-year term replaced every 5 years).  Harvesting under these tenures is subject to the holder's compliance, to the satisfaction of the Ministry of Forests, with obligations regarding forest management, harvesting and reforestation.





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Stumpage and Other Charges

Provincial authorities impose stumpage fees on volumes of wood cut on Crown land.  These fees are determined under specific mechanisms in each province.  Part of the mandate of the Forest Resources Management Group is to ensure that stumpage charged by the provincial governments reflects the fair value of the timber being harvested.



4.1.2  Pulp Group

The Pulp Group currently consists of eleven manufacturing facilities operating at ten sites employing approximately 2,700 people.  These facilities are divided into two main categories: paper pulps (softwood kraft, hardwood kraft and high yield pulps) and specialty pulps (specialty cellulose, fluff and dissolving pulps).  Nine of the pulp mills are wholly-owned and Tembec has a 50% joint venture position in the Marathon, Ontario softwood kraft pulp mill and in the Atholville, New Brunswick dissolving pulp mill.  In the fiscal year ended September 27, 2003, the Pulp Group generated total net sales of $1,149.1 million and EBITDA of $72.7 million.  The following table summarizes the products and current annual capacity of each facility by main type:



|Paper Pulps                                                     |  |          
|--------------------------------------------------------------- |  | ---------
|Product and Location                                            |  | Tonnes   
|Softwood Kraft -
 Skookumchuck, BC                              |  | 270,000  
|Softwood Kraft -
 Smooth Rock Falls, ON                         |  | 200,000  
|Softwood Kraft -
 Marathon, ON (50% of current annual capacity) |  | 95,000   
|Softwood Kraft -
 Tarascon, France                              |  | 260,000  
|Hardwood Kraft -
 Saint-Gaudens, France                         |  | 305,000  
|Hardwood High Yield -
 Témiscaming, QC                          |  | 300,000  
|Hardwood High Yield - Matane, QC                                |  | 230,000  
|Hardwood High Yield - Chetwynd, BC                              |  | 200,000  
|                                                                |  | 1,860,000
|Specialty Pulps                                                 |  |          
|Product and Location                                            |  | Tonnes   
|Specialty Cellulose -
 Témiscaming, QC                          |  | 165,000  
|Fluff -
 Tartas, France                                         |  | 155,000  
|Dissolving -
 Atholville, NB (50% of current annual capacity)   |  | 60,000   
|                                                                |  | 380,000  
|                                                                |  |          
|Total                                                           |  | 2,240,000





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Products and Markets

Most paper grade market pulps, primarily kraft, are produced by chemical processes, although high-yield pulps are made by mechanical methods such as thermomechanical pulp ("TMP"), chemi-thermomechanical pulp and bleached chemi-thermomechanical pulp.  Kraft paper pulps are used to produce a variety of high-quality paper products with specific brightness and strength characteristics.  Softwood kraft normally sells for a premium over hardwood kraft as its longer fibers provide required strength properties for paper producers.  High-yield market pulps have been produced in North America since the mid 1980's.  Initially, most high-yield pulps were manufactured with softwood and utilized in tissue and towel applications, where their superior bulk and absorbency are desired characteristics.  However, Tembec had always maintained a strategy of targeting the use of high-yield pulps in paper production.  The strategy led to the development of hardwood high-yield grades made from birch, aspen and maple.  Although high-yield pulps are lower than kraft pulps in tensile and tear strength, they offer advantages in bulk, opacity and cost.



Specialty pulps are used in a wide variety of applications.  The specialty cellulose pulp mill in Témiscaming, Québec, produces highly purified grades composed of 95% to 99% cellulose, which are used in textiles, pharmaceuticals, food additives and industrial chemicals.  The pulp mill in Tartas, France produces fluff pulp using the sulphite process and it is sold to manufacturers of disposable sanitary products who then break down the pulp rolls into individual fibers to give their products bulk, softness and absorbency.  Disposable baby diapers account for a large percentage of fluff pulp consumption.  Feminine napkins, adult incontinence diapers and nursery pads are other important end-users.  The dissolving pulp grades produced at Atholville, New Brunswick, are also highly purified grades of cellulose pulp.  They are used in the manufacture of rayon staple textile fiber by affiliates of the Aditya Birla Group, Tembec's joint venture partner in AV Cell Inc.



The pulp market is international in nature, with large volumes of pulp moving duty-free between net-producing regions and net-consuming regions.  The global market pulp demand in 2003 was approximately 45.5 million tonnes with European demand estimated at 17.9 million tonnes.  Approximately 3/4 of pulp sales are destined to markets outside North America.  North America and the Nordic countries are the largest pulp producing regions, although countries with fast-growing plantations, such as countries in South America, are growing in importance.  As market pulp pricing is referenced in U.S. dollars the relative strength of the EURO is an advantage when implementing price increases in Europe.  Tembec is the second-largest market pulp producer in North America and the largest market pulp producer in France marketing its pulp on a world-wide basis, primarily through its own sales force.  The Pulp Group maintains sales or representative offices in Canada, Spain, Switzerland, and China and also markets pulp produced by third parties.



Sales from the Pulp Group represented approximately 39% of Tembec's total consolidated sales in fiscal 2003 compared to 36% in fiscal 2002.







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Fiber Supply

Tembec's eight North American pulp mills consumed approximately 2.2 million bone dry tonnes of wood chips in fiscal 2003.  Of this amount, approximately 44% was supplied by the Forest Products Group.  The remainder is purchased from third parties under contracts and agreements of various duration.  The three pulp mills located in southern France purchase all of their fiber requirements from many private landowners.



4.1.3  Paper Group

The Paper Group currently consists of four facilities with a total of twelve paper machines producing newsprint, book paper, coated paper and high-bright paper.  For the fiscal year ended September 27, 2003, the Paper Group generated net sales of $727.8 million and EBITDA of $20.9 million, employing approximately 2,200 people.  The following table summarizes the products and current annual operating levels of each facility by main type:



|Newsprint & Uncoated Groundwood Papers         | Tonnes(1)
|---------------------------------------------- | ---------
|Newsprint - Kapuskasing, ON(2)                 | 400,000  
|Newsprint - Pine Falls, MB                     | 180,000  
|High-Brite - St. Raymond, QC                   | 28,000   
|                                               | 608,000  
|                                               |          
|Coated Papers                                  |          
|Coated No 4 and 5 - St. Francisville, LA       | 280,000  
|Machine Finished Coated - St. Raymond, QC      | 40,000   
|                                               | 320,000  
|                                               |          
|Specialty Papers                               |          
|Uncoated Bleached Board - St. Francisville, LA | 83,000   
|Specialty Kraft Paper - St. Francisville, LA   | 30,000   
|                                               | 113,000  
|                                               |          
|Total                                          | 1,041,000

1. Although the above table shows all capacities in metric tonnes, coated paper and certain specialty papers are sold primarily in short tons.
2. On January 16, 2004 Tembec announced that it would shut down indefinitely one paper machine with an estimated annual capacity of 75,000 tonnes.



Products and Markets

Newsprint is an uncoated paper used primarily for the publication of daily newspapers.  It is one of the largest single paper products in the world.  It is generally considered to be a commodity product, having a uniform definition and little distinct differences.  Book papers are manufactured using the same process as standard newsprint.  However, as it is a controlled thickness product, the primary property developed is the controlled bulk or the caliper of the sheet.







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Newsprint demand is chiefly determined by the performance of daily newspapers.  Canadian manufacturers of newsprint are very dependent on export markets, particularly the U.S. market.  As a result of this large dependence on the U.S. market, Tembec's newsprint competitiveness is also influenced by the relative strength of the Canadian dollar versus the U.S. dollar.



The focus of the Paper Group is the North American market which accounts for 95% of sales with the U.S. representing 85% of such sales.  Brokers and paper merchants are sometimes retained to provide enhanced market presence.

The St-Francisville, Louisiana pulp and paper facility produces coated and specialty papers.  Coated papers made by Tembec are categorized as coated groundwood, a clay coated base sheet containing mechanical and chemical pulps.  The end-use markets are magazines and catalogs.  Demand factors for magazines and catalogs are related to advertising and retail sales.  The general economy strongly influences both.  The coated paper capacity of Tembec represents less than 10% of the North American market.  The specialty paper products segment, which is divided further into lightweight and heavyweight papers, encompasses the food and medical papers markets and typical end uses are coffee filters, medical papers, cup stock for drinking cups, file folders, and magazine reply cards.  The lightweight segment of the specialty market is made up of small non-pulp integrated producers.  Tembec is the leading producer of paper for the coffee filter market  and also benefits from being fully integrated with its pulp supply with respect to this segment of the market.  The heavyweight segment of the specialty market includes International Paper and Mead Westvaco as the primary competitors.



For fiscal 2003, the Paper Group represented 25% of total consolidated sales and 26% in fiscal 2002.



Fiber Supply

The Paper Group receives approximately one-third of its virgin fiber requirements through internal sources with the remainder purchased from sawmills and third-party suppliers.  The four paper mills consumed 1.1 million tonnes of wood chips and round wood in the last fiscal year.  All of the wood fiber required by the St. Francisville pulping facilities is purchased from industrial and privately owned land.



The Kapuskasing and Pine Falls mills both produce newsprint that contains recycled fibre.  They utilize a combination of TMP and de-inked recycled pulp produced from old newspapers ("ONP") and old magazines ("OMG").  Their annual consumption of ONP and OMG is approximately 140,000 bone dry metric tonnes. ONP and OMG are purchased from various merchants and collection groups.  The fiber used in the process at the St-Francisville mill is a combination of pressurized stone groundwood mechanical pulp and kraft chemical pulp.  It purchases small quantities of kraft and de-inked pulps.  The St. Raymond paper mill produces coated paper using an alkaline peroxide mechanical pulping process which it supplements with purchased kraft chemical pulp for fiber.







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4.2  Capital Expenditures

In the past five fiscal years, Tembec incurred $828.1  million of gross capital expenditures, $10.8 million of asset disposals to total $817.3 million in net fixed asset additions, the most significant being related to modernization and production increases at the Témiscaming pulp mills, the construction of a thermomechanical pulp mill at Pine Falls, the construction of a cogeneration plant at the Skookumchuck pulp mill, the construction and upgrade of wood waste and biomass boilers at the Smooth Rock Falls pulp mill and Kapuskasing newsprint operations as well as additions related to the acquisition of the Chetwynd pulp mill. In the Forest Products Group, the principal capital expenditures were incurred for the construction or modernization of the Kapuskasing and Cochrane sawmills.  For fiscal 2003, Tembec incurred $131.8 million of net capital expenditures.

The following table sets out Tembec's capital expenditures on a consolidated basis for the five years ended September 30, 1999 and 2000, September 29, 2001, September 28, 2002 and September 27, 2003.



|                                   | 1999                    | 2000  | 2001  | 2002 | 2003 
|---------------------------------- | ----------------------- | ----- | ----- | ---- | -----
|                                   | (in million of dollars)
|Forest Products Group              | 36.6                    | 65.8  | 30.1  | 41.1 | 30.3 
|Pulp Group                         | 36.5                    | 135.9 | 94.2  | 40.6 | 74.3 
|Paper Group                        | 14.1                    | 58.2  | 83.5  | 6.5  | 12.2 
|Other                              | 3.7                     | 5.0   | 23.0  | 10.7 | 15.0 
|                                  
|Net Fixed Asset Additions          | 90.9                    | 264.9 | 230.8 | 98.9 | 131.8
|As a % of Fixed Asset Depreciation | 80%                     | 190%  | 118%  | 45%  | 59%  
|                                  



4.3  Environmental

Environmental Policy

Tembec shares with the community important responsibilities towards the environment in which we live and work.  The Corporation supports the responsible stewardship of resources, including forest, fish and aquatic habitat, wildlife, air, land and water.  Responsible stewardship, combined with a continuous improvement process, makes possible sustained economic development and an improved quality of life.  In this spirit, Tembec is committed to implementing and maintaining an effective environmental management program that will govern its attitude and action in environmental matters and will benefit the environment and the community, as well as its shareholders, employees and customers.



Tembec is committed to maintaining Environmental Management Programs ("EMPs") in order to demonstrate responsible stewardship of resources and a continual improvement of its environmental performance.  Tembec has two EMPs based on its corporate environmental policy -
 Forever Green® and Impact Zero®-
 targeting the forestry and manufacturing sectors respectively.  The objectives of the EMPs are to (i) maintain compliance with Tembec's corporate principles and environmental policy, (ii) integrate sustainable development, (iii) respond effectively to environmental issues, (iv) obtain appropriate certification  (v) and continually improve environmental performance.







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The main goal of Impact Zero® is to reduce to a minimum the impact of manufacturing activities on the environment.  The means of achieving this goal must be defined in a technical and economic context.  Impact Zero®includes the development of environmental objectives, targets and action plans that are based on specific performance criteria.  Impact Zero®also includes the implementation and maintenance of an environmental management system ("EMS"), in conformance with the ISO 14001-1996 standard.  The EMS is essential for the achievement of Tembec's environmental objectives.  With Impact Zero®, Tembec aims to become a world leader in environmental protection and sustainable development.  Impact Zero® objectives and targets are established in six key areas and for each Tembec manufacturing site.  Some objectives and targets are common to all sites while others are site-specific, depending on the site's operations and equipment, and


particular environmental context.  The sites are responsible for establishing and maintaining programs and action plans required to achieve the environmental objectives and targets within scheduled timeframes, as well as for allocating the human, technical and financial resources required for their implementation.  As part of Impact Zero®, Tembec has implemented the Environmental Profile Data SheetÔ
 ("EPDSÔ
") system, which applies to all Tembec pulp and paper products.  The EPDSÔ
 is a voluntary labeling program introduced in 1997 by the Forest Products Association of Canada.  It provides a standard template designed to assist customers in making informed choices based on the actual environmental attributes of the pulp and paper products they are purchasing.  It offers measurement data and explanatory comments related to the attributes that cover the life cycle of the products.  With the exception of products from recently acquired mills, the EPDSÔ
 form has been completed for each Tembec group of pulp and paper products, and verified by an independent auditor.



The Tembec Forever Green® Environmental Management Program (the "Forever Green® Program") aims to promote environmental protection, sustainable forest management, and conformance with the Tembec environmental policy for all forest operations.  Tembec is committed to demonstrating responsible stewardship of resources and a continual improvement of environmental performance.  As part of the Forever Green® Program, Tembec has developed guiding principles (the "Forever Green® Guiding Principles") that direct forest managers in the establishment of environmental objectives and targets.  The Forever Green® Guiding Principles represent important environmental values that must be respected in all forest activities.  The Forever Green® Program also includes the implementation and maintenance of an EMS, in conformance with the ISO-14001-1996 standard.  The values identified in the Forever Green® Guiding Principles are respected by setting objectives, and by maintaining an effective EMS.  The Forever Green® Guiding Principles are reviewed on an annual basis by the Tembec Corporate Forestry Committee.  One of the key roles of this committee is to oversee the progress of the Forever Green® Program and provide the necessary direction in order to ensure continual environmental improvement.  As part of the Forever Green® Program, Tembec has also made a commitment to certify all of its forest operations to the Forest Stewardship Council ("FSC") standards.  Therefore, it is anticipated that approximately 13 million hectares across Canada will be FSC certified by the end of 2005.  As of July 2003, nearly 3 million hectares of forest under licence to Tembec is FSC certified or 22% of the target set within the World Wildlife Fund - Canada / Tembec Joint Statement.







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Environmental Management

The Témiscaming site continues with its program to reduce the amount of particulate matter produced by its three waste liquor boilers. In 1999, the Corporation began a major multi-year modernization program at the Specialty Cellulose mill. As of September 27, 2003, a total of $115.4 million had been spent, a portion of which addresses matters related to environmental compliance.  The project includes the installation of electrostatic precipitators to reduce particulate matter exhausted to atmosphere to a level which meets the regulatory requirements. In late 2002, the Témiscaming site installed a new wet electrostatic precipitator on one of its boilers. Two remaining boilers will be equipped with electrostatic precipitators at the end of 2004. As well, the modernization project has already yielded positive results in the area of effluent treatment. In late 2000, the specialty cellulose pulp mill started up new screening facilities, as well as oxygen delignification and caustic soda extraction units, making it possible for the Témiscaming site to comply with adsorbable organic halogens limits.



The provincial regulator has filed charges against the Témiscaming site relating to discharges of effluent that exceeded regulatory standards.  The Corporation is currently contesting the charges and considers that the outcome will not materially affect its financial results.  Tembec has been actively assessing the merits of various options to address this situation and meet regulatory environmental standards. These include strategies to reduce its effluent at source, improve the operating efficiency of the existing treatment equipment, expand treatment capacity and/or construct an anaerobic waste water treatment facility. Failure to improve the performance of the existing waste water treatment facility will lead to higher operating costs and reduced operating efficiencies at the Témiscaming site.



Atmospheric emissions were reduced at the Smooth Rock Falls pulp mill.  In late 2000, Tembec completed the installation of an electrostatic precipitator on the facility's bark refuse boiler and subsequently started a second precipitator on the waste liquor recovery boiler.  The Smooth Rock Falls pulp mill also benefited from the expansion of its effluent treatment facilities.  In 2002, Tembec completed its installation of a black liquor oxidation unit at the Smooth Rock Falls pulp mill to reduce total reduced sulfur ("TRS") emissions.  However, the Smooth Rock Falls pulp mill's TRS and nitrogen oxides (NOx) have not met the environmental standards.  To address the TRS situation, Tembec has developed an environmental plan to collect and treat dilute gases.  Regarding the NOx the site developed an action plan which was recently filed with the Ministry of Environment.  Tembec currently anticipates that further investments will be required to bring the operations at the Smooth Rock Falls pulp mill within full compliance with environmental standards.



During fiscal 2001, Tembec installed a new wood waste fired boiler and co-generation unit at the Skookumchuck pulp mill.  The $55.5 million project provided a cost efficient and environmentally acceptable method of disposing of the region's waste while generating thermal and electrical energy required by the mill.







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Tembec has started the implementation of a multi-year environmental plan for its three pulp mills located in France to ensure compliance with current and upcoming environmental standards.  The total cost to be spent over the next 5 years is estimated at $130 million which represents the bulk of Tembec's environmental capital expenditures.  Major items include the installation of electrostatic precipitators to reduce particulate emissions, new boilers, upgrade of treatment facilities and process modifications in order to abate environmental impact.





4.4  Research and Development

Tembec considers research and development ("R&D") as essential to its growth and to its long-term ability to compete successfully on world markets.  Tembec's mission of minimizing costs and encouraging innovation while protecting the environment is backed by its objective to invest the equivalent of 1.0% of gross sales in R&D each year.  Some R&D is carried out with specialized research centres, Canadian and foreign universities, and strategic equipment and technology suppliers.  The R&D thrust is a crucial aspect of Tembec's activities, enabling Tembec to continue meeting its customers' ever-growing expectations and to develop new customer relationships.  In 2003, R&D investments amounted to over $100 million.



Research projects targeted environmentally sound forest operations, lower cost fibre transformation processes and new higher added product development.  In 2003, the Forest Resources Management Group, in collaboration with governments, universities and focus groups, led the Forest Research Partnership in the development of holistic and environmentally-friendly forest management practices that led to a sustainable 10% increase in available fibre resources.



The Forest Products Group's R&D efforts continue to focus on process technology and product development. A licencing agreement was signed in the fiscal year for co-branded manufacturing and sales and marketing of a structural framing product with superior acoustic performance. Progress has been made on other product development initiatives including building code approval for a new high strength, structural wood product.  Major highlights for process technology activities include the installation and start up of a prototype kiln for a new drying technology and on the development of a real-time, on-line diagnostic system for lumber manufacturing.



The Pulp Group's R&D effort was geared towards increasing yield, efficiency, and quality to solidify existing markets, while developing new value added products for strategic customers. The Paperboard Group, by nature of its specialty niche markets, is continuously involved in leading edge R&D.  The Publishing Paper Group is conducting strategic R&D aimed to future revenue growth and new operational efficiencies.  The Chemical Group has developed new products and explored new synergies with other Tembec groups in the areas of forestry byproducts and renewable energy.



4.5.  Litigation

4.5.1  Countervailing and Antidumping Duties

On April 2, 2001, petitions for the imposition of antidumping and countervailing duties on softwood lumber from Canada were filed with the USDOC and the USITC by certain U.S. industry and trade groups which have resulted in countervailing and antidumping duty orders which, in the case of Tembec, require it to make





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cash deposits respectively representing 18.79 %  and 10.21 % of the value of its softwood lumber imports entering the U.S. on or after May 22, 2002.  To date, WTO and NAFTA panels have ruled that the methodology the USDOC used to determine that Canadian softwood lumber received countervailable subsidies was erroneous.  A NAFTA panel (the "NAFTA Panel") ruled that key elements of the USDOC's methodology in the antidumping case were erroneous.  The USDOC issued a new determination pursuant to the NAFTA Panel's ruling on October 16, 2003, which potentially could reduce the antidumping cash deposit rate to 6.66%.  Tembec believes that the USDOC did not comply with the NAFTA Panel's rulings on several issues and challenged those aspects of the new determination before the Panel and is awaiting for a decision.  To date, WTO and NAFTA panels have ruled that the USITC has not been able to demonstrate that softwood lumber imports from Canada have threatened with material injury any U.S. industry, although the appeals process has yet to be exhausted and could run to the end of 2004.



Tembec and other Canadian forest product companies, the Federal Government and Canadian provincial governments (the "Canadian Interests") categorically deny the U.S. allegations.  The Canadian Interests continue to aggressively defend the Canadian softwood lumber industry in this trade dispute.  Tembec has served the U.S. Department of State with a claim against the U.S. under Chapter 11 of NAFTA seeking monetary damages for injury to Tembec's investments arising out of the U.S. conduct of the antidumping and countervailing duty proceedings.



The final amount, if any, of countervailing and antidumping duties that may be assessed on Canadian softwood lumber exports to the U.S. cannot be determined at this time and will depend on determinations yet to be made by the NAFTA or WTO panels.  Should these appeals to the NAFTA or WTO panels not result in the outright termination of the antidumping and countervailing duty orders, the final amount of countervailing and antidumping duties to be assessed on imports of Tembec's lumber will be determined by the USDOC in annual administrative reviews of these orders, the first of which commenced on July 1, 2003 and will be completed in 2004, at which time the results of those reviews may be appealed.



4.6  Risk Factors

The following information is a summary only of certain risk factors relating to the business of Tembec and is qualified in its entirety by reference to, and must be read in conjunction with, information appearing elsewhere in this Form.



Adverse Industry Economic Conditions; Cyclical Nature of Business

The markets for pulp, lumber, newsprint and other forest products are highly cyclical and characterized by (1) periods of excess product supply due to factors such as industry capacity additions and increased production at existing facilities and (2) periods of insufficient demand due to factors such as weak general economic activity and inventory destocking by customers, amongst other factors.   Demand for forest, pulp and paper products is also influenced to a significant degree by the global level of economic activity.







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Tembec is not able to predict with certainty market conditions and selling prices for its products.  There can be no assurance that prices for Tembec's products will not decline from current levels, or when such prices may increase.  Tembec has, in the past, and may, in future, decide to schedule market-related production downtime as a result.  Any prolonged or severe weakness in the market for any of Tembec's principal products adversely affects Tembec's revenues, results of operations, cash flow, and its ability to satisfy its obligations under its indebtedness (see caption Leverage and ability to service debt) and its capital expenditure requirements (see caption on Capital intensive operations).



Currency, Commodity and Raw Material Price Exposure

Tembec's financial performance is principally dependent on the selling prices of its products.  Prices for Tembec's products have fluctuated significantly in the past and may fluctuate significantly in the future.  A significant portion of Tembec's sales are conducted in international markets and priced in U.S. dollars.  Significant fluctuations in relative currency values affect Tembec's financial performance.  Increases in the value of the Canadian dollar or the Euro relative to the U.S. dollar and increases in the value of the U.S. dollar relative to other currencies make Tembec less competitive.   Tembec's operations utilize a significant amount of energy, amongst other raw materials, the prices of which can be subject to volatility.



Pricing fluctuations referred to above could have a material adverse effect on Tembec's business, financial condition, results of operations and cash flows.   In an attempt to mitigate the effect of this volatility on Tembec's business, financial condition, results of operations and cash flows, Tembec may engage in hedging through the purchase of derivatives. There can be no assurance that such hedging will be successful in materially reducing Tembec's exposure to such risks.



Competition

The lumber, pulp and paper industries are essentially commodity markets in which producers compete primarily on the basis of price.  In addition, since a majority of Tembec's lumber, pulp and paper production is directed to export markets, it competes on a worldwide basis against many producers of approximately the same or larger capacity.  In export markets, Tembec generally competes with U.S., Latin American, Asian and Scandinavian producers, many of whom have greater financial resources and operate mills which are lower cost producers than the mills operated by Tembec.  The imposition of duties by any country to which Tembec exports its products will have a material adverse effect on its business, financial condition and cash flows. See Item 4.5.1 - Countervailing and Antidumping Duties.



Leverage and Ability to Service Debt

There is no assurance that Tembec's business will generate sufficient cash flow from operations in the future to service Tembec's debt and make necessary capital expenditures, in which case Tembec may seek additional financing, dispose of certain assets or seek to refinance some or all of its debt.  In addition, a substantial portion of Tembec's bank credit facilities have terms of one year and are subject to annual renewal.   There is no assurance that the renewal of the short-term credit facilities or that additional financing, refinancing or asset disposals could be effected, if at all, on satisfactory terms the failure of which would materially adversely affect Tembec's financial position.







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The indentures governing Tembec's debt instruments contain numerous financial and operating covenants that will limit the discretion of management with respect to certain business matters.  These covenants will place significant restrictions on, among other things, the ability of Tembec to incur additional indebtedness, to create liens or other encumbrances, to make certain payments and investments, and to sell or otherwise dispose of assets and merge or consolidate with other entities.  A failure to comply with the obligations contained in the indentures governing Tembec's debt instruments could permit acceleration of the related debt and acceleration of debt under other instruments that contain cross acceleration or cross default provisions.



Adverse Consequences of Tembec Structure

A significant part of Tembec's business activities and assets are operated or held by its Subsidiaries. As a result, Tembec's ability to meet its financial obligations is dependent upon the receipt of interest and principal payment on intercompany advances, management fees, cash dividends and other payments from its Subsidiaries or joint-venture investments.  Tembec's principal Subsidiaries are parties to various agreements, principally loan agreements, that restrict the ability of the respective Subsidiaries to declare dividends or make advances or other payments to Tembec.



Availability and cost  of wood fiber

Tembec meets a significant portion of its timber requirements through government granted timber tenures.  Canadian courts have recognized that aboriginal people may possess rights in respect of land used or occupied by their ancestors where treaties have not been concluded to deal with these rights.  The courts have encouraged the federal and provincial governments and aboriginal people to resolve rights claims through the negotiation of treaties.  Aboriginal groups have claimed substantial portions of land in various provinces in which they have a traditional interest and for which they are seeking compensation from various levels of government.  Tembec cannot predict the extent to which aboriginal land claims or other rights will affect Tembec's existing Crown tenures or Tembec's private timberlands or its ability to harvest timber from these sources in the future, or its ability to renew or secure other sources in the future.  There can also be no assurance that Tembec's access to these tenures will continue to be renewed or extended by the governments on acceptable terms or that the amount of timber that is allowed to be harvested will not be decreased.   Further changes in legislation or regulatory regimes in provinces in which Tembec operates may change fee structures payable in relation to the harvesting of timber, may reduce the availability of fiber and may increase the costs through the imposition of additional and more stringent harvesting, rehabilitation and silvicultural standards.  These changes could have a material adverse effect on Tembec's business, financial condition and results of operations.



The forest products industry is periodically subject to natural events such as forest fires, adverse weather conditions, insect infestation, tree disease, prolonged drought and other natural disasters. The occurrence of any of these events could have a material adverse effect on Tembec's business, financial condition and results of operations.







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Tembec's pulp and paper mills purchase a significant portion of their fibre requirements from third parties under contract or in the spot market.   Lumber prices impact on the availability of wood chips, a by-product of lumber production, required by these mills.  Many Canadian lumber producers, especially those in eastern Canada such as Tembec where approximately half of the its pulp production is also located, have curtailed or ceased production in the depressed lumber markets experienced recently, which has resulted in a reduced supply of, and higher prices for, wood chips.  There can be no assurance that the Corporation will be able to ensure continuous supply of wood chips and optimize the flow of wood chips to the Corporation's pulp operations which could have a material impact on its business, financial condition, results of operations and cash flows.



Impact of Environmental Matters and Government Regulations

Tembec's operations are subject to a wide range of general and industry specific environmental, occupational health and safety, forestry, labor, tax and other laws and regulations.  Environmental requirements under such laws and regulations relate to, inter alia, air emissions, wastewater discharges, waste management, landfill operations, forestry practices, and site remediation.  Compliance with these laws and regulations is a significant factor in Tembec's business.  Failure by Tembec to comply with applicable environmental laws and regulations and the permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial actions, any of which could result in significant capital expenditures.  Tembec incurs, and expects to continue to incur, significant capital and operating expenditures in order to comply with applicable environmental laws and regulations.  No assurance can be given that changes in environmental laws and regulations or their application or the discovery of previously unknown contamination or other liabilities will not have a material adverse effect on Tembec's business, financial condition and results of operations.  Similarly, no assurance can be given that any capital expenditures necessary for future compliance with such environmental laws and regulations could be financed from Tembec's available cash flow.



Capital Intensive Operations

The production of lumber, pulp and paper is capital intensive.  Although Tembec maintains its production equipment with regular periodic and scheduled maintenance, there can be no assurance that key pieces of equipment in Tembec's various production processes will not need to be repaired or replaced.  The costs of repairing or replacing such equipment and the associated downtime of the affected production line could have a material adverse effect on Tembec's business, financial condition and results of operations.







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Risks Associated with Acquisition Strategy

Tembec has pursued a strategy of growth through acquisitions.  While Tembec continues to evaluate strategic acquisition opportunities, there can be no assurance that Tembec will be able to make further acquisitions on acceptable terms, establish, maintain or increase the profitability of acquired businesses or integrate such businesses successfully into Tembec's operations.  In addition, there can be no assurance that Tembec will be able to realize long-term cost savings or synergetic benefits from the acquisitions of such businesses.



Labour Disruptions

Approximately 75% of Tembec's work force is unionized.  The maintenance of a productive and efficient labour environment cannot be assured.  Tembec may not be able to negotiate acceptable new collective agreements upon expiration of existing agreements.  This could result in a strike or work stoppage by the affected workers.  Renewal of agreements could result in higher wages or benefits paid to union members.  Therefore, Tembec could experience a disruption of its operations or higher ongoing labour costs, which could have a material adverse effect of its business, financial condition, results of operations and cash flow.





ITEM 5 - SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following is a summary of selected historical consolidated financial information of the Corporation (all figures are in millions of dollars except per share amounts):



|EARNINGS                                             | 1999    | 2000    | 2001    | 2002    | 2003   
|---------------------------------------------------- | ------- | ------- | ------- | ------- | -------
|Net Sales                                            | 1,672.5 | 2,320.8 | 2,657.4 | 2,976.8 | 2,872.9
|Cost of sales                                        | 1,198.4 | 1,641.0 | 2,047.6 | 2,534.6 | 2,635.9
|Depreciation and amortization                        | 119.3   | 145.7   | 202.9   | 225.7   | 227.8  
|Income taxes (recovery)                              | 46.0    | 106.1   | 14.6    | (67.8)  | (39.1) 
|Net earnings (loss) applicable to common      shares | 74.9    | 195.7   | 26.1    | (117.2) | 10.8   
|                                                     | 1999    | 2000    | 2001    | 2002    | 2003   
|FINANCIAL POSITION                                   |         |         |         |         |        
|Working capital(1)                                   | 342.2   | 423.1   | 603.1   | 551.7   | 459.7  
|Fixed assets -
 net                                  | 1,748.7 | 2,064.8 | 2,586.4 | 2,487.8 | 2,392.4
|Long-term debt                                       | 1,150.3 | 1,170.6 | 1,984.4 | 1,942.0 | 1,767.1
|Total assets                                         | 2,634.9 | 3,112.8 | 4,097.3 | 3,991.4 | 3,787.1
|Shareholders equity                                  | 880.6   | 1,143.8 | 1,195.9 | 1,078.7 | 1,069.5

1. Excluding cash and short term debt



The indentures relating to the Corporation's Senior Notes (the "Indentures") prohibit the Corporation from declaring or paying any dividend unless, at the time of declaring and paying such dividend: (i) the Corporation not in default under the Indentures (ii) after giving pro forma effect to the payment of the dividend, the dividend together with the aggregate amount of all other Restricted Payments (as defined in the Indentures) made by the Corporation after the date of the Indentures is less than the sum of (a) 50% of Tembec's cumulative consolidated net income since the date of the Indentures and (b) 100% of the aggregate net proceeds received by the Corporation after the date of the Indentures from the issue and sale of equity and debt securities that have been converted into equity of the Corporation.





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24



ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of operations is contained on pages 4 to 32 of the Annual Report, which are incorporated by reference herein.



ITEM 7 - MARKET FOR SECURITIES OF THE COMPANY

There is no market for the Corporation's securities.



ITEM 8 - DIRECTORS AND OFFICERS

The directors of Tembec are elected annually to hold office until the next annual meeting or until a successor is elected or appointed.

8.1	Information Concerning Directors

CLAUDE BOIVIN, St-Lambert, Québec.  Mr. Boivin is the former President and Chief Operating Officer of Hydro-Québec and has been a director of the Corporation since 1998 and serves as a member of its Corporate Governance and Human Resources Committees.  Mr. Boivin also serves as a director of CGI Group Inc., Héroux-Devtek Inc., Groupe Laperrière & Verreault Inc. and of Boralex Power Income Fund.



JAMES E. BRUMM, New York, New York.  Mr. Brumm is the Executive Vice-President, General Counsel and director of Mitsubishi International Corporation and has been a director of the Corporation since 1999 and serves as a member of its Audit and Human Resources committees.  Mr. Brumm also served as a director of Mitsubishi Corporation from 1995 - 2002 and is a Director of Brunei LNG S.B.  He is a member of the Board of Visitors of Columbia University Law School, a Vice President of the board of the Sanctuary for Families and a board member of Forest Trends and of the American Bird Conservancy.  He is also President of the Mitsubishi International Corporation Foundation and a member of the Corporate Council of the New York Botanical Garden and the Corporate Advisory Council of Earthwatch.



FRANK A. DOTTORI, O.C., Témiscaming, Québec.  Mr. Dottori is the President and Chief Executive Officer of the Corporation, has been a director of the Corporation since 1995 and serves as a member of its Environmental Committee.  Mr. Dottori is Chairman of the Pulp and Paper Research Institute of Canada, and co-chair of the Free Trade Lumber Council. He is a director of Saputo Inc. and of Bell Nordiq Group Inc.



JACQUES J. GIASSON, Montréal, Québec.  Mr. Giasson is the Chairman and Chief Executive Officer of Groupe Giasson Ltd. and has been Chairman and a director of the Corporation since 1999 and chairs its Corporate Governance Committee as well as serving as a member of its Audit, Environmental and Human Resources committees.  Mr. Giasson is also Chairman of Uniboard Canada Inc. and chairs its Executive, Human Resources and Environmental committees in addition to serving as a member of its Audit Committee.  He is also a life governor of the Foundation of UQAM.









---

25



PIERRE GOYETTE, Outremont, Québec.  Mr. Goyette has been a director of the Corporation since 1999 and chairs its Audit Committee as well as serving as a member of its Corporate Governance Committee.  Mr. Goyette is also a director of Groupe St-Hubert Inc., and is Chairman of the Montréal World Film Festival.



GORDON S. LACKENBAUER, Calgary, Alberta.  Mr. Lackenbauer is Deputy Chairman of BMO Nesbitt Burns and has been a director of the Corporation since 1999 and serves as a member of its Corporate Governance Committee.



BERNARD LAMARRE, O.C., O.Q., Montréal, Québec.  Mr. Lamarre is the Chairman of Bellechasse Santé Inc. and has been a director of the Corporation since 1999 and chairs its Environmental Committee.  Mr. Lamarre is also Chairman of the Société du Vieux Port de Montréal, of the Société de la Faune et des Parcs du Québec, of École polytechnique de Montréal, of FRE Composites Inc., and of the Montréal Fine Arts Museum.



MARY THERESA McLEOD, Toronto, Ontario.  Ms. McLeod has been a director of the Corporation since 2003 and serves as a member of its Audit Committee.  Ms. McLeod held senior investment banking positions with Scotia McLeod Inc., Merrill Lynch Canada Inc., and Pitfield, MacKay, Ross & Company Ltd.  Ms. McLeod is a part-time member of the Ontario Securities Commission and member of its Nominating and Corporate Governance committee.  She is also a director of Epcor Utilities Inc., and Westcast Industries Ltd. Ms. McLeod is a Chartered Financial Analyst and earned her MBA from the University of Western Ontario.



The Hon. ROBERT K. RAE, O.C., P.C., Q.C., Toronto, Ontario.  Mr. Rae is a partner of Goodmans LLP and has been a director of the Corporation since 1999, chairs its Human Resources Committee and serves as a member of its Corporate Governance Committee.  Mr. Rae, former Premier of the Province of Ontario, is a board member of Hydro One, Trojan Technology, and Niigon Technology.  He also serves as Chairman of the Forum of Federations, of the Institute for Research in Public Policy, the Royal Conservatory of Music and the Toronto Symphony Orchestra.  He is a director of the Canadian Ditchley Foundation and national spokesperson for the Leukemia Research Fund. He is also a member of the International Council of the Asia Society, and of the Internal Trade Disputes Panel.



LUC ROSSIGNOL, Témiscaming, Québec.  Mr. Rossignol is the President of Local 233 of the Communications, Energy and Paper Workers Union and was elected to the board of directors of the Corporation in 2000.



GUYLAINE SAUCIER, C.M., Montréal, Québec.  Ms. Saucier has been a director of the Corporation since 1999 and serves as a member of its Audit and Human Resources committees.  Ms. Saucier is also a director of AXA Insurances Inc., Petro-Canada, Bank of Montreal, Nortel Networks and Altran Technology.  Ms. Saucier is the former Chair of the board of directors of the Canadian Broadcasting Corporation, of the Canadian Institute of Chartered Accountants and of the Joint Committee on Corporate Governance.







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26





FRANÇOIS TREMBLAY, Montréal, Québec.  Mr. Tremblay is a partner of Cain Lamarre Casgrain Wells and has been a director of the Corporation since 1999 and serves as a member of its Environmental Committee.





The directors of Tembec are elected annually to hold office until the next annual meeting or until a successor is elected or appointed.



No director of Tembec holds voting securities of the Corporation or any of its Subsidiaries.



Except as otherwise indicated, during the past five years, each of the directors of Tembec have been engaged in their present principal occupations or in other executive capacities with the companies indicated opposite their name or with related or affiliated companies.



As a result of the merger on January 22, 2004 of the Pension Fund Advisory Committee into the Human Resources Committee, the board of directors of Tembec has four standing committees: the Corporate Governance Committee, the Human Resources Committee, the Audit Committee and the Environmental Committee. The Corporate Governance Committee is composed of Messrs. Claude Boivin, Jacques J. Giasson (Chairman), Pierre Goyette, Gordon S. Lackenbauer and Robert K. Rae. The Human Resources Committee is composed of Messrs. Claude Boivin, James E. Brumm, Jacques J. Giasson Robert K. Rae (Chairman) and Mrs. Guylaine Saucier. The Audit Committee is composed of Messrs. James E. Brumm, Pierre Goyette (Chairman), Jacques J. Giasson and Mmes. Guylaine Saucier and Mary Theresa McLeod. The Environmental Committee is composed of Messrs. Bernard Lamarre (Chairman), Frank A. Dottori, Jacques J. Giasson and François Tremblay.





8.2  Information Concerning Non-Director Officers

|Non-director officers | Office with the Company                                          | Municipality,Province of residence
|--------------------- | ---------------------------------------------------------------- | ----------------------------------
|Michel Dumas          | Executive Vice President, Finance and Chief Financial Officer    | North Bay, Ontario                
|Charles Gagnon        | Vice President, Corporate Relations                              | Témiscaming, Québec               
|Thomas McAndrew Gale  | Vice President and General Manager, Resin Group                  | Kirkland, Québec                  
|Claude Imbeau         | Vice President, General Counsel and Secretary                    | Beloeil, Québec                   
|Terrence P. Kavanagh  | Executive Vice President, President, Pulp and Paper Group        | Témiscaming, Québec               
|Gerry Kutney          | Vice President and General Manager, Silvichemical Products Group | Témiscaming, Québec               
|James Lopez           | Executive Vice President, President, Forest Products Group       | North Bay, Ontario                





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27



|Non-director officers | Office with the Company                            | Municipality,Province of residence
|--------------------- | -------------------------------------------------- | ----------------------------------
|Stephen J. Norris     | Treasurer                                          | Beaconsfield, Québec              
|Yves Ouellet          | Vice President, Human Resources                    | Témiscaming, Québec               
|Mahendra Patel        | Vice President, Engineering and Purchasing         | North Bay, Ontario                
|Jacques Rochon        | Vice President, Information Technology             | Témiscaming, Québec               
|Jacques Rocray        | Vice President, Environment & Technology           | Témiscaming, Québec               
|Jean-Louis Tétrault   | Vice President, Administration and Legal Affairs   | St-Bruno, Québec                  
|Richard Tremblay      | Corporate Controller                               | Témiscaming, Québec               
|Mel Zangwill          | Senior Vice President, President, Paperboard Group | Montréal, Québec                  



No non-director officer of Tembec holds voting securities of the Corporation or any of its Subsidiaries.



During the past five years, each of the non-director officers of the Corporation have been engaged in their present principal occupations or in other executive capacities of the Corporation or with related or affiliated companies indicated opposite their name, except for Thomas McAndrew Gale, who from October 1998 to December 2000 was Vice-President of Cafa Financial Corp., while concurrently acting as President and Chief Executive officer of A.R.C. Resins International Corp. from October 1998 to present.





ITEM 9 - ADDITIONAL INFORMATION

Additional information including directors' and officers' remuneration and indebtedness, principal holders of Tembec's securities, options to purchase securities and interests of insiders in material transactions, where applicable, is contained in the Corporation's Annual Filing of Reporting Issuer on Form 28, and additional financial information is provided in the Corporation's comparative financial statements for its most recently completed financial year.



The Corporation will provide to any person, upon request to the Secretary of the Corporation:



1. when the securities of the Corporation are in the course of a distribution under a preliminary short form prospectus or a short form prospectus,
2. one copy of the Form, together with one copy of any document, or the pertinent pages of any document, incorporated by reference in the Form,





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28



1. one copy of the comparative financial statements of the Corporation for its most recently completed financial year for which financial statements have been filed together with the accompanying report of the auditor and one copy of the most recent interim financial statements of the Corporation that have been filed, if any, for any period after the end of its most recently completed financial year,
2. one copy of the information circular of the Corporation in respect of its most recent annual meeting of shareholders that involves the election of directors or one copy of any annual filing, prepared instead of that information circular, as appropriate, and
3. one copy of any other documents that are incorporated by reference into the preliminary short form prospectus or the short form prospectus and are not required to be provided under clauses (i), (ii) or (iii); or
4. at any other time, one copy of any other documents referred to in (a) (i), (ii) and (iii), provided that the Corporation may require the payment of a reasonable charge if the request is made by a person who is not a security holder of the Corporation.





---

29























TEMBEC INDUSTRIES INC.





ANNUAL REPORT 2003







For the fiscal year ended September 27, 2003





2
TABLE OF CONTENTS







|SECTION 1 ...............................................................................................      | 3 
|-------------------------------------------------------------------------------------------------------------- | --
|Management's Discussion and Analysis  ...............................................                          | 4 
|Overview ....................................................................................................  | 6 
|Segment review ........................................................................................        | 10
|Cash Provided by Operations    .................................................................               | 25
|Acquisitions and Investments ..................................................................                | 26
|Financing Activities ..................................................................................        | 26
|Environment ..............................................................................................     | 28
|Industrial Relations ...................................................................................       | 29
|Risk and Uncertainties .............................................................................           | 29
|Outlook ...................................................................................................... | 31
|                                                                                                               |   
|                                                                                                               |   
|                                                                                                               |   
|SECTION 2 ................................................................................................     | 33
|Consolidated Financial Statements of ....................................................                      | 34
|Auditors' Report .........................................................................................     | 35
|Consolidated Balance Sheets ..................................................................                 | 36
|Consolidated Statements of Operations .................................................                        | 37
|Consolidated Statements of Retained Earnings ....................................                              | 37
|Consolidated Statements of Cash Flows ................................................                         | 38
|Consolidated Business Segment Information .........................................                            | 39
|Notes to Consolidated Financial Statements ..........................................                          | 41

3

SECTION 1











4

TEMBEC INDUSTRIES INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 2003





The Management's Discussion and Analysis (MD&A) section provides a review of the significant developments and issues that influenced Tembec Industries Inc.'s financial performance during the fiscal year ended September 27, 2003 as compared to the fiscal year ended September 28, 2002.  All references to quarterly or Corporation information relate to Tembec Industries Inc.'s fiscal quarters. "EBITDA" refers to earnings before interest, income taxes, depreciation and amortization and other non-operating expenses.



The MD&A contains statements that are forward-looking in nature. Such statements involve known and unknown risks and uncertainties that may cause the actual results of the Corporation to be materially different from those expressed or implied by such forward-looking statements. Such items include, among others: general economic and business conditions; product selling prices; raw material and operating costs; changes in foreign currency exchange rates and other factors referenced herein and in the Corporation's continuous disclosure filings.



Throughout the MD&A, "Tembec" or "Corporation" means Tembec Industries Inc. and its consolidated subsidiaries and investments.  "AV Cell" refers to the Corporation's 50% participation in AV Cell Inc. which operates a dissolving pulp mill located in Atholville, New Brunswick.  "Marathon" refers to its 50% participation in Marathon Pulp Inc., which operates a northern bleached softwood kraft (NBSK) pulp mill in Marathon, Ontario. "Temlam" refers to the Corporation's 50% participation in Temlam Inc., which operates a laminated veneer lumber (LVL) plant in Ville Marie, Québec and wood I-beam manufacturing plants in Calgary, Alberta, Bolton, Ontario and Blainville, Québec. "Temrex" refers to the Corporation's 50% participation in Produits Forestiers Temrex Limited Partnership, which operates two sawmills in the Gaspé region of Québec.  These investments are accounted for by the proportionate consolidation method.



Tembec's operations consist of five reportable business segments: Forest Products, Pulp, Paper, Paperboard and Chemicals. On September 27, 2003 Tembec had approximately 9,900 employees and operated manufacturing facilities in New Brunswick, Québec, Ontario, Manitoba, British Columbia, the state of Louisiana and in Southern France.  Principal facilities are described in each of the reportable business segments.



On November 5, 2001, the Corporation purchased the shares of Davidson Industries Inc., which operates a hardwood sawmill and a pine sawmill in Davidson, Québec and a pine sawmill in Woodsville, New Hampshire.  The financial results have been fully consolidated in the Corporation's financial statements for all 12 months of fiscal 2002 and fiscal 2003.



On April 5, 2002, the Corporation formed the Temrex 50/50 joint venture to consolidate woodlands and sawmill operations in the Gaspé region of the province of Québec.  As part of the transaction, the Corporation sold its sawmill located in Nouvelle, Québec to Temrex.  The joint venture also purchased the St. Alphonse sawmill from the other partner.  The financial results of the Nouvelle sawmill facility have been fully consolidated for the first six months of fiscal 2002.  Temrex has been proportionally consolidated for the last six months of fiscal 2002 and for all 12 months of fiscal 2003.



Details of these transactions are outlined in the "Acquisitions and Investments" section of the MD&A.

5





On August 21, 2003, the Corporation reached an agreement to purchase the Nexfor sawmills located at LaSarre and Senneterre, Québec.  The transaction closed on October 31, 2003 with the Corporation purchasing the assets and working capital for $64.2 million in cash, which was sourced from existing liquidity.



On October 31, 2003, the Corporation reached an agreement to purchase the Weyerhaeuser sawmill, located at Chapleau, Ontario, for $25.5 million including certain elements of working capital.  The transaction is expected to close in the fourth calendar quarter of 2003 and is subject to certain conditions being met as well as government and other required approvals.

Accounting Changes

Effective September 29, 2002, the Corporation adopted retroactively with restatement of prior years, the new recommendations of Section 1650 of the Canadian Institute of Chartered Accountants (CICA) with respect to foreign currency translation and accordingly, eliminated the deferral and amortization of the unrealized translation gains and losses on foreign currency denominated monetary items that have a fixed or ascertainable life extending beyond the period.



Effective September 29, 2002, the Corporation adopted the new recommendations of Section 3062 of the CICA with regards to goodwill and intangible assets and accordingly, goodwill is no longer amortized to earnings, but periodically tested for impairment.  During fiscal 2003, the Corporation completed the first required annual impairment test of goodwill and did find impairment.  The impact is summarized in Note 17 of the audited consolidated financial statements.

Impact of accounting pronouncements on future reporting periods

The CICA has issued new recommendations relating to the impairment of long-lived assets.  These recommendations provide accounting guidance for the determination of long-lived asset impairment as well as recognition, measurement and disclosure of the impairment.  These recommendations will be applicable to the Corporation's fiscal 2004 financial statements.  We do not anticipate a material impact resulting from the application of the new recommendations unless events or changes in circumstances were to occur in future periods.



The CICA has issued new recommendations relating to the recognition, measurement and disclosure of liabilities for asset retirement obligations and the associated asset retirement costs.  These recommendations will be applicable to the Corporation's fiscal 2005 financial statements.  We do not anticipate a material impact resulting from the application of the new recommendations.



The CICA has issued the accounting guideline relating to accounting for trading speculative or non-hedging derivative financial instruments and the accounting guideline for documentation of hedging relationships.  The former addresses the accounting treatment for derivative financial instruments that do not qualify for hedge accounting.  The latter guideline addresses the identification, designation, documentation and effectiveness of the hedging relationship for the purpose of applying hedge accounting.  The new guidelines will be applicable to the Corporation's fiscal 2004 financial statements.  The Corporation anticipates that the new guidelines could have a significant impact on future results, in that any change in the fair value of derivative financial instruments between September 27, 2003 and the future date of measurement will be recorded in the financial results, whether the contracts are sold or not.  At September 27, 2003, the Corporation held a significant amount of US $ foreign exchange contracts having a fair value of $219.5 million.  Additional details are outlined in Note 20 of the audited consolidated financial statements.

6



OVERVIEW



|                                    
|------------------------------------
|Financial Summary$ millions         
|                                    
|Consolidated Gross Sales            
|Net Sales                           
|EBITDA                              
|EBITDA margin                       
|Net earnings (loss)                 
|                                    
|Identifiable Assets (excluding cash)
|                                    

The decrease in consolidated gross sales of $44.9 million in 2003 was due primarily to lower selling prices in Forest Products and Paper, partially offset by higher prices and volumes in the Pulp segment.



EBITDA margins declined below 5% for the first time in five years.  Fiscal 2003 represented the first time that the Corporation has simultaneously experienced trough pricing and margins in its three major segments, Forest Products, Pulp and Paper.



Despite a decrease of $200.7 million in EBITDA, the Corporation's reported net earnings actually improved by $128.0 million over the prior year.  There were two important items that more than offset the declining profitability of the major business segments.



The first relates to the Corporation's Euro and US $ hedging programs.  In the prior year, both the Euro and Canadian $ had been weaker versus the US $, and the hedges generated a loss of $53.8 million.  In fiscal 2003, the US $ weakened against both currencies and the hedging program generated a gain of $64.8 million.  The year over year improvement relating to currency hedges was $118.6 million.



The second item, also caused by currency, relates to the restatement of the Corporation's US $ denominated debt.  Here again, the stronger Canadian $ at the end of fiscal 2003, up 17% from the end of the prior year, generated a gain of $263.9 million on the translation of its foreign debt.  In the prior year, the ending value of the Canadian $ versus the US $ was relatively unchanged and a small gain of $3.7 million was recorded.  Although larger in total dollars than the aforementioned currency hedges, the gain on debt translation is an unrealized non-cash gain.



During fiscal 2002, the Corporation incurred non-recurring unusual charges of $23.8 million relating to early redemption of debt and costs associated with the modernization of its sawmills in northern Ontario.  In fiscal 2003, the Corporation incurred non-recurring unusual charges of $18.4 million relating to the impairment of goodwill, the permanent closure of a sawmill and fixed assets removed from service.

For the year ended September 27, 2003, the Corporation generated net earnings of $10.8 million compared to a net loss of $117.2 million in fiscal 2002. As noted above, currency gains on hedges and foreign debt accounted for all the improvement.

7





|                        
|------------------------
|Sales$ millions         
|                        
|Forest Products         
|Pulp                    
|Paper                   
|Paperboard              
|Chemicals & Other       
|                        
|Consolidated Gross Sales
|                        



Consolidated gross sales decreased by 1% from the prior year. Although the total decline of $44.9 million was relatively small, there were significant offsetting items.  Lower selling prices in Forest Products, Paper and Paperboard reduced sales by $125.0 million.  Higher selling prices and volumes in the Pulp and Chemicals segments increased sales by $80.1 million.  During the year, average selling prices were negatively impacted by a stronger Canadian $. The average exchange rate was $0.683 in 2003 versus $0.636 in 2002. In terms of geographical distribution the US remained the Corporation's principal market with 48% of consolidated sales in fiscal 2003, down from 50% in the prior year.  Canadian sales represented 19% of consolidated sales, unchanged from the prior year.  Sales outside of the US and Canada represented the remaining 33% in fiscal 2003, up from 31% in the prior year.



Forest Products segment consolidated sales decreased by $57.5 million because of lower prices and volumes of SPF lumber and Specialty Wood.  Improved pricing for OSB provided a partial offset.  The Pulp segment saw its sales increase by 5% or $62.4 million.  Higher selling prices and volumes of paper pulps increased sales by $84.0 million.  This included $35.3 million relating to the Chetwynd high yield pulp mill, which was restarted in February 2003.  The specialty pulp business did not perform as well as sales decreased by $21.7 million, largely volume related.  Sales for the Paper segment decreased by 6% or $51.2 million.  The Corporation saw prices decrease for all types of paper with higher volumes of coated papers providing a small partial offset.







8



|                 
|-----------------
|EBITDA$ millions 
|                 
|Forest Products  
|Pulp             
|Paper            
|Paperboard       
|Chemicals & Other
|                 
|                 
|                 

The $200.7 million decline in EBITDA was caused by lower profitability in all business segments.  Total EBITDA was $74.8 million, which represented a margin of 2.6% of net sales, a level not seen since 1986 and well below the five-year average of 15.1%.  EBITDA and margins in the Corporation's three largest business segments all dropped to five year lows in 2003.  Forest Products EBITDA declined by $108.3 million as a result of lower selling prices for SPF lumber and higher export duties on lumber shipped to the US.  The Paper segment EBITDA declined by $51.2 million due primarily to negative impact on selling prices of the appreciation of the Canadian $ versus the US $.



|                                                               
|---------------------------------------------------------------
|INTEREST, FOREIGN EXCHANGE AND OTHER$ millions                 
|                                                               
|Interest on indebtedness                                       
|Premium paid on early redemption of debt                       
|Interest income                                                
|Capitalized interest                                           
|Amortization of deferred financing costs                       
|Foreign Exchange:                                              
|Contract losses (gains)                                        
|Loss (gain) on restatement of non-Canadian $ monetary assets   
|Loss (gain) on consolidation of foreign integrated subsidiaries
|Loss (gain) on newsprint commodity contracts & lumber futures  
|Bank charges and other items                                   
|                                                               
|                                                               
|                                                               



Interest, foreign exchange and other items decreased by $91.8 million over fiscal 2002.   Interest on indebtedness declined by $13.1 million.  The impact of the stronger US $, which reduced the Corporation's EBITDA, also reduced interest expense on its US $ denominated Senior Notes by $10.4 million.



9

Foreign exchange contract gains totalled $64.8 million versus a loss of $53.8 million in the prior year.  During fiscal 2002, the Corporation incurred a loss of $68.3 million on its US $ / Canadian $ program, with a small offset of $14.5 million in gains on its US $ / Euro program.  In the year ended September 2003, both the Canadian $ and the Euro were stronger in terms of the US $.  As a result, the Corporation generated gains of $17.6 million on its US $ / Canadian $ program and $47.2 million on its US $ / Euro program.  While the weaker US $ generated significant hedging gains, it did however reduce the value of US $ monetary assets, principally cash and trade receivables.  As a result, the Corporation generated a loss of $26.3 million on restatement of non-Canadian $ monetary assets.  Additional details are outlined in Note 20 of the audited consolidated financial statements.



Effective September 29, 2003, the Corporation adopted the new recommendations of Section 1650 of the CICA with respect to foreign currency translation.  During the year ended September 2003, the Corporation recorded a gain of $263.9 million on the translation of its US $ denominated debt as the relative value of the Canadian $ increased from 0.634 US $ to 0.739 US $.  In fiscal 2002, the Canadian $ was relatively unchanged and the Corporation recognized a small gain on translation of foreign debt of $3.7 million.  The after-tax impact of the gain on translation of foreign denominated debt was $221.0 million as compared to the prior year after-tax gain of $3.1 million.



The following table summarizes the impact of unusual items in fiscal 2002 and 2003 ($ millions):





|                                             | September 2002 | September 2003
|-------------------------------------------- | -------------- | --------------
|                                             | Pre-tax        | After-tax     
|Early Redemption of Debt                     | 16.0           | 10.8          
|Sawmill Modernization                        | 7.8            | 5.3           
|Goodwill Impairment                          | -              | -             
|Sawmill Permanent Closure                    | -              | -             
|Paperboard Fixed Assets Removed from Service | -              | -             
|                                             |               
|                                             | 23.8           | 16.1          
|                                             |               





During fiscal 2002, the Corporation called US$250 million 9.875% Unsecured Senior Notes due 2005, including a call premium of 3.292%.  The early redemption of the 9.875% Senior Notes generated a pre-tax unusual item of $16.0 million, including $13.1 million pertaining to the payment of the call premium and $2.9 million for the writeoff of deferred financing costs.



Also in fiscal 2002, the Corporation incurred a non-recurring unusual charge of $7.8 million relating to costs associated with the modernization of sawmills in northern Ontario.  The charge included $6.1 million relating to the writedown of fixed assets removed from service and $1.7 million for early retirement and employee reduction programs.



In fiscal 2003, the Corporation absorbed a charge of $10.1 million relating to the impairment of goodwill relating to a remanufactured lumber facility acquired in 2000.  It also recorded a non-cash charge of $5.7 million relating to the permanent closure of a pine sawmill located in Woodsville, Maine.  Finally, it absorbed a non-cash charge of $2.6 million relating to the writedown of fixed assets removed from service at the paperboard mill located in Témiscaming, Québec.







10





|                                                      
|------------------------------------------------------
|FOREST PRODUCTS$ millions                             
|                                                      
|Total Gross Sales

Consolidated Gross Sales

Net Sales
|EBITDA                                                
|EBITDA  margin                                        
|                                                      
|Identifiable Assets 
(excluding cash)                 
|                                                      

The Forest Products segment is divided into two main areas of activity: Forest resource management and manufacturing operations.



The Forest Resource Management group is responsible for managing all of the Corporation's Canadian forestry operations. This includes the harvesting of timber, either directly or by contractual agreements, and all silviculture and regeneration work required to ensure a sustainable supply for all of the manufacturing units. The group is also responsible for third party timber purchases, which are required to supplement total requirements. The group's main objective is the optimization of the flow of timber into various manufacturing units. As approximately 80% of the Corporation's forest activity in Canada is conducted on Crown Lands, the Forest Resource Management group works closely with provincial governments to ensure harvesting plans and operations comply with established regulations and that stumpage charged by the provinces is reasonable and reflects the fair value of the timber being harvested. During fiscal 2003, the Corporation's operations harvested and delivered 5.8 million cubic meters of timber versus 6.0 million cubic meters in 2002. Additional supply of approximately 1.6 million cubic meters was secured mainly through purchases and exchanges with third parties, the same volume as in the prior year.



The Forest Products group includes operations located in Québec, Ontario, Alberta, British Columbia and France. The group focuses on three main product areas: SPF Lumber and Panels, Specialty Wood and Engineered Wood. The following table summarizes the normal operating levels of each facility by main area of activity and specific product:



|SPF Lumber & Panels                          | Mfbm     
|-------------------------------------------- | ---------
|Stud Lumber  - Taschereau / LaSarre , QC (1) | 185,000  
|Random Lumber - Béarn, QC              | 90,000   
|Random Lumber - Nouvelle, QC (2)             | 70,000   
|Random Lumber - St. Alphonse, QC (2)         | 30,000   
|Stud Lumber - Kirkland Lake, ON              | 35,000   
|Random Lumber  - Timmins, ON                 | 125,000  
|Stud Lumber - Cochrane, ON                   | 170,000  
|Stud Lumber - Kapuskasing, ON                | 90,000   
|Random Lumber - Opasatika, ON                | 95,000   
|Random Lumber - Hearst, ON                   | 125,000  
|Random Lumber  - Elko, BC                    | 180,000  
|Random Lumber - Canal Flats, BC              | 125,000  
|Random Lumber - Cranbrook, BC(3)             | 100,000  
|Finger Joint Lumber - Cranbrook, BC          | 25,000   
|                                             | 1,445,000



11

|                                              |                         
|--------------------------------------------- | ------------------------
|                                              | Million Ft2(1/16" basis)
|OSB - Saint Georges, QC                       | 1,700                   
|                                              |                         
|                                              |                         
|Specialty Wood                                | Mfbm                    
|                                              |                         
|Pine and Hardwood Lumber - Davidson, QC       | 55,000                  
|Pine and Hardwood Lumber - Mattawa, ON        | 30,000                  
|Pine and Hardwood Lumber - Témiscaming, QC    | 15,000                  
|Hardwood Lumber - Huntsville, ON              | 30,000                  
|Hardwood Flooring - Huntsville, ON            | 18,000                  
|Pre-Finished Hardwood Flooring - Toronto, ON  | 10,000                  
|Remanufactured Lumber - Brantford, ON         | 100,000                 
|Pine Lumber - Brassac, France                 | 15,000                  
|                                              | 273,000                 
|                                              |                         
|Engineered Wood                               | Thousand Ft3            
|                                              |                         
|LVL - Ville Marie, QC (4)                     | 450                     
|                                              |                         
|                                              | Mfbm                    
|Engineered Finger Joint Lumber - La Sarre, QC | 50,000                  
|                                              |                         
|                                              | ThousandLinear Ft       
|Wood I-Beam - Blainville, QC (4)              | 5,000                   
|Wood I-Beam - Bolton, ON (4)                  | 22,500                  
|Wood I-Beam - Calgary, AB (4)                 | 12,000                  
|                                              | 39,500                  
|                                              |                         
|                                              | Million Lbs             
|Metal Plates and Webs - Bolton, ON (4)        | 10.0                    
|                                             

1. Sites are operated as a combined entity.
2. Volumes reflect 50% of the normal operating levels as the unit is part of the Temrex joint venture.
3. Dries and planes lumber sawn at the Elko and Canal Flats sawmills.
4. Volumes reflect 50% of the normal operating levels as the unit is part of the Temlam joint venture.





The segment is dominated by SPF lumber, which represented 60% of building material sales in fiscal 2003, down from 63% in the prior year.  The average selling price of SPF lumber was $44 per mfbm lower than in the prior year.  The lower prices were the result of lower US $ prices combined with a Canadian $ that averaged 7.4% higher versus the US $.  OSB provided a partial offset as average prices increased by $11 per msf, 32% higher than in the prior year.  Specialty and Engineered Wood prices and revenues were also negatively impacted by the stronger Canadian $.  Overall, Specialty Wood represented 24% of building material sales in fiscal 2003, unchanged from the prior year.  Engineered Wood sales in the year increased from 7% to 8% of building material sales.



In addition to the above, the Forest Products group produced and shipped approximately 2.0 million tonnes of wood chips in fiscal 2003, 84% of which were directed to the Corporation's pulp and paper operations. In 2002, the group produced 2.1 million tonnes and also shipped 84% of this volume to the pulp and paper mills. The internal transfer price of woodchips is based on current and expected market transaction prices.



12



Total gross sales for this segment reached $1,082.5 million, a decrease of $56.8 million over the prior year.   SPF lumber was the cause of the sales decrease as the lower prices and a 2% decrease in volume reduced gross sales by $62.1 million.  Overall, the Forest Products segment generated 27% of total Corporation consolidated gross sales, down from 29% in the prior year.  As was the case in 2002, virtually all sales occurred in North America.

|                                       
|---------------------------------------
|                                       
|                                       
|                                       
|SPF Lumber & Panels                    
|SPF Lumber (mfbm) (1) (2)              
|OSB (Msf - 1/16")                      
|                                       
|                                       
|                                       
|Specialty Wood                         
|Pine and Hardwood (mfbm)               
|Hardwood Flooring (mfbm)               
|Remanufactured Lumber (mfbm)           
|                                       
|                                       
|                                       
|Engineered Wood                        
|LVL (cubic feet)                       
|Eng. Finger Joint Lumber (mfbm)        
|Wood I-Beams and Rim Joists (Linear Ft)
|Metal Plates & Webs ('000 lbs)         
|                                       
|                                       
|                                       
|                                       
|Total Building Materials               
|                                       
|Wood chip & other sales                
|                                       
|                                       
|Total Gross Sales                      
|                                       
|                                       
|Internal wood chip & other sales       
|                                       
|Consolidated Gross Sales               
|                                       
|                                       

1. Includes 100% of Nouvelle, QC sawmill for the first six months of fiscal 2002.  50% thereafter.
2. Includes 50% of the Saint-Alphonse, QC sawmill for the last six months of fiscal 2002 and all of fiscal 2003.

Markets

The benchmark random length Western SPF lumber net price averaged US$251 per mfbm in 2003, a decrease from US$269 per mfbm in 2002.  In the East, the random length Eastern SPF average lumber price (delivered Great Lakes) decreased from US$339 per mfbm to US$321 per mfbm in 2003.  The Corporation considers these to be relatively low levels, approximately US$25 to US$30 below trendline prices for SPF lumber.  This weak pricing did not correlate with the favourable interest rate environment experienced in North America and the strong lumber demand as evidenced by US annual housing starts in excess of
1.7 million units.  It is the Corporation's view that the ongoing lumber trade dispute between Canadian and US producers is undercutting normal market forces.



13







It has now been 30 months since the five-year Canada / US Softwood Lumber Agreement (SLA) expired on April 1, 2001.  On April 2, 2001, petitions for the imposition of antidumping and countervailing duties on softwood lumber to the US were filed with the US Department of Commerce (USDOC) and the US International Trade Commission (USITC) by certain US industry and trade groups.  In August 2001, the USDOC made a preliminary countervailing duty determination, imposing a bonding rate of 19.31% on Canadian softwood lumber shipped to the US after August 16, 2001.



The preliminary countervailing duty continued in fiscal 2002 as the Corporation accrued a $11.0 million on lumber shipments to the US from September 30 to December 15, 2001.  Preliminary countervailing duty effectively expired on the latter date.  In addition, on October 31, 2001, the USDOC made a preliminary antidumping determination imposing a bonding requirement at the rate of 10.76% on the Corporation's shipments of Canadian softwood lumber to the US.  The aforementioned average rate was assigned specifically to the Corporation based on the USDOC review of our actual historical shipments to the US.  During the first half of fiscal 2002, the Corporation accrued a total of $9.7 million relating to shipments to the US between November 6, 2001 and March 30, 2002.



On May 16, 2002, the USITC announced it had found no current injury, but a threat of injury, to the US lumber industry, effectively removing the requirement to remit the $21.8 million of accrued preliminary countervailing duty and the $9.7 million of accrued preliminary antidumping duty.  In the June 2002 quarter, the Corporation reversed accruals totalling $31.5 million relating to the above items.  The bonds posted to cover the liability were also cancelled.



The finding of threat of injury by USITC resulted in the USDOC issuing an order to collect cash deposits of estimated countervailing and antidumping duties on a going forward basis.  Effective May 22, 2002, the Corporation's softwood lumber exports to the US have been subject to a countervailing duty cash deposit rate of 18.79% and an antidumping cash deposit rate of 10.21%.  To the end of fiscal 2002, the Corporation incurred a charge of $18.2 million relating to countervailing duty deposits and a charge of $10.1 million relating to antidumping duty deposits for lumber shipped to the US between May 22, 2002 and September 28, 2002.  During fiscal 2003, the Corporation incurred a charge of $49.7 million relating to countervailing duty and a charge of $31.5 million for antidumping duty for lumber shipped to the US between
September 29, 2002 and September 27, 2003.  The Corporation is currently remitting cash deposits to cover the applicable estimated duties.



Overall, the net impact of duties in fiscal 2003 was a charge of $81.2 million, up from $17.5 million in the prior year.  The increase in duties was the principal contributor to the drop in reported EBITDA.  The expense for countervailing and antidumping duties is recorded as sales deductions in the Corporation's financial statements, thereby reducing consolidated net sales and Forest Products net sales in segmented information.  Additional details are outlined in Note 13 of the audited consolidated financial statements.



14





Operations



The volume of SPF lumber sold decreased by 2% compared to 2002. In light of the trade issues with the US, the Corporation is taking steps to proactively manage its product mix to minimize the impact of lumber export duties.  Concurrently, the Corporation continued with its program to improve the value mix of the products it manufactures and sells.  These efforts, combined with certain sawmill process improvements are the primary reason that the average price of the Corporation's SPF lumber shipments decreased by 9% per mfbm over the prior year, whereas the benchmark grades, adjusted for the change in currency, decreased by 12%.  In addition to the improved product mix, average cash costs of SPF lumber were reduced by $17 per mfbm sold.



Overall, EBITDA decreased by $108.3 million.   The lower SPF prices combined with the $63.7 million increase in lumber export duties noted previously were the primary cause.  The Forest Products segment reduced total Corporation EBITDA in fiscal 2003, whereas it had generated 26% in the prior year.



15



|                                                      
|------------------------------------------------------
|PULP$ millions                                        
|                                                      
|Total Gross Sales

Consolidated Gross Sales

Net Sales
|EBITDA                                                
|EBITDA margin                                         
|                                                      
|Identifiable Assets (excluding cash)                  
|                                                      

The Pulp group consists of eleven market pulp manufacturing facilities operating at ten sites. The facilities are divided into two main types. Paper pulp mills produce softwood kraft, hardwood kraft and high yield pulps. Specialty pulp mills produce specialty cellulose, fluff and dissolving pulps. Nine of the pulp mills are wholly-owned and the Corporation has a 50% joint venture position in the Marathon, Ontario softwood kraft pulp mill and in the Atholville, New Brunswick dissolving pulp mill. All of the Corporation's financial and statistical data include only its 50% proportionate share of these two mills. The Corporation does however have responsibility for marketing the entire output of the two joint ventures. The Corporation's partner in the AV Cell joint venture is the Aditya Birla Group of India, which effectively purchases the entire output of the mill at market prices.   In October 2002, the Corporation acquired the assets of the idled Chetwynd high yield pulp mill for the nominal sum of $1.  The mill, located in northern British Columbia, had not operated since April 2001.  Commercial production at the mill resumed in February 2003 and the startup period lasted approximately 5 months.  The following table summarizes the products and current annual capacity of each facility by main type:



|Paper Pulps                                                     |  |          
|--------------------------------------------------------------- |  | ---------
|                                                                |  | Tonnes   
|Softwood Kraft -
 Skookumchuck, BC                              |  | 270,000  
|Softwood Kraft -
 Smooth Rock Falls, ON                         |  | 200,000  
|Softwood Kraft -
 Marathon, ON (50% of current annual capacity) |  | 95,000   
|Softwood Kraft -
 Tarascon, France                              |  | 260,000  
|Hardwood Kraft -
 Saint-Gaudens, France                         |  | 305,000  
|Hardwood High Yield -
 Témiscaming, QC                          |  | 300,000  
|Hardwood High Yield - Matane, QC                                |  | 230,000  
|Hardwood High Yield - Chetwynd, BC                              |  | 200,000  
|                                                                |  | 1,860,000
|Specialty Pulps                                                 |  |          
|                                                                |  |          
|Specialty Cellulose -
 Témiscaming, QC                          |  | 165,000  
|Fluff -
 Tartas, France                                         |  | 155,000  
|Dissolving -
 Atholville, NB (50% of current annual capacity)   |  | 60,000   
|                                                                |  | 380,000  
|                                                                |  |          
|Total Pulp                                                      |  | 2,240,000

16



Total sales for the Pulp group reached a record high of $1,380.4 million, an increase of $78.7 million over the prior year.   The Group benefited from higher paper pulp selling prices and set a new record for sales volume.  The Corporation sold an additional 59,100 tonnes of pulp in fiscal 2003, up 3% from the prior year.  After eliminating internal sales, the Pulp group generated 39% of consolidated gross sales, an increase from 36% in the prior year.



Markets



The Pulp segment is more "global" than the other business groups within Tembec. In 2003, 76% of consolidated gross sales were generated outside of Canada and the United States, compared to 78% in 2002.  The Corporation markets its pulp on a world-wide basis, primarily through its own sales force. The Pulp Group maintains sales or representative offices in Toronto, Canada; Signy/Nyon, Switzerland; and Beijing, China. The Corporation's sales force also markets pulp produced by third parties. In fiscal 2003, agency pulp sales totalled 4,500 tonnes compared to 8,500 tonnes in 2002.



Year over year, average selling prices of external pulp shipments increased by $17 per tonne as compared to the year ago period.  This was a partial reversal of fiscal 2002, which saw average prices decline by $117 per tonne.  The benchmark NBSK pulp price (delivered US) stood at US$480 per tonne at the beginning of fiscal 2002.  Pulp prices continued to weaken, eventually troughing at US$460 per tonne in April 2002, a level not seen since March 1996.  Prices then recovered to US$510 per tonne in the summer of 2002 before dropping back to US$480 per tonne in December 2002.  We then experienced a fairly positive period, which saw published prices increase by US$100 per tonne to US$580 per tonne by April 2003.  This price held for most of the spring, but we experienced a decline of $30 per tonne to US$550 per tonne in the summer of 2003, and that is the level at which fiscal 2003 ended.  A positive element during the period was that North American and Scandinavian (Norscan) inventories remained in the 1.7 million tonne range.  In the previous 1996 trough period, inventories had reached nearly 2.6 million tonnes.  In last year's MD&A, we had expressed a view that prices would remain relatively low in the first half of fiscal 2003 and we would then see a modest improvement beginning in the spring of 2003.  Although our view on prices turned out to be relatively accurate, we had not anticipated the impact of the declining US $, as the Canadian $ averaged 7.4% higher and mitigated much of the positive impact of the higher pulp prices.  The only positive in the area of currency, is that the Euro has also strengthened considerably versus the US $ during 2003, reducing the effective cost of pulp for European purchasers of market pulp.



17





|                        
|------------------------
|                        
|                        
|                        
|Paper Pulps             
|Softwood Kraft          
|Hardwood Kraft          
|High Yield (1)          
|Specialty Pulps         
|                        
|Total Pulp Sales        
|                        
|Other Sales             
|                        
|Total Sales             
|                        
|Internal Sales          
|                        
|                        
|Consolidated Gross Sales
|                        
|                        

(1)



Operations

Total shipments in fiscal 2003 increased by 59,100 tonnes over the prior year, establishing a new record.   The increase was primarily due to the restart of the Chetwynd, B.C. high yield pulp mill in February 2003.  During fiscal 2003, the mill produced 75,000 tonnes and shipped 62,100 tonnes.  In fiscal 2003, the Pulp group undertook 75,400 tonnes of total downtime, including 11,400 tonnes taken at two eastern Canadian NBSK mills in response to woodchip supply constraints.  This compares to 51,500 tonnes of maintenance downtime and 4,100 tonnes of market related downtime taken a year ago.



Despite relatively "full" operations, the reported delivered cash costs increased by $57.2 million or $29 per tonne shipped.  The stronger Euro, which averaged 1.583 Canadian $, or 9.5% higher than the 1.445 experienced a year ago, was an important factor.  As a result, cash costs for our three French pulp mills, which represented 36% of the segments total sales volume, were approximately $40.5 million higher than would have been the case if the Euro had not appreciated versus the Canadian $.  The cash costs of the French mills, expressed in Euros, actually declined by 10 Euro per tonne in fiscal 2003.  In addition, the two Témiscaming, Québec pulp mills incurred higher operating costs and reduced operating efficiencies associated with the treatment of their effluent.



The Corporation remained mindful of allowing its inventories to increase beyond normal levels.  Total consolidated pulp inventories at September 27, 2003 were 150,600 tonnes, representing approximately 25 days of production.  This was similar to 2002 when we ended the year with 148,700 tonnes or 25 days of production in inventory.



Total 2003 shipments of 1,968,500 tonnes include 56,400 tonnes of high yield and 39,500 tonnes of softwood kraft consumed by the Corporation's paperboard operations as compared to 56,200 tonnes and 40,900 respectively in the prior year.  As well, 14,400 tonnes of pulp were consumed internally by various other pulp and paper operations, as compared to 15,700 tonnes in 2002.  In all, internal pulp consumption represented approximately 6% of total shipments, unchanged from the prior year.

18





The eight North American pulp mills purchased approximately 2.2 million bone dry tonnes of woodchips in fiscal 2003, up from 2.1 million tonnes in the prior year.  Of this amount, approximately 44% were supplied by the Forest Products Group.  This represents a small decrease over the prior year when 50% were supplied internally.  The remaining requirements were purchased from third parties under contracts and agreements of various duration.  The three pulp mills located in southern France purchased 1.4 million bone dry tonnes of woodchips in fiscal 2003, the same amount as in 2002.  The fibre is sourced from many private landowners.



Overall, improved pricing was not able to offset the higher Canadian $ reported manufacturing cash cost of our French mills and EBITDA declined by $23.7 million and margins dropped from 8.8% to 6.3%.  As a result of the negative EBITDA of the Forest Products Group, the Pulp Group EBITDA represented 97% of total Corporation EBITDA in 2003, up from 35% in the prior year.















19



|                                    
|------------------------------------
|PAPER$ millions                     
|                                    
|Consolidated Gross Sales

Net Sales 
|EBITDA                              
|EBITDA margin                       
|                                    
|Identifiable Assets (excluding cash)
|                                    

The Paper segment currently includes four paper manufacturing facilities with a total of 12 paper machines. The Spruce Falls mill located in Kapuskasing, Ontario produces newsprint and uncoated groundwood (UCGW) papers. The Pine Falls, Manitoba mill produces newsprint. The facility located in Saint-Raymond, Québec  produces machine finished coated paper (MFC) and high brightness UCGW papers. The St. Francisville, Louisiana mill produces coated and specialty papers.  The following table summarizes the products and current annual capacity of each facility by main type:



|Newsprint & Uncoated Groundwood Papers         | Tonnes   
|---------------------------------------------- | ---------
|Newsprint - Kapuskasing, ON                    | 400,000  
|Newsprint - Pine Falls, MB                     | 180,000  
|High-Brite - St. Raymond, QC                   | 28,000   
|                                               | 608,000  
|                                               |          
|Coated Papers                                  |          
|Coated No 4 and 5 - St. Francisville, LA       | 280,000  
|Machine Finished Coated - St. Raymond, QC      | 40,000   
|                                               | 320,000  
|                                               |          
|Specialty Papers                               |          
|Uncoated Bleached Board - St. Francisville, LA | 83,000   
|Specialty Kraft Paper - St. Francisville, LA   | 30,000   
|                                               | 113,000  
|                                               |          
|Total Paper                                    | 1,041,000

Although the above table shows all capacities in "metric" tonnes, coated paper and certain specialty papers are sold primarily in short tons.



Sales for the segment declined to $824.9 million, a decrease of $51.2 million over 2002.  Lower effective selling prices for all grades of paper reduced sales by $61.6 million or $63 per tonne shipped.  In the case of newsprint and UCGW, prices decreased despite the increase in US $ reference prices, the stronger Canadian $ being the cause.  Coated paper prices dropped even more, absorbing the combined impact of lower US $ reference pricing and the stronger Canadian $.  Overall, the Paper group generated 25% of consolidated sales in fiscal 2003, as compared to 26% in the prior year.



20



Markets

The focus of the Paper business is North America, which accounted for 95% of sales in 2003, compared to 97% in 2002.  The US alone accounted for 85% of sales. Newsprint and UCGW prices averaged $34 per tonne less in 2003 versus the prior year.   During fiscal 2002, the benchmark newsprint price (48.8 gram - East Coast) continued to decline, eventually troughing at US$435 per tonne in July 2002, a level not seen since April 1994.  Since then, we have witnessed a slow and gradual improvement, with the benchmark price reaching US$500 per tonne in September 2003.



The recovery in pricing of coated papers has been slower to materialize.  During fiscal 2002, the benchmark price (No 5 - 40 lb) dropped by US$105 per short ton, troughing at US$665 per short ton in September 2002, a level not seen in more than a decade.  During the last half of fiscal 2003, producers raised prices and the benchmark price stood at US$695 per short ton at September 2003.



|                        
|------------------------
|                        
|                        
|                        
|Newsprint and UCGW      
|Coated Papers           
|Specialty Papers        
|                        
|Consolidated Gross Sales
|                        
|                        



Operations

For the year ended September 27, 2003, the Group's mill enjoyed relatively full operations with no significant market related production curtailments, as was the case in the prior year.  Total cash costs at the three Canadian mills increased by $14.5 million or $23 per tonne, primarily as a result of higher purchased energy costs.  This unfavourable item was more than offset by a cash cost decrease of $30.3 million relating to the St. Francisville, Louisiana paper mill.  The decrease is due to the relative increase in the value of the Canadian $ versus the US $.  The mill's cash cost, expressed in US $, was relatively unchanged year over year.



The Paper Group's mills are large users of virgin fibre, primarily in the form of woodchips.  During fiscal 2003, the operations purchased 1.1 million bone dry tonnes of virgin fibre, of which approximately 33% was internally sourced.  This represents the same volume and percentage as fiscal 2002.  The operations in Kapuskasing and Pine Falls both produce newsprint that contains recycled fibre.  In 2003, these two facilities consumed 104,900 tonnes of wastepaper, down from 109,500 tonnes in 2002.



Overall, fiscal 2003 was a difficult year.  Weak US $ prices combined with the stronger Canadian $ to generate low Canadian $ selling prices.  Although, the US $ cost base of the St. Francisville mill provided a partial currency offset, EBITDA and margins declined to levels not seen since the Corporation diversified into paper in 1997.  In fiscal 2003, the Paper Group generated 28% of total Corporation EBITDA, compared to 26% in the prior year.

21





|                                    
|------------------------------------
|PAPERBOARD$ millions                
|                                    
|Consolidated Gross Sales

Net Sales 
|EBITDA                              
|EBITDA margin                       
|                                    
|Identifiable Assets (excluding cash)
|                                    

The Paperboard segment consists of a multi-ply bleached coated paperboard machine located in Témiscaming, Québec.  The annual capacity of the machine is 160,000 tonnes. The paperboard mill is partially integrated with a high yield pulp mill and also consumes NBSK pulp manufactured by the Corporation at other sites.





|                        
|------------------------
|                        
|                        
|                        
|Paperboard - rolls      
|Paperboard - sheets     
|                        
|Consolidated Gross Sales
|                        



Markets



North American sales accounted for 92% of  total sales in 2003, up from 88 % in the prior year.   Products are sold in roll and sheet form, with the latter commanding higher prices due to additional conversion costs. The Corporation markets its paperboard in three different market areas; commercial printing and publishing, specialty bleached linerboard and packaging.



Average selling prices in 2003 declined by approximately 9% from 2002, reducing sales by $17.7 million or $118 per tonne sold.  Here again, the stronger Canadian $ was the primary cause of the decrease.  The mill sold 149,500 tonnes in 2003, similar to the 148,800 tonnes sold in 2002.  The Paperboard segment generated 6% of total Corporation sales, the same percentage as 2002.

Operations



The board machine produced 143,900 saleable tonnes in 2003, a decrease of 4% from 149,300 tonnes in 2002. The mill had 25 fewer operating days in fiscal 2003.  In February, the paperboard machine was down approximately nine days to install new process equipment.  Subsequently, in the summer period, the machine took approximately two weeks of market related downtime to balance inventories and demand.  After allowing for the downtime, the operating efficiency of the machine actually increased by 4% or 15 tonnes per operating day.



22

Overall, the stronger Canadian $ weakened prices, with higher efficiency and lower cash costs providing a partial offset.  The Paperboard segment contributed 14% of total Corporation EBITDA in fiscal 2003, up from 8% in the prior year.









23





|                                     
|-------------------------------------
|CHEMICALS$ millions                  
|                                     
|Consolidated Gross Sales

Net Sales  
|EBITDA                               
|EBITDA margin                        
|                                     
|Identifiable Assets 
(excluding cash)
|                                     

The Chemical segment operates in two main areas of activity: phenol-formaldehyde resins and silvichemicals.



The resin business operates a liquid resin plant and a spray dryer in Témiscaming, Québec, a liquid resin plant and a formaldehyde plant in Longueuil, Québec, and a spray dryer in Trois-Pistoles, Québec.  Products are sold in liquid and powder form.



The silvichemical business uses waste sulphite liquor produced by the specialty pulp mills located in Témiscaming, Québec and Tartas, France. Lignin is sold in liquid form and is also converted into powder by utilizing the two spray dryers. As well, the group operates an ethyl alcohol plant located in Témiscaming, Québec. The silvichemical business effectively converts pulp mill waste into value added products.



|                        
|------------------------
|                        
|                        
|                        
|Resin (tonnes)          
|Lignin (tonnes)         
|Alcohol (000 litres)    
|                        
|                        
|Total Sales             
|                        
|                        
|Internal Sales          
|                        
|                        
|Consolidated Gross Sales
|                        



24

Markets
Chemical products are sold primarily in North America with such sales representing 78% of the total in 2003, compared to 77% in 2002. Resin products, which accounted for 67% of chemical sales, are designed for the OSB industry. Lignin is sold as a binder and surfactant for industrial markets such as animal feed, concrete admixture and carbon black. Ethyl alcohol is sold into the Canadian vinegar and cosmetics markets.  Chemical Group sales represented 4% of consolidated sales in 2003, up from 3% in the prior year.

The increase in sales of $15.5 million is due primarily to higher volumes and selling prices for resin products.  However, the increase in selling prices did not keep pace with the increases in purchased raw materials, and EBITDA and margins declined in both resins and silvichemicals.  The Chemical Group generated 11% of total Corporation EBITDA, up from 5% in fiscal 2002.

25

CASH PROVIDED BY OPERATIONS

Cash flow from operations before working capital changes for fiscal 2003 was negative $44.6 million, a $96.9 million decline from the comparable period last year.  The reduced cash flow corresponds to the decline in EBITDA, partially offset by lower interest and foreign exchange costs. For the year ended September 2003, non-cash working capital items generated $126.4 million, an increase from $14.9 million generated by the same items in the prior year.Capital Spending$ millions
1999
2000
2001
2002
2003Forest Products
36.6
65.8
30.1
41.1
30.3Pulp
36.5
135.9
94.2
40.6
74.3Publishing Papers
14.1
58.2
83.5
6.5
12.2Paperboard
2.5
3.4
20.9
3.9
6.3Chemicals and other
1.2
1.6
2.1
6.8
8.7Net Fixed Asset Additions
90.9
264.9
230.8
98.9
131.8As a % of Net Sales
5%
11%
9%
3%
5%As a % of Fixed Asset Depreciation
80%
190%
118%
45%
59%In response to the continued weak cash flow, the Corporation has limited capital expenditures to mandatory projects and those with high rates of return.  In fiscal 2003, net fixed asset additions totalled $131.8 million compared to $98.9 million in the comparable period a year ago.  The amount spent is equal to 59% of fixed asset depreciation and 5% of net sales.  The increase over the prior year is largely a result of capital expenditures of $28.6 million related to the startup of the recently acquired Chetwynd, BC high yield pulp mill.  The mill was restarted in February 2003 and the remaining capital expenditures are not anticipated to be significant.

26ACQUISITIONS AND INVESTMENTS

On November 5, 2001, the Corporation purchased all of the shares of Davidson Industries Inc., which owns and operates a hardwood sawmill and a pine sawmill in Davidson, Québec and a pine sawmill in Woodsville, New Hampshire.  The total purchase price was $27.7 million, including the assumption of $25.5 million of indebtedness and the issuance of a non-interest bearing $2.2 million three year note to the vendors.

On April 5, 2002, the Corporation formed the Temrex 50/50 joint venture to consolidate woodlands and sawmill operations in the Gaspé region of the province of Québec.  The two partners initially each invested $32.8 million in cash to capitalize the partnership.  The latter then purchased the Corporation's Nouvelle sawmill assets and related net working capital for $41.8 million in cash.  The partnership also purchased the assets and net working capital of the Saint-Alphonse sawmill from the other partner for $23.0 million.

FINANCING ACTIVITIES

The Corporation's total debt decreased from $2,029.3 million to $1,794.9 million at the end of fiscal 2003.  The decrease was due exclusively to the revaluation of the Corporation's US $ denominated debt, the Canadian $ having ended the 2003 fiscal year at US$0.739, compared to US$0.634 a year ago.  The currency change reduced the carrying value of the Corporation's US $ denominated debt by $263.9 million in fiscal 2003.  The Corporation's inability to generate positive free cash flow under the current pricing environment limited its ability to reduce debt or make acquisitions.

As part of its long term strategy, the Corporation has resolved to maintain its percentage of net debt to total capital to 40% or less.  The objective of the plan is to keep a strong balance sheet and maintain the ability of the Corporation to access capital markets at favourable rates. The Corporation remains committed to this program. As the Corporation's leverage at September 27, 2003 exceeds its stated goal, the emphasis in the near term will be to maintain relatively high liquidity and limit capital expenditures. Improvement in the pricing levels of the Corporation's main business segments will be required before any reduction in financial leverage can be achieved.

Current credit ratings of various agencies on the significant long term debt instruments are outlined in the table below.

|Dominion
Bond Rating
Service | Moody's
Investors
Service | Standard
& Poor's
|---------------------------- | ------------------------- | -----------------
|BB                           | Ba 3                      | BB               



The Corporation's ratings were reduced during 2003 as the continued low selling prices combined with a stronger Canadian $ and a full year of lumber export duties reduced EBITDA margins to very low levels.





27





Tembec's long term debt is summarized in the following table:

|                                                                              
|------------------------------------------------------------------------------
|$ millions                                                                    
|                                                                              
|Tembec Industries - Advance from parent company                               
|Tembec Industries - US$500 million 8.5% senior notes                          
|Tembec Industries - US$350 million 7.75% senior notes                         
|Tembec Industries - US$350 million 8.625% senior notes(US$250 million in 2002)
|Tembec Industries - 8.30% unsecured debentures                                
|Tembec Industries - 7% unsecured subordinated debentures                      
|Spruce Falls - US$8.6 million 8.39% senior notes(US$17.1 million in 2002)     
|Spruce Falls - non-interest bearing Ontario Hydro loan                        
|Tembec S.A. debt                                                              
|Proportionate share of Marathon debt (50%)                                    
|Proportionate share of Temlam debt (50%)                                      
|Other debt                                                                    
|                                                                              
|Current portion included in above                                             
|                                                                              

In March 2002, the Corporation issued US$350 million of 7.75% Unsecured Senior Notes due 2012.  The majority of the proceeds were used to call the US$250 million 9.875% Unsecured Senior Notes due 2005, including the call premium of 3.292% and accrued interest payable.  During the quarter ended March 2002, the early redemption of the 9.875% Senior Notes generated an unusual pre-tax charge of $16.0 million.  The remaining proceeds were to be used to redeem the C$115 million 8.30% Unsecured Debentures.  To the end of fiscal 2002, the Corporation had repurchased $84.3 million of the 8.30% Debentures.  The balance of $30.7 million was repaid at maturity in January 2003.



In March 2003, the Corporation issued US$100 million of Unsecured Senior Notes as an "add-on" to the existing US$250 million 8.625% Unsecured Senior Notes.  The additional tranche was issued at par.  The proceeds were used for general corporate purposes.



During 2003, the Corporation made required principal payments of $10.0 million on the 7% unsecured subordinated debentures, US$8.5 million on the 8.39% senior notes and $25.9 million on the Ontario Hydro loan.  It also repaid $35 million of parent Corporation advances.

At the end of September 2003, Tembec had cash and temporary investments of $114.3 million plus unused operating lines totalling $298.3 million.  This compares to $149.8 million and $376.8 million respectively at the end of the prior fiscal year.  The Corporation's objective is to maintain total available liquidity of approximately $400 to $500 million.



During September 2003, the Corporation redeemed 1,250,000 Series 3 Class B Preferred Shares at their original issue price of $16 per share, or $20 million.  The preferred shares had been issued in 1994 as part of the Temboard restructuring.





28



ENVIRONMENT



Tembec's operations are subject to a variety of environmental laws and regulations covering emissions of gaseous, liquid and solid waste.  The Corporation believes that its operations generally conform to the requirements. If issues of non-conformity arise, the Corporation, in conjunction with appropriate government regulating agencies, takes timely and appropriate measures to address the issues. Tembec has implemented environmental management programs aimed at meeting or exceeding the standards established by the regulatory agencies.



The Témiscaming site continued with its program to reduce the amount of particulate matter produced by its three waste liquor boilers. In 1999, the Corporation began a major multi-year modernization program at the Specialty Cellulose mill. As of September 27, 2003, a total of $115.4 million had been spent.  The project includes the installation of electrostatic precipitators to reduce particulate matter exhausted to atmosphere to a level which meets the regulatory requirements. In late 2002, the Témiscaming site installed a new wet electrostatic precipitator on one of its boilers.  Two remaining boilers will be equipped with electrostatic precipitators at the end of 2004.  As well, the modernization project has already yielded positive results in the area of effluent treatment. In late 2000, the specialty cellulose pulp mill started up new screening facilities, as well as oxygen delignification and caustic soda extraction units, making it possible for the Témiscaming site to comply with adsorbable organic halogens limits.



The provincial regulator has filed charges against the Témiscaming site relating to discharges of effluent that exceeded the regulatory standard.  The Corporation is currently contesting the charges and considers that the outcome will not materially affect its financial results.  Tembec has been actively assessing the merits of various options to address this situation.  These include strategies to reduce its effluent at source, improve the operating efficiency of the existing treatment equipment, expand treatment capacity and/or construct an anaerobic waste treatment facility.  Failure to improve the performance of the existing waste water treatment facility will lead to higher operating costs and reduced operating efficiencies at the Témiscaming site.



Particulate matter emissions were also reduced at the Smooth Rock Falls pulp mill. In late 2000, we completed the installation of an electrostatic precipitator on the facility's bark refuse boiler and subsequently started up a second precipitator on the waste liquor recovery boiler. The site also benefited from the expansion of its effluent treatment facilities. The total cost of these three items was $16.3 million. In 2002, this site benefited from an investment of $1.5 million to complete the installation of a black liquor oxydation process to reduce total reduced sulphur (TRS) emissions at the mill.  However, the mill's TSR, nitrogen oxides and total suspended particulates air emissions levels remain above regulatory standards.  The Corporation filed an updated action plan with the provincial regulator in November 2003.  The Corporation anticipates that further capital expenditures will be required to bring the operations within full compliance but that these expenditures will not materially affect its financial position.



The Corporation has developed a multi-year environmental plan for its three French pulp mills to ensure compliance with current and upcoming environmental standards. The total estimated cost is $130 million to be spent over the next five years. Major items include the installation of electrostatic precipitators to reduce particulate emissions to atmosphere, new boilers and upgrades and process modifications to effluent treatment facilities.



At September 27, 2003, the Corporation had accrued $4.5 million (US$3.3 million) for the estimated future costs related to the closure and post-closure of certain solid waste landfill sites at the St. Francisville, Louisiana paper mill. The accrued amounts are expected to be paid during the operation of the landfills, through closure of the sites and the thirty-year post closure monitoring period.





29



INDUSTRIAL RELATIONS



There are collective agreements covering approximately 6,500 employees in Tembec's operations.  At September 27, 2003, there were two agreements covering 275 employees under active negotiations.  During fiscal 2004, a total of 15 agreements covering 1,590 employees will expire.  The remaining contracts expire at various dates to June 2009.  The Corporation anticipates it will reach satisfactory agreements on contracts currently under active negotiations.





RISKS AND UNCERTAINTIES



Product Prices



Markets for the Corporation's principal products are highly competitive and cyclical in nature.  The general level of economic activity and changes in industry capacity have a significant impact on selling prices and operating margins.  Based on 2004 planned sales volumes, the following table illustrates the approximate annual impact of changes to average Canadian  dollar selling prices on after-tax earnings.

|                             
|-----------------------------
|                             
|Pulp - $25/tonne             
|Publishing papers - $25/tonne
|SPF lumber - $10/Mfbm        
|Paperboard - $50/tonne       
|                             



The Corporation's strategy is to mitigate price volatility by; maintaining low cost, high quality flexible  production facilities; establishing and developing long-term relationships with its customers; developing specialty niche products where possible. In addition, the Corporation may periodically purchase lumber, pulp and newsprint price hedges to mitigate the impact of price volatility.  In early fiscal 2002, the counterparty to newsprint hedges, Enron, effectively defaulted on 105,000 tonnes of hedges.  Since the Corporation did not mark to market the hedges, the default did not impact its earnings.  The Corporation has not purchased any additional newsprint hedges since that time.  During fiscal 2003, the Corporation recorded a loss of $0.7 million relating to lumber price hedges, compared to a gain of $0.6 million in the prior year.  The Corporation has not yet purchased any pulp price hedges, but will continue to monitor market developments. The opportunity to stabilize margins in the pulp sector merits serious consideration.



Foreign Exchange



Tembec sells the majority of its products outside of Canada (81% of gross sales in 2003), mostly in US $.  As such, the relative strength of the Canadian $ versus its US counterpart has a major impact on sales and operating earnings. To reduce the impact on net earnings of short and medium term fluctuations in currency rates, Tembec had adopted a policy of hedging approximately 50% of its anticipated net US $ receipts with fixed forward contracts of up to 36 months in duration.  As well, the acquisition of the two French pulp mills in October 2000 led to the implementation of a smaller US $ / Euro program to effectively hedge the anticipated margins generated by these operations.





30



During fiscal 2003, the Corporation continued with its US $ / Canadian $ hedging program.  In 2003, this program yielded a gain of $17.6 million as compared to a loss of $68.3 million in the prior year.  At September 27, 2003, there remained outstanding US $1,158.9 million of foreign exchange contracts at an average rate of 1.5772 (0.634).  If the contracts had been settled at that date, based on the ending conversion rate of 1.3529 (0.739), the Corporation would have received $219.5 million.  The US $ / Canadian $ program, which began in 1995, was designed to pre-sell up to 50% of anticipated net US $ receipts for a three year period.  At that time, the Corporation was less than a quarter of its current size on a gross sales basis.  In light of Tembec's growth and greater geographic diversification, the Corporation has been reviewing the requirement for such a large scale program going forward.  Consideration is currently being given to reducing or exiting the US $ / Canadian $ program.



At the end of September 2002, the Corporation had US$444.0 million of US $ / Euro foreign exchange options outstanding with scheduled maturities from October 2002 to March 2005.  This program had been put in place in October 2000, coincident with the purchase of the two Larochette pulp mills, located in Southern France.  In light of the significant strengthening of the Euro versus the US $, the Corporation liquidated its position in fiscal 2003.  As a result, in addition to gains of $44.8 million realized on the options during fiscal 2003, the Corporation has generated a deferred gain of $76.5 million on the options that would normally have matured in fiscal 2004 and 2005.  The deferred gain will be realized into income over the next six quarters, in accordance with the original maturities of the options.  The Corporation's outstanding foreign exchange contracts and options are disclosed in Note 20 of the audited consolidated financial statements.



Based on fiscal 2004 budget data, a 1% decrease in the value of the Canadian $ and the Euro versus the
US $ would increase EBITDA by $26.5 million.  After giving effect to the US $ / Canadian $ hedging program and the impact of unrealized losses on the restatement of US $ denominated debt, there would be no impact on net earnings.  This compares to a net earnings increase of $4.6 million if the currency hedging program were not in place.



Lumber Export Duties



The sale of softwood lumber, mainly SPF and Pine, represented 17% of consolidated gross sales in fiscal 2003.  Of this amount, approximately 68% was exported to the US.  Since May 22, 2002, the Corporation has been subject to countervailing and antidumping duties at an average rate of 29% for softwood lumber shipped to the US (see Note 13 of the audited consolidated financial statements).  The Corporation has been making the required cash deposits since that date.



The application of countervailing and antidumping duties has reduced, and may continue to reduce, the net sales and margins relating to softwood lumber.  As well, there can be no assurance at this time that any new agreement or arrangement between the US and Canada will lead to improved financial results in the future.





31



OUTLOOK



Forest Products



In last year's MD&A, we had expressed concern that the financial pressure caused by the imposition of export duties on Canadian lumber producers could lead to the acceptance of a politically expedient resolution to the trade issue rather than a comprehensive solution leading to the free movement of lumber between the US and Canada.  This did not materialize in fiscal 2003.  Canadian lumber producers actually managed, via various legal challenges, to improve their relative position.  However, financial pressures continue to build.  At the end of September 2003, the Corporation's total duty deposits stood at
$109.5 million, while the total for the Canadian industry had reached approximately $1.6 billion.  Although, a negotiated settlement may improve the financial health of Canadian producers in the near term, we remain concerned about the longer term implications for Canadian softwood lumber.  The recent weakening of the US $ has also changed the competitive landscape, increasing the relative cost position of Canadian producers.  We continue to support the approach whereby the North American industry should focus on promoting forest products as sustainable, environmentally sound products.  Too much energy and resources are being spent to "carve up" the market when the industry should be growing it.  As for the Corporation, we will continue to participate in discussions and remain strongly committed to free trade.  We also remain committed to the softwood lumber business, having acquired three additional sawmills in the first quarter of fiscal 2004.  We will also endeavour to grow our Specialty and Engineered wood businesses which, for the most part, have more stable and predictable margins than SPF lumber.



Pulp



As anticipated, the US $ reference price for market pulp increased in the latter half of fiscal 2003.  The benchmark NBSK pulp price (delivered US) is currently at US$580 per tonne, an increase of US$100 per tonne since January 2003.  However, the weaker US $ has left realized revenues, expressed in Canadian $, relatively unchanged from a year ago.  The same is also true for Euro based pulp producers.  As a result of the currency changes, the benefit of the price increases did not flow through to the Corporation's EBITDA margins.  Going forward, we anticipate price increases that should lead to pulp in the US$650 per tonne range by the summer of 2004.  We view the risk of further weakening of the US $ vis-à-vis the Canadian $ and the Euro to be remote and would expect future increases to positively impact our profitability and margins.  There are risks associated with our outlook.  The supply of hardwood pulps remains plentiful.  Although the softwood pulp market is in better balance, historically both of these segments need to be in balance to create a positive environment for market pulp producers.  The strength of the Euro versus the US $ is another important factor.  Although the stronger Euro allows for higher US $ pulp prices to be absorbed by our customers, there is a risk that such a rapid change can lead to a weaker European economy with a reduction in overall demand for pulp and paper products.  Finally, a stronger printing and writing paper business will be required to support a good market pulp business.



Paper



The story surrounding newsprint is similar to that of market pulp.  The benchmark newsprint price (48.8 gram - East Coast) increased from US$435 per tonne in July 2002, to its current level of US$515 per tonne.  Although this represents an 18% increase in US $ pricing, the weaker US $ effectively eliminated any gain for the Corporation, as well as other Canadian based manufacturers of newsprint.  Our outlook for newsprint is one of modest pricing improvement in 2004.  Although we have not seen a strong recovery in demand, the higher relative cost position of Canadian producers will put upward pressure on newsprint prices.



32



As for coated paper, markets were challenging in 2003.  Although the benchmark price (No. 5 - 40 lb) did increase by US$30 per short ton, reaching US$695, it remained well below historical and trend line levels.  Currency does not play as important a role for coated papers since both the Corporation's sales and manufacturing costs are largely US $ denominated.  However, there is an indirect impact.  The recent weakening of the US $ versus the Euro does improve the competitive cost position of US paper producers.  The weaker currency should also benefit the US economy in broader terms.  Our outlook for coated papers is for gradual pricing improvement in 2004.





In summary, the financial results of 2003 fell short of our expectations.  The Corporation was able to offset a portion of the negative currency impact with its hedging program, which will be a significant source of cash flow and income in fiscal 2004 as well.  Until we see some improvement in the pricing of our products and increases in our operating cash flows, the Corporation will continue to limit capital expenditures and focus on maintaining relatively high levels of liquidity.



















33



























SECTION 2













34



| | Consolidated Financial Statements
  of
| | --------------------------------------





| | TEMBEC INDUSTRIES
  INC.
| | ------------------------





| | Years ended September 27, 2003 and
      September 28, 2002
| | -----------------------------------------------------------







35

AUDITORS' REPORTTo the Shareholders of Tembec Industries Inc.We have audited the
consolidated balance sheets of Tembec Industries Inc. as at September 27,
2003 and September 28, 2002, and the consolidated statements of operations,
retained earnings and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.We conducted our audit
in accordance with Canadian generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.In our opinion, these
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at September 27, 2003 and
September 28, 2002, and the results of its operations and its cash flows
for the years then ended in accordance with Canadian generally accepted
accounting principles.





Chartered Accountants

Montréal, CanadaOctober 28, 2003, except for
note 21 which is as of October 31, 2003





36
TEMBEC INDUSTRIES INC.Consolidated Balance SheetsSeptember 27, 2003 and September 28,
2002(in millions of dollars)

|                                                       |                                                               |   |         |       |      |   |            |       |  
|------------------------------------------------------ | ------------------------------------------------------------- | - | ------- | ----- | ---- | - | ---------- | ----- | -
|                                                       |                                                               |   | 2003    |       | 2002
|                                                       |                                                               |   |         |       |      |   | (Restated)
|                                                      
|Assets                                                 |                                                               |   |         |       |      |   |            |      
|Current
      assets:                                  |                                                               |   |         |       |      |   |            |      
|                                                       | Cash and
      cash equivalents                               |   | $       | 87.6  |      |   | $          | 143.3 |  
|                                                       | Temporary
      investments                                   |   |         | 26.7  |      |   |            | 6.5   |  
|                                                       | Accounts
      receivable (note 7)                            |   |         | 438.9 |      |   |            | 478.9 |  
|                                                       | Due from
      parent company Tembec Inc.                     |   |         | 19.2  |      |   |            | 52.5  |  
|                                                       | Inventories (notes 3 and 7)                                   |   |         | 496.7 |      |   |            | 527.2 |  
|                                                       | Prepaid
      expenses                                        |   |         | 14.6  |      |   |            | 13.3  |  
|
|                                                       |                                                              
|
|                                                       |                                                               |   | 1,083.7 |       |      |   | 1,221.7    |      
|Investments                                            |                                                               |   | 4.1     |       |      |   | 7.1        |      
|Fixed
      assets (note 5)                            |                                                               |   | 2,392.4 |       |      |   | 2,487.8    |      
|Other
      assets (note 6)                            |                                                               |   | 280.5   |       |      |   | 238.3      |      
|Goodwill
      (note 17)                               |                                                               |   | 26.4    |       |      |   | 36.5       |      
|
|                                                      
|                                                       |                                                               | $ | 3,787.1 |       |      | $ | 3,991.4    |      
|                                                      
|Liabilities and Shareholders' Equity                   |                                                               |   |         |       |      |   |            |      
|Current
      liabilities:                             |                                                               |   |         |       |      |   |            |      
|                                                       | Operating
      bank loans (note 7)                           |   | $       | 30.4  |      |   | $          | 21.5  |  
|                                                       | Accounts
      payable and accrued charges                    |   |         | 509.7 |      |   |            | 520.2 |  
|                                                       | Current
      portion of long-term debt (note 8)              |   |         | 27.8  |      |   |            | 87.3  |  
|                                                       |                                                              
|                                                       |                                                               |   | 567.9   |       |      |   | 629.0      |      
|Long-term
      debt (note 8)                          |                                                               |   | 1,767.1 |       |      |   | 1,942.0    |      
|Other
      long-term liabilities and credits (note 9) |                                                               |   | 146.9   |       |      |   | 130.4      |      
|Future
      income taxes (note 18)                    |                                                               |   | 211.6   |       |      |   | 186.0      |      
|Minority
      interests (note 10)                     |                                                               |   | 7.5     |       |      |   | 8.7        |      
|Redeemable
      preferred shares (notes 11 and 12)    |                                                               |   | 16.6    |       |      |   | 16.6       |      
|                                                       |                                                               |   |         |       |      |   |            |      
|Shareholders' equity:                                  |                                                               |   |         |       |      |   |            |      
|                                                       | Share
      capital (note 12)                                 |   |         | 741.4 |      |   |            | 761.4 |  
|                                                       | Contributed surplus                                           |   |         | 2.9   |      |   |            | 2.9   |  
|                                                       | Cumulative
      exchange translation of a foreign subsidiary |   |         | (3.0  | )    |   |            | (3.0  | )
|                                                       | Retained
      earnings                                       |   |         | 328.2 |      |   |            | 317.4 |  
|
|                                                       |                                                              
|                                                       |                                                               |   | 1,069.5 |       |      |   | 1,078.7    |      
|                                                      
|                                                       |                                                               | $ | 3,787.1 |       |      | $ | 3,991.4    |      
|                                                      

Contingent liabilities (note 13)Subsequent event
(note 21)



See accompanying notes to consolidated financial
statements



On behalf of the Board:



Jacques J. Giasson
ChairmanFrank A. Dottori
President and Chief Executive Officer

37

TEMBEC INDUSTRIES INC.Consolidated Statements of OperationsYears ended September 27, 2003 and
September 28, 2002(in millions of dollars)

|                                                                                                                                       |  |      |         |      |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ---------- | -
|                                                                                                                                       |  | 2003 |         | 2002
|                                                                                                                                       |  |      |         |      |  |   | (Restated)
|                                                                                                                                      
|Gross
      sales                                                                                                                      |  | $    | 3,346.1 |      |  | $ | 3,391.0    |  
|Freight
      and sales deductions                                                                                                     |  |      | 392.0   |      |  |   | 396.7      |  
|Countervailing and antidumping duties (note 13)                                                                                        |  |      | 81.2    |      |  |   | 17.5       |  
|                                                                                                                                      
|Net
      sales                                                                                                                        |  |      | 2,872.9 |      |  |   | 2,976.8    |  
|                                                                                                                                       |  |      |         |      |  |   |            |  
|Cost of
      sales                                                                                                                    |  |      | 2,635.9 |      |  |   | 2,534.6    |  
|                                                                                                                                       |  |      |         |      |  |   |            |  
|Selling,
      general and administrative                                                                                              |  |      | 162.1   |      |  |   | 166.6      |  
|
|                                                                                                                                      
|Earnings
      before interest, income taxes, depreciation and amortization, and other
      non-operating expenses (EBITDA) (note 14) |  |      | 74.9    |      |  |   | 275.6      |  
|                                                                                                                                       |  |      |         |      |  |   |            |  
|Depreciation and amortization (note 15)                                                                                                |  |      | 227.8   |      |  |   | 225.7      |  
|
|                                                                                                                                      
|Operating
      earnings (loss)                                                                                                        |  |      | (152.9  | )    |  |   | 49.9       |  
|                                                                                                                                       |  |      |         |      |  |   |            |  
|Interest,
      foreign exchange and other (note 16)                                                                                   |  |      | 122.6   |      |  |   | 214.4      |  
|Exchange
      gain on long-term debt                                                                                                  |  |      | (263.9  | )    |  |   | (3.7       | )
|Unusual
      items (note 17)                                                                                                          |  |      | 18.4    |      |  |   | 23.8       |  
|Income
      taxes (note 18)                                                                                                           |  |      | (39.1   | )    |  |   | (67.8      | )
|Minority
      interests                                                                                                               |  |      | (1.7    | )    |  |   | 0.4        |  
|
|                                                                                                                                      
|Net
      earnings (loss)                                                                                                              |  | $    | 10.8    |      |  | $ | (117.2     | )
|
|                                                                                                                                      

Consolidated Statements of Retained Earnings

Years ended September 27, 2003 and
September 28, 2002(in millions of dollars)

---

|                                                                        |  |      |       |      |  |   |        |  
|----------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | -
|                                                                        |  | 2003 |       | 2002
|                                                                       
|Retained
      earnings, beginning of year                              |  | $    | 348.6 |      |  | $ | 508.1  |  
|Adjustment
      resulting from changes in accounting policies (note 1) |  |      | (31.2 | )    |  |   | (73.5  | )
|
|                                                                       
|Restated
      retained earnings, beginning of period                   |  |      | 317.4 |      |  |   | 434.6  |  
|Net
      earnings (loss)                                               |  |      | 10.8  |      |  |   | (117.2 | )
|
|                                                                       
|Retained
      earnings, end of year                                    |  | $    | 328.2 |      |  | $ | 317.4  |  
|
|                                                                       

See accompanying notes to consolidated financial
statements.

38

TEMBEC INDUSTRIES INC.Consolidated Statements of Cash Flows

Years ended September 27, 2003 and
September 28, 2002(in millions of dollars)

---

|                                                                                                 |                                                     |                                                                             |        |        |        |      |        |            |       |  
|------------------------------------------------------------------------------------------------ | --------------------------------------------------- | --------------------------------------------------------------------------- | ------ | ------ | ------ | ---- | ------ | ---------- | ----- | -
|                                                                                                 |                                                     |                                                                             |        | 2003   |        | 2002
|                                                                                                 |                                                     |                                                                             |        |        |        |      |        | (Restated)
|                                                                                                
|Cash flows
      from operating activities:                                                      |                                                     |                                                                             |        |        |        |      |        |           
|                                                                                                 | Net
      earnings (loss)                           |                                                                             | $      | 10.8   |        |      | $      | (117.2     | )    
|                                                                                                 | Adjustments for:                                    |                                                                             |        |        |        |      |        |            |      
|                                                                                                 |                                                     | Depreciation and amortization                                               |        |        | 227.8  |      |        |            | 225.7 |  
|                                                                                                 |                                                     | Amortization of deferred financing costs                                    |        |        | 5.4    |      |        |            | 6.6   |  
|                                                                                                 |                                                     | Exchange
      gain on long-term debt                                       |        |        | (263.9 | )    |        |            | (3.7  | )
|                                                                                                 |                                                     | Loss
      (gain) on consolidation of foreign integrated
      subsidiaries |        |        | 6.4    |      |        |            | (5.9  | )
|                                                                                                 |                                                     | Future
      income taxes (note 18)                                         |        |        | (47.0  | )    |        |            | (83.9 | )
|                                                                                                 |                                                     | Unusual
      items (note 17)                                               |        |        | 18.4   |      |        |            | 23.8  |  
|                                                                                                 |                                                     | Other                                                                       |        |        | (2.5   | )    |        |            | 6.9   |  
|                                                                                                 |                                                    
|                                                                                                 |                                                     |                                                                             | (44.6  | )      |        |      | 52.3   |           
|                                                                                                 | Changes in
      non-cash working capital:          |                                                                             |        |        |        |      |        |            |      
|                                                                                                 |                                                     | Accounts
      receivable                                                   |        |        | 76.3   |      |        |            | 22.5  |  
|                                                                                                 |                                                     | Inventories                                                                 |        |        | 23.3   |      |        |            | 7.3   |  
|                                                                                                 |                                                     | Prepaid
      expenses                                                      |        |        | (1.4   | )    |        |            | 7.5   |  
|                                                                                                 |                                                     | Accounts
      payable and accrued charges                                  |        |        | 28.2   |      |        |            | (22.4 | )
|                                                                                                 |                                                     |                                                                             | 126.4  |        |        |      | 14.9   |           
|
|                                                                                                 |                                                    
|                                                                                                 |                                                     |                                                                             | 81.8   |        |        |      | 67.2   |           
|                                                                                                 |                                                    
|Cash flows
      from investing activities:                                                      |                                                     |                                                                             |        |        |        |      |        |           
|                                                                                                 | Acquisition of companies, net of disposals (note 2) |                                                                             |        | (3.0   | )      |      |        | (0.1       | )    
|                                                                                                 | Additions
      to fixed assets                     |                                                                             |        | (133.2 | )      |      |        | (99.6      | )    
|                                                                                                 | Proceeds
      from disposal of fixed assets        |                                                                             |        | 1.4    |        |      |        | 0.7        |      
|                                                                                                 | Net
      disposal (acquisition) of investments     |                                                                             |        | 3.0    |        |      |        | (0.7       | )    
|                                                                                                 | Increase
      in temporary investments             |                                                                             |        | (20.2  | )      |      |        | (6.5       | )    
|                                                                                                 | Increase
      in assets held for resale            |                                                                             |        | (1.7   | )      |      |        | (45.1      | )    
|                                                                                                 | Other                                               |                                                                             |        | (5.7   | )      |      |        | (6.7       | )    
|                                                                                                 |                                                    
|                                                                                                 |                                                     |                                                                             | (159.4 | )      |        |      | (158.0 | )         
|Cash flows
      from financing activities:                                                      |                                                     |                                                                             |        |        |        |      |        |           
|                                                                                                 | Increase
      in long-term debt                    |                                                                             |        | 149.8  |        |      |        | 558.5      |      
|                                                                                                 | Repayments
      of long-term debt                  |                                                                             |        | (124.8 | )      |      |        | (562.8     | )    
|                                                                                                 | Increase
      in other long-term liabilities       |                                                                             |        | 5.3    |        |      |        | 1.0        |      
|                                                                                                 | Repayments
      of other long-term liabilities     |                                                                             |        | (6.4   | )      |      |        | (32.6      | )    
|                                                                                                 | Repurchase
      of preferred shares                |                                                                             |        | (20.0  | )      |      |        | -          |      
|                                                                                                 | Other                                               |                                                                             |        | 9.3    |        |      |        | (12.1      | )    
|                                                                                                 |                                                    
|                                                                                                 |                                                     |                                                                             | 13.2   |        |        |      | (48.0  | )         
|Foreign
      exchange gain (loss) on cash and cash equivalents held in foreign
      currencies |                                                     |                                                                             | (0.2   | )      |        |      | 2.2    |           
|                                                                                                
|Net
      decrease in cash and cash equivalents                                                  |                                                     |                                                                             | (64.6  | )      |        |      | (136.6 | )         
|                                                                                                 |                                                     |                                                                             |        |        |        |      |        |           
|Cash and
      cash equivalents, net of operating bank loans, beginning of
      year            |                                                     |                                                                             | 121.8  |        |        |      | 258.4  |           
|                                                                                                
|Cash and
      cash equivalents, net of operating bank loans, end of year                        |                                                     | $                                                                           | 57.2   |        |        | $    | 121.8  |           
|                                                                                                

Interest paid in 2003 totalled $154.2 million
(2002 - $165.7 million) and income taxes paid amounted to $9.5 million
(2002 - $5.6 million).

See accompanying notes to consolidated financial
statements.

39

TEMBEC INDUSTRIES INC.Consolidated Business Segment Information

Years ended September 27, 2003 and
September 28, 2002(in millions of dollars)

---

|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|--------------------------------------------------------------- | --------------------------------- |  | -------- | ----- | ---- |  | ------- | ------- | ---------- |  | -------- | ------ | ------------ |  | ----- | ----- | ------- |  | -------- | ----- | - | - | ------- | ------- | -
|                                                                |                                   |  | 2003    
|                                                               
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  | Chemical |       |   |   |        
|                                                                |                                   |  | Forest   |       |      |  |         |         |            |  |          |        |              |  |       |       | &
other |  |          |       |  
|                                                                |                                   |  | products |       | Pulp |  | Paper   |         | Paperboard |  | products |        | Consolidated
|                                                               
|Gross
      sales:                                              |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |        
|                                                                | External                          |  | $        | 909.0 |      |  | $       | 1,290.6 |            |  | $        | 824.9  |              |  | $     | 185.4 |         |  | $        | 136.2 |   |   | $       | 3,346.1 |  
|                                                                | Internal                          |  |          | 173.5 |      |  |         | 89.8    |            |  |          |  - |              |  |       | -     |         |  |          | 12.9  |   |   |         | 276.2   |  
|                                                                |                                  
|                                                                |                                   |  | 1,082.5  |       |      |  | 1,380.4 |         |            |  | 824.9    |        |              |  | 185.4 |       |         |  | 149.1    |       |   |   | 3,622.3 |        
|Net
      sales                                                 |                                   |  | 717.2    |       |      |  | 1,149.1 |         |            |  | 727.8    |        |              |  | 157.6 |       |         |  | 121.2    |       |   |   | 2,872.9 |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|EBITDA                                                          |                                   |  | (37.5    | )     |      |  | 72.7    |         |            |  | 20.9     |        |              |  | 10.5  |       |         |  | 8.3      |       |   |   | 74.9    |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|Depreciation and amortization                                   |                                   |  | 45.7     |       |      |  | 107.5   |         |            |  | 60.1     |        |              |  | 9.8   |       |         |  | 4.7      |       |   |   | 227.8   |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|Operating
      earnings (loss)                                 |                                   |  | (83.2    | )     |      |  | (34.8   | )       |            |  | (39.2    | )      |              |  | 0.7   |       |         |  | 3.6      |       |   |   | (152.9  | )      
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|Net fixed
      asset additions:                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |        
|                                                                | Gross
      fixed asset additions |  |          | 30.7  |      |  |         | 74.4    |            |  |          | 12.6   |              |  |       | 6.3   |         |  |          | 9.2   |   |   |         | 133.2   |  
|                                                                | Proceeds
      from disposals     |  |          | (0.4  | )    |  |         | (0.1    | )          |  |          | (0.4   | )            |  |       | -     |         |  |          | (0.5  | ) |   |         | (1.4    | )
|
|                                                                |                                  
|                                                                |                                   |  | 30.3     |       |      |  | 74.3    |         |            |  | 12.2     |        |              |  | 6.3   |       |         |  | 8.7      |       |   |   | 131.8   |        
|Goodwill                                                        |                                   |  | 3.9      |       |      |  | -       |         |            |  | 21.6     |        |              |  | -     |       |         |  | 0.9      |       |   |   | 26.4    |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|Identifiable assets - excluding cash and cash
      equivalents |                                   |  | 717.2    |       |      |  | 1,490.1 |         |            |  | 990.4    |        |              |  | 226.9 |       |         |  | 274.9    |       |   |   | 3,699.5 |        
|Cash and
      cash equivalents                                 |                                   |  | -        |       |      |  | -       |         |            |  | -        |        |              |  | -     |       |         |  | -        |       |   |   | 87.6    |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   |   |         |         |  
|Total
      assets                                              |                                   |  |          |       |      |  |         |         |            |  |          |        |              |  |       |       |         |  |          |       |   | $ | 3,787.1 |        
|
|                                                               



---

|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|--------------------------------------------------------------- | --------------------------------- |  | -------- | ----- | ---- |  | ------- | ------- | ---------- |  | -------- | ----- | ------------ |  | ----- | ----- | ------- |  | -------- | ----- | - | - | ------- | ------- | -
|                                                                |                                   |  | 2002    
|                                                               
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  | Chemical |       |   |   |        
|                                                                |                                   |  | Forest   |       |      |  |         |         |            |  |          |       |              |  |       |       | &
other |  |          |       |  
|                                                                |                                   |  | products |       | Pulp |  | Paper   |         | Paperboard |  | products |       | Consolidated
|                                                               
|Gross
      sales:                                              |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |        
|                                                                | External                          |  | $        | 966.5 |      |  | $       | 1,228.2 |            |  | $        | 876.1 |              |  | $     | 201.7 |         |  | $        | 118.5 |   |   | $       | 3,391.0 |  
|                                                                | Internal                          |  |          | 172.8 |      |  |         | 73.5    |            |  |          | -     |              |  |       | -     |         |  |          | 10.1  |   |   |         | 256.4   |  
|                                                                |                                  
|                                                                |                                   |  | 1,139.3  |       |      |  | 1,301.7 |         |            |  | 876.1    |       |              |  | 201.7 |       |         |  | 128.6    |       |   |   | 3,647.4 |        
|Net
      sales                                                 |                                   |  | 831.8    |       |      |  | 1,091.1 |         |            |  | 777.8    |       |              |  | 172.7 |       |         |  | 103.4    |       |   |   | 2,976.8 |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|EBITDA                                                          |                                   |  | 70.8     |       |      |  | 96.4    |         |            |  | 72.1     |       |              |  | 21.5  |       |         |  | 14.8     |       |   |   | 275.6   |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Depreciation and amortization                                   |                                   |  | 45.1     |       |      |  | 103.5   |         |            |  | 62.7     |       |              |  | 9.9   |       |         |  | 4.5      |       |   |   | 225.7   |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Operating
      earnings (loss)                                 |                                   |  | 25.7     |       |      |  | (7.1    | )       |            |  | 9.4      |       |              |  | 11.6  |       |         |  | 10.3     |       |   |   | 49.9    |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Net fixed
      asset additions:                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |        
|                                                                | Gross
      fixed asset additions |  |          | 41.7  |      |  |         | 40.6    |            |  |          | 6.5   |              |  |       | 3.9   |         |  |          | 6.9   |   |   |         | 99.6    |  
|                                                                | Proceeds
      from disposals     |  |          | (0.6  | )    |  |         | -       |            |  |          | -     |              |  |       | -     |         |  |          | (0.1  | ) |   |         | (0.7    | )
|                                                                |                                  
|                                                                |                                   |  | 41.1     |       |      |  | 40.6    |         |            |  | 6.5      |       |              |  | 3.9   |       |         |  | 6.8      |       |   |   | 98.9    |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Goodwill                                                        |                                   |  | 14.0     |       |      |  | -       |         |            |  | 21.6     |       |              |  | -     |       |         |  | 0.9      |       |   |   | 36.5    |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Identifiable assets - excluding cash and cash
      equivalents |                                   |  | 752.4    |       |      |  | 1,600.7 |         |            |  | 1,026.9  |       |              |  | 245.7 |       |         |  | 222.4    |       |   |   | 3,848.1 |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Cash and
      cash equivalents                                 |                                   |  | -        |       |      |  | -       |         |            |  | -        |       |              |  | -     |       |         |  | -        |       |   |   | 143.3   |        
|                                                                |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   |   |         |         |  
|Total
      assets                                              |                                   |  |          |       |      |  |         |         |            |  |          |       |              |  |       |       |         |  |          |       |   | $ | 3,991.4 |        
|                                                               

40

TEMBEC INDUSTRIES INC.Consolidated Geographic Segment Information

Years ended September 27, 2003 and
September 28, 2002(in millions of dollars)

---

|                   |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   |          |      |  |   |         |         | 
|------------------ | -------------------------------------- | - | -------- | ----- | ---- | - | ------- | ----- | ---------- | - | -------- | ----- | ------------ | - | ----- | ----- | ------- | - | -------- | ---- |  | - | ------- | ------- | 
|                   |                                        |   | 2003    
|                  
|                   |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   | Chemical |      |  |   |        
|                   |                                        |   | Forest   |       |      |   |         |       |            |   |          |       |              |   |       |       | &
other |   |          |      | 
|                   |                                        |   | Products |       | Pulp |   | Paper   |       | Paperboard |   | products |       | Consolidated
|                  
|Gross
      sales: |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   |          |      |  |   |         |        
|                   | Canada                                 |   | $        | 344.2 |      |   | $       | 95.1  |            |   | $        | 85.3  |              |   | $     | 35.5  |         |   | $        | 82.2 |  |   | $       | 642.3   | 
|                   | United
      States                    |   |          | 530.5 |      |   |         | 218.6 |            |   |          | 701.8 |              |   |       | 135.5 |         |   |          | 24.7 |  |   |         | 1,611.1 | 
|                   | Pacific
      Rim and India            |   |          | 5.6   |      |   |         | 320.5 |            |   |          | 12.2  |              |   |       | 9.1   |         |   |          | 5.5  |  |   |         | 352.9   | 
|                   | United
      Kingdom, Europe and other |   |          | 28.7  |      |   |         | 656.4 |            |   |          | 25.6  |              |   |       | 5.3   |         |   |          | 23.8 |  |   |         | 739.8   | 
|                   |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   |          |      |  |   |         |         | 
|                  
|                   |                                        | $ | 909.0    |       |      | $ | 1,290.6 |       |            | $ | 824.9    |       |              | $ | 185.4 |       |         | $ | 136.2    |      |  | $ | 3,346.1 |        
|                  

|                   |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   |          |      |  |   |         |         | 
|------------------ | -------------------------------------- | - | -------- | ----- | ---- | - | ------- | ----- | ---------- | - | -------- | ----- | ------------ | - | ----- | ----- | ------- | - | -------- | ---- |  | - | ------- | ------- | 
|                   |                                        |   | 2002    
|                  
|                   |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   | Chemical |      |  |   |        
|                   |                                        |   | Forest   |       |      |   |         |       |            |   |          |       |              |   |       |       | &
other |   |          |      | 
|                   |                                        |   | Products |       | Pulp |   | Paper   |       | Paperboard |   | products |       | Consolidated
|                  
|Gross
      sales: |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   |          |      |  |   |         |        
|                   | Canada                                 |   | $        | 367.4 |      |   | $       | 79.1  |            |   | $        | 97.3  |              |   | $     | 34.9  |         |   | $        | 66.1 |  |   | $       | 644.8   | 
|                   | United
      States                    |   |          | 577.2 |      |   |         | 193.2 |            |   |          | 750.2 |              |   |       | 142.4 |         |   |          | 25.3 |  |   |         | 1,688.3 | 
|                   | Pacific
      Rim and India            |   |          | 4.6   |      |   |         | 319.9 |            |   |          | 8.4   |              |   |       | 12.2  |         |   |          | -    |  |   |         | 345.1   | 
|                   | United
      Kingdom, Europe and other |   |          | 17.3  |      |   |         | 636.0 |            |   |          | 20.2  |              |   |       | 12.2  |         |   |          | 27.1 |  |   |         | 712.8   | 
|                  
|                   |                                        | $ | 966.5    |       |      | $ | 1,228.2 |       |            | $ | 876.1    |       |              | $ | 201.7 |       |         | $ | 118.5    |      |  | $ | 3,391.0 |        
|                  
|                   |                                        |   |          |       |      |   |         |       |            |   |          |       |              |   |       |       |         |   |          |      |  |   |         |         | 
|                  

|                                 |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |       |         |      |  |   |         | 
|-------------------------------- | -------------------------------------- |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | ----- | ------- | ---- |  | - | ------- | 
|                                 |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2003  |         | 2002
|                                
|Fixed
      assets and goodwill: |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |       |         |      |  |   |         | 
|                                 | Canada                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $     | 1,995.9 |      |  | $ | 2,066.9 | 
|                                 | United
      States                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |   | 238.0   |      |  |   | 257.6   | 
|                                 | United
      Kingdom, Europe and other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |       | 184.9   |      |  |   | 199.8   | 
|                                
|                                 |                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $     | 2,418.8 |      |  | $ | 2,524.3 | 
|                                

41

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

1.        Significant accounting policies:





42

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

1.
        
Significant accounting policies
      (continued):



43

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

1.        Significant accounting policies
      (continued):



44

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

1.        Significant accounting policies
      (continued):



45

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

2.        Acquisitions:



46

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---



|2. |  | Acquisitions (continued):                        
|-- |  | -------------------------------------------------
|  
|   |  | Details of the acquisitions are as
      follows:

|                           |                                            |   |         |      |      |   |         |      |   |   |      |      |  
|-------------------------- | ------------------------------------------ | - | ------- | ---- | ---- | - | ------- | ---- | - | - | ---- | ---- | -
|                          
|                           |                                            |   |         |      |      |   |         |      |   |   | 2003
|                          
|                           |                                            |   |         |      |      |   | 3626776 |      |   |   |     
|                           |                                            |   |         |      |      |   | Canada  |      |   |   |     
|                           |                                            |   | Brassac |      | Inc. |   | Total  
|                           |                                            |   |         |      |      |   |        
|Net assets
      acquired: |                                            |   |         |      |      |   |         |      |   |   |      |     
|                           |                                            |   |         |      |      |   |         |      |   |   |      |      |  
|Working
      capital:     |                                            |   |         |      |      |   |         |      |   |   |      |     
|                           | Cash (bank
      indebtedness)             |   | $       | (0.3 | )    |   | $       | 0.1  |   |   | $    | (0.2 | )
|                           | Non-cash
      working capital             |   |         | -    |      |   |         | 0.1  |   |   |      | 0.1  |  
|                           |                                           
|                           |                                            |   | (0.3    | )    |      |   | 0.2     |      |   |   | (0.1 | )   
|                           |                                           
|Non-working capital:       |                                            |   |         |      |      |   |         |      |   |   |      |     
|                           | Fixed
      assets                         |   |         | 3.1  |      |   |         | -    |   |   |      | 3.1  |  
|                           | Other
      assets                         |   |         | -    |      |   |         | 5.0  |   |   |      | 5.0  |  
|                           | Long-term
      debt and other liabilities |   |         | -    |      |   |         | (4.5 | ) |   |      | (4.5 | )
|                           | Minority
      interests                   |   |         | (0.7 | )    |   |         | -    |   |   |      | (0.7 | )
|                           |                                           
|                           |                                            |   | 2.4     |      |      |   | 0.5     |      |   |   | 2.9  |     
|                           |                                            |   |         |      |      |   |         |      |   |   |      |      |  
|                          
|                           |                                            | $ | 2.1     |      |      | $ | 0.7     |      |   | $ | 2.8  |     
|                          
|Consideration paid in cash |                                            | $ | 2.1     |      |      | $ | 0.7     |      |   | $ | 2.8  |     
|                          

47

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---



|2. |  | Acquisitions (continued):                                                    
|-- |  | -----------------------------------------------------------------------------
|  
|   |  | Details of the acquisitions and Nouvelle
      Plant disposal are as follows:

|                                      |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |       |  
|------------------------------------- | ------------------------------------------ |  | -------- |  | ------- | - | -------- | ----- | ------ | - | ------ | --- |  | - | ----- | ----- | - | - | ---- | ---- |  | - | ---- | ----- | -
|                                     
|                                      |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   | 2002
|                                     
|                                      |                                            |  |          |  |         |   |          |       |        |   | Tembec |     |  |   |       |       |   |   |      |      |  |   |     
|                                      |                                            |  | Davidson |  | USA LLC |   | Nouvelle |       | Temrex |   | Total 
|                                     
|Net assets
      acquired:            |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |      
|                                      |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |       |  
|Working
      capital:                |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |      
|                                      | Cash (bank
      indebtedness)             |  |          |  |         |   | $        | (7.9  | )      |   | $      | -   |  |   | $     | -     |   |   | $    | -    |  |   | $    | (7.9  | )
|                                      | Non-cash
      working capital             |  |          |  |         |   |          | 10.5  |        |   |        | -   |  |   |       | (7.8  | ) |   |      | 5.8  |  |   |      | 8.5   |  
|                                      |                                           
|                                      |                                            |  |          |  |         |   | 2.6      |       |        |   | -      |     |  |   | (7.8  | )     |   |   | 5.8  |      |  |   | 0.6  |      
|                                      |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |       |  
|Non-working capital:                  |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |      
|                                      | Investments                                |  |          |  |         |   |          | 0.3   |        |   |        | -   |  |   |       | -     |   |   |      | -    |  |   |      | 0.3   |  
|                                      | Fixed
      assets                         |  |          |  |         |   |          | 17.5  |        |   |        | 1.2 |  |   |       | (11.7 | ) |   |      | 14.8 |  |   |      | 21.8  |  
|                                      | Other
      assets                         |  |          |  |         |   |          | 0.2   |        |   |        | -   |  |   |       | (0.4  | ) |   |      | 1.2  |  |   |      | 1.0   |  
|                                      | Long-term
      debt and other liabilities |  |          |  |         |   |          | (18.0 | )      |   |        | -   |  |   |       | -     |   |   |      | -    |  |   |      | (18.0 | )
|                                      | Future
      income taxes                  |  |          |  |         |   |          | (0.4  | )      |   |        | -   |  |   |       | (1.0  | ) |   |      | -    |  |   |      | (1.4  | )
|                                      |                                           
|                                      |                                            |  |          |  |         |   | (0.4     | )     |        |   | 1.2    |     |  |   | (13.1 | )     |   |   | 16.0 |      |  |   | 3.7  |      
|                                      |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |       |  
|Non-recognized gain on sale           |                                            |  |          |  |         |   | -        |       |        |   | -      |     |  |   | (11.0 | )     |   |   | 11.0 |      |  |   | -    |      
|Deferred
      gain on sale of assets |                                            |  |          |  |         |   | -        |       |        |   | -      |     |  |   | (6.7  | )     |   |   | -    |      |  |   | (6.7 | )    
|Gain on
      sale of assets          |                                            |  |          |  |         |   | -        |       |        |   | -      |     |  |   | (3.2  | )     |   |   | -    |      |  |   | (3.2 | )    
|                                      |                                            |  |          |  |         |   | -        |       |        |   | -      |     |  |   | (20.9 | )     |   |   | 11.0 |      |  |   | (9.9 | )    
|                                      |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |       |  
|                                      |                                            |  |          |  |         | $ | 2.2      |       |        | $ | 1.2    |     |  | $ | (41.8 | )     |   | $ | 32.8 |      |  | $ | (5.6 | )    
|Consideration paid (received) in:     |                                            |  |          |  |         |   |          |       |        |   |        |     |  |   |       |       |   |   |      |      |  |   |      |      
|                                      | Cash                                       |  |          |  |         |   | $        | -     |        |   | $      | 1.2 |  |   | $     | (41.8 | ) |   | $    | 32.8 |  |   | $    | (7.8  | )
|                                      | Other
      short-term liabilities         |  |          |  |         |   |          | 2.2   |        |   |        | -   |  |   |       | -     |   |   |      | -    |  |   |      | 2.2   |  
|                                      |                                            |  |          |  |         | $ | 2.2      |       |        | $ | 1.2    |     |  | $ | (41.8 | )     |   | $ | 32.8 |      |  | $ | (5.6 | )    

48

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---



|3. |  | Inventories:
|-- |  | ------------

|                       |  |   |       |       |  |     
|---------------------- |  | - | ----- | ----- |  | ----
|                       |  |   |       | 2003  |  | 2002
|                      
|Finished goods         |  | $ | 221.2 |       |  | $   
|Logs and wood chips    |  |   | 147.9 |       |  |     
|Supplies and materials |  |   | 127.6 |       |  |     
|                       |  |   | $     | 496.7 |  |     



|4. |  | Investments in joint
    ventures:                                                                                                                                                                                                                                                                               
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The consolidated financial statements include
      the Company's proportionate share of the revenues, expenses, assets and
      liabilities of AV Cell Inc., 1387332 Ontario Limited (Marathon Pulp joint
      venture), Temlam Inc., and Temrex Forest Products Limited Partnership at
      50%, as follows:

|                                                                 |                                   |      |       |       |      |  
|---------------------------------------------------------------- | --------------------------------- | ---- | ----- | ----- | ---- | -
|                                                                 |                                   | 2003 |       |       | 2002
|                                                                
|Assets:                                                          |                                   |      |       |       |      |  
|                                                                 | Current
      assets              |      | $     | 63.3  |      |  
|                                                                 | Fixed
      assets and other      |      |       | 124.1 |      |  
|                                                                 |                                   | $    | 187.4 |       |      | $
|Liabilities and equity:                                          |                                   |      |       |       |      |  
|                                                                 | Current
      liabilities         |      | $     | 35.0  |      |  
|                                                                 | Long-term
      debt              |      |       | 40.4  |      |  
|                                                                 | Other
      long-term liabilities |      |       | 12.0  |      |  
|                                                                 | Equity                            |      |       | 100.0 |      |  
|                                                                 |                                   | $    | 187.4 |       |      | $
|Net
      sales                                                  |                                   | $    | 173.3 |       |      | $
|Expenses                                                         |                                   |      | 180.5 |       |      |  
|Loss
      before income taxes, interest, and minority interests |                                   | $    | (7.2  | )     |      | $
|Cash
      provided (used in) by:                                |                                   |      |       |       |      |  
|                                                                 | Operations                        |      | $     | 7.3   |      |  
|                                                                 | Investments                       |      |       | 11.4  |      |  
|                                                                 | Financing                         |      |       | (12.2 | )    |  
|                                                                
|                                                                 |                                   | $    | 6.5   |       |      | $

49

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---



|5. |  | Fixed
assets:
|-- |  | -------------

|                                          |                                 |   |         |         |              |   |             |       |      |   |              |       |     |   |         |         |             |   |         |       |  |   |         |       | 
|----------------------------------------- | ------------------------------- | - | ------- | ------- | ------------ | - | ----------- | ----- | ---- | - | ------------ | ----- | --- | - | ------- | ------- | ----------- | - | ------- | ----- |  | - | ------- | ----- | 
|                                          |                                 |   | 2003    |         | 2002        
|                                          |                                 |   |         |         |              |   | Accumulated |       |      |   |              |       |     |   |         |         | Accumulated |   |         |       | 
|                                          |                                 |   | Cost    |         | depreciation |   | Net         |       | Cost |   | depreciation |       | Net
|Land                                      |                                 | $ | 23.3    |         |              | $ | -           |       |      | $ | 23.3         |       |     | $ | 24.6    |         |             | $ | -       |       |  | $ | 24.6    |      
|Production
      buildings and equipment: |                                 |   |         |         |              |   |             |       |      |   |              |       |     |   |         |         |             |   |         |       |  |   |         |      
|                                          | Pulp
      mills                |   |         | 1,607.5 |              |   |             | 654.6 |      |   |              | 952.9 |     |   |         | 1,491.6 |             |   |         | 551.7 |  |   |         | 939.9 | 
|                                          | Newsprint
      and Paper mills |   |         | 977.8   |              |   |             | 278.2 |      |   |              | 699.6 |     |   |         | 971.7   |             |   |         | 218.6 |  |   |         | 753.1 | 
|                                          | Sawmills                        |   |         | 508.1   |              |   |             | 212.0 |      |   |              | 296.1 |     |   |         | 495.3   |             |   |         | 184.0 |  |   |         | 311.3 | 
|                                          | Boardmill                       |   |         | 294.1   |              |   |             | 106.1 |      |   |              | 188.0 |     |   |         | 275.0   |             |   |         | 98.1  |  |   |         | 176.9 | 
|Roads and
      timber holdings           |                                 |   | 123.5   |         |              |   | 51.5        |       |      |   | 72.0         |       |     |   | 111.7   |         |             |   | 44.2    |       |  |   | 67.5    |      
|Other
      buildings and equipment       |                                 |   | 84.2    |         |              |   | 34.7        |       |      |   | 49.5         |       |     |   | 82.7    |         |             |   | 30.7    |       |  |   | 52.0    |      
|Assets
      under construction           |                                 |   | 111.0   |         |              |   | -           |       |      |   | 111.0        |       |     |   | 162.5   |         |             |   | -       |       |  |   | 162.5   |      
|                                         
|                                          |                                 | $ | 3,729.5 |         |              | $ | 1,337.1     |       |      | $ | 2,392.4      |       |     | $ | 3,615.1 |         |             | $ | 1,127.3 |       |  | $ | 2,487.8 |      
|                                         



|6. |  | Other
assets:
|-- |  | -------------

|                                          |                                            |   |       |      |      |   |       |      | 
|----------------------------------------- | ------------------------------------------ | - | ----- | ---- | ---- | - | ----- | ---- | 
|                                         
|                                          |                                            |   | 2003  |      | 2002
|                                         
|Deferred
      costs, at amortized value: |                                            |   |       |      |      |   |       |     
|                                          | Development, pre-operating costs and other |   | $     | 15.3 |      |   | $     | 10.7 | 
|                                          | Financing
      costs                      |   |       | 17.8 |      |   |       | 19.2 | 
|Assets
      held for resale              |                                            |   | 27.7  |      |      |   | 60.9  |     
|Long-term
      loans to employees        |                                            |   | 11.5  |      |      |   | 11.8  |     
|Timber
      rights                       |                                            |   | 27.4  |      |      |   | 32.1  |     
|Deferred
      pension costs              |                                            |   | 44.5  |      |      |   | 38.5  |     
|Future
      income taxes                 |                                            |   | 136.3 |      |      |   | 65.1  |     
|                                         
|                                          |                                            | $ | 280.5 |      |      | $ | 238.3 |     
|                                         





50

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

7.        Operating bank loans:



8.        
    Long-term
debt:

| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  |       |  |  |  |       |  | 
| | ----------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ---- |  | ----- |  |  |  | ----- |  | 
|
| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  | 2003 |  | 2002 
| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  | 
|
| | Tembec
      Industries Inc.: |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  |       |  |  |  |      
| |                               | 8.625%
      Unsecured Senior Notes (US$350.0 million in 2003 - US$250.0 million
      in 2002) redeemable at the option of the Company on or after June 30,
      2004 at specified redemption prices, due June 30, 2009 with semi-annual
      interest payments due June 30 and December 30 of each year. In
      March 2003, the Company issued an additional US$100.0 million
      Unsecured Senior Notes |  |  |  |      |  | 473.5 |  |  |  | 394.3 |  | 
| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  |       |  |  |  |       |  | 
| |                               | 8.50%
      Unsecured Senior Notes (US$500.0 million) redeemable at any time at
      the option of the Company, due February 1, 2011 with semi-annual
      interest payments due February 1 and August 1 of each year                                                                                                                                                                                          |  |  |  |      |  | 676.5 |  |  |  | 788.6 |  | 
| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  |       |  |  |  |       |  | 
| |                               | 7.75%
      Unsecured Senior Notes (US$350.0 million) redeemable at any time at
      the option of the Company, due March 15, 2012 with semi-annual
      interest payments due March 15 and September 15 of each
      year                                                                                                                                                                                    |  |  |  |      |  | 473.5 |  |  |  | 552.1 |  | 
| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  |       |  |  |  |       |  | 
| |                               | 8.3%
      Unsecured debentures                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  | -     |  |  |  | 30.7 
| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                  |  |  |  |      |  |       |  |  |  |       |  | 
| |                               | Advances
      from the ultimate parent company, Tembec Inc., with interest at cost to
      Tembec Inc. with no specific terms or repayment                                                                                                                                                                                                                                                                     |  |  |  |      |  | 91.2  |  |  |  | 126.2 |  | 

51

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---



|8. |  | Long-term debt
  (continued):
|-- |  | -----------------------------

| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         |  |      |  | 
| | ---------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- |  | ---- | - | ------- |  | ---- |  | 
|
| |                                                                                                      |                                                                                                                                                                                                               |         |  | 2003 |   | 2002   
|
| | Tembec
      Industries Inc. (continued):                                                            |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      | 7%
      Unsecured subordinated debentures, maturing on February 2,
      2004                                                                                                                                |         |  | 10.0 |   |         |  | 20.0 | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| | Spruce
      Falls Inc.:                                                                             |                                                                                                                                                                                                               |         |  |      |   |         |  |     
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      | 8.39%
      Unsecured Senior Notes (US$8.6 million in 2003 - US$17.1 million in
      2002) due February 8, 2004                                                                                              |         |  | 11.6 |   |         |  | 27.0 | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      | Ontario
      Hydro loan, non-interest bearing                                                                                                                                                                |         |  | -    |   |         |  | 25.9 | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| | Tembec
      SA:                                                                                     |                                                                                                                                                                                                               |         |  |      |   |         |  |     
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      | Unsecured
      term loans (Euro 4.0 million in 2003 - Euro 4.6 million in
      2002), bearing interest at rates up to 1.5%, repayable and maturing at
      various dates to December 2013                  |         |  | 6.3  |   |         |  | 7.1  | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      | Other
      Tembec SA obligations                                                                                                                                                                             |         |  | 7.2  |   |         |  | 6.9  | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| | 1387332
      Ontario Limited (Marathon Pulp joint venture) (50% proportionate
      consolidation): |                                                                                                                                                                                                               |         |  |      |   |         |  |     
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| |                                                                                                      | Revolving
      credit up to a maximum authorized amount of $17.3 million
      ($19.8 million in 2002), bearing interest at prime rate plus 1.75%,
      with declining authorized amounts to March 31, 2006 |         |  | 17.0 |   |         |  | 19.7 | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| | Temlam
      Inc. (50% proportionate consolidation):                                                 |                                                                                                                                                                                                               |         |  |      |   |         |  |     
| |                                                                                                      | Term loan
      bearing interest at prime rate plus 0.75%, maturing on August 1,
      2006, repayable in quarterly instalments of varying amounts beginning in
      August 2002                             |         |  | 9.1  |   |         |  | 9.0  | 
| |                                                                                                      |                                                                                                                                                                                                               |         |  |      |   |         | 
| | Other
      long-term obligations                                                                    |                                                                                                                                                                                                               | 19.0    |  |      |   | 21.8    | 
|
| |                                                                                                      |                                                                                                                                                                                                               | 1,794.9 |  |      |   | 2,029.3 | 
|
| | Less
      current portion                                                                           |                                                                                                                                                                                                               | 27.8    |  |      |   | 87.3    | 
|
| |                                                                                                      | $                                                                                                                                                                                                             | 1,767.1 |  |      | $ | 1,942.0 | 
|

52

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for number of shares and per share amounts.)

---

8.        Long-term debt
  (continued):





|9. |  | Other long-term liabilities and
      credits:
|-- |  | ----------------------------------------------

|                                                          |                                   |   |       |     |      |   |       |     | 
|--------------------------------------------------------- | --------------------------------- | - | ----- | --- | ---- | - | ----- | --- | 
|                                                         
|                                                          |                                   |   | 2003  |     | 2002
|                                                         
|Accrued
      benefit liability - pension benefit plans   |                                   | $ | 41.9  |     |      | $ | 43.1  |    
|Accrued
      benefit liability - other benefit plans     |                                   |   | 50.3  |     |      |   | 51.0  |    
|Balance
      payable on acquisitions of companies:       |                                   |   |       |     |      |   |       |    
|                                                          | Davidson
      Industries Inc.    |   |       | 2.2 |      |   |       | 2.2 | 
|                                                          | Jager
      Building Systems Inc. |   |       | 8.6 |      |   |       | 8.1 | 
|Reforestation - BC operations                             |                                   |   | 5.4   |     |      |   | 9.1   |    
|Environmental                                             |                                   |   | 5.3   |     |      |   | 5.8   |    
|Deferred
      government assistance                      |                                   |   | 1.0   |     |      |   | 1.0   |    
|Deferred
      gain on sale of assets                     |                                   |   | 6.0   |     |      |   | 6.5   |    
|Deferred
      gain on sale of foreign exchange contracts |                                   |   | 22.3  |     |      |   | -     |    
|Other                                                     |                                   |   | 3.9   |     |      |   | 3.6   |    
|
|                                                         
|                                                          |                                   | $ | 146.9 |     |      | $ | 130.4 |    
|                                                         

53

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

|10. |  | Minority
  interests:
|--- |  | ---------------------
|    | 

|                            |  |      |     |      |  |   |     | 
|--------------------------- |  | ---- | --- | ---- |  | - | --- | 
|                            |  | 2003 |     | 2002
|                           
|AV Cell
      Inc.          |  | $    | 5.0 |      |  | $ | 5.0 | 
|Excel
      Forest Products |  |      | 2.0 |      |  |   | 3.7 | 
|Brassac
      S.A.S         |  |      | 0.5 |      |  |   | -   | 
|                           
|                            |  | $    | 7.5 |      |  | $ | 8.7 | 
|                           

|11. |  | Redeemable preferred
  shares:
|--- |  | ------------------------------
|    |  |                               

|                                         |  |      |      |      |  |   |      | 
|---------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | 
|                                         |  | 2003 |      | 2002
|                                        
|16,627,500
      Series 2 Class B shares |  | $    | 16.6 |      |  | $ | 16.6 | 
|                                        



65

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

20.        Financial instruments (continued):



66

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

20.        Financial instruments (continued):





67

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

20.        Financial instruments (continued):



(d)





21.        Subsequent event:



68

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

22.        Summary of material differences between
      generally accepted accounting principles (GAAP) in Canada and the
      United States:



69

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

22.        Summary of material differences between
      generally accepted accounting principles (GAAP) in Canada and the
      United States               (continued):



70

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

---

22.        Summary of material differences between
      generally accepted accounting principles (GAAP) in Canada and the
      United States               (continued):





1. Foreign exchange:
Under Canadian GAAP, Tembec has hedged future
      revenue stream with foreign exchange contracts. The transactions are
      recorded into earnings at the value based on the forward contracts and the
      forward contracts are not recognized in the financial
  statements.
Under U.S. GAAP, these forward contracts are
      not recognized as hedges and consequently unrealized gains and losses on
      the forward contracts are included in earnings based on their current
      market value.
2. Income taxes:
 On October 1, 2000, Tembec adopted the
      Canadian accounting recommendations for income taxes (Section 3465).
      The Canadian accounting recommendations essentially harmonize the
      principles of Canadian GAAP with those of U.S. GAAP. For Canadian GAAP,
      the new standard was applied prospectively. For U.S. GAAP, the statement
      has been applied since 1992. Prior to 2000, under Canadian GAAP, Tembec
      accounted for income taxes using the deferral method. Under U.S. GAAP,
      income taxes are being provided for by the liability method. The deferred
      tax impact of other reconciling items is also included in this
      caption.
3. Income taxes related to purchase
      accounting:
  Prior to adoption of Section 3465,
      deferred tax assets or liabilities resulting from temporary differences
      between the recorded costs of acquired fixed assets and the tax bases of
      such assets were not recorded under Canadian GAAP. Consequently, purchase
      price allocation under U.S. GAAP related to acquisitions before
      October 1, 2000 was different and this results in continued
      differences because Tembec has adopted Section 3465
    prospectively.
4. Deferred development and pre-operating
      expenses:
  Under U.S. GAAP, certain development and
      pre-operating expenses, capitalized under Canadian GAAP, would have been
      charged against earnings.

71

TEMBEC INDUSTRIES INC.Notes to Consolidated Financial Statements, Continued

Years ended September 27, 2003 and
September 28, 2002(Figures in table are in millions of dollars except
for the number of shares and per share amounts.)

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22.        Summary of material differences between
      generally accepted accounting principles (GAAP) in Canada and the
      United States               (continued):

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23.       Comparative figures:

1. I have reviewed this annual report on Form 40-F of Tembec Industries Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
5. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
6. evaluated the effectiveness of the registrant's disclosure controls and procedures as of the end of the period covered by this annual report (the "Evaluation Date");
7. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and
8. disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
9. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of registrant's board of directors (and persons performing the equivalent function);
10. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
11. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
12. I have reviewed this annual report on Form 40-F of Tembec Industries Inc.;
13. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
14. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
15. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
16. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
17. evaluated the effectiveness of the registrant's disclosure controls and procedures as of the end of the period covered by this annual report (the "Evaluation Date");
18. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and
19. disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
20. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and audit committee of registrant's board of directors (and persons performing the equivalent function);
21. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
22. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  February 16, 2004



By:  /s/ Michel Dumas

       Michel Dumas
       Executive Vice President, Finance and Chief Financial Officer





Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Tembec Industries Inc. (the "Company") on Form 40-F for the year ended September 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank A. Dottori, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.





By:  /s/ Frank A. Dottori       Frank A. Dottori
       President and Chief Executive Officer
       February 16, 2004



Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO 
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Tembec Inc. (the "Company") on Form 40-F for the year ended September 27, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michel Dumas, Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



By:  /s/ Michel Dumas

       Michel Dumas
       Executive Vice President, Finance and Chief Financial Officer
       February 16, 2004