EXHIBIT 13.2

MANAGEMENT’S REPORT

TO THE SHAREHOLDERS OF CASCADES INC



March 1, 2017



The accompanying
consolidated financial statements are the responsibility of the management of Cascades Inc., and have been reviewed by the Audit
and Finance Committee and approved by the Board of Directors.



The consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”) and include certain estimates that reflect management’s best judgment.



The Management of
the Corporation is also responsible for all other information included in this Annual Report and for ensuring that this information
is consistent with the Corporation’s consolidated financial statements and business activities.



The Management of
the Corporation is responsible for the design, establishment and maintenance of appropriate internal controls and procedures for
financial reporting, to ensure that financial statements for external purposes are fairly presented in conformity with IFRS. Such
internal control systems are designed to provide reasonable assurance on the reliability of the financial information and the safeguarding
of assets.



External and internal
auditors have free and independent access to the Audit and Finance Committee, which comprises outside independent directors. The
Audit Committee, which meets regularly throughout the year with members of management and the external and internal auditors, reviews
the consolidated financial statements and recommends their approval to the Board of Directors.



The consolidated
financial statements have been audited by PricewaterhouseCoopers LLP, whose report is provided below.



Management of the
Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the United States Securities Exchange Act of 1934. Internal control over financial reporting is a
process designed by, or under the supervision of, the President and Chief Executive Officer (CEO) and the Vice - President and
Chief Financial Officer (CFO) to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with IFRS.



Due to its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.



Management conducted
an assessment of the effectiveness of the Corporation’s internal control over financial reporting, as at December 31,
2016 based on the framework and criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 COSO Framework). Based on this evaluation, management has concluded that the Corporation’s
internal control over financial reporting was effective as at December 31, 2016.



|/s/ Mario Plourde
        MARIO PLOURDE                             |  | /s/ Allan Hogg
        ALLAN HOGG                                       
|------------------------------------------------------------------- |  | ------------------------------------------------------------------------
|                                                                    | 
|PRESIDENT AND CHIEF EXECUTIVE OFFICER
        KINGSEY FALLS, CANADA |  | VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER
        KINGSEY FALLS, CANADA



1







INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF CASCADES INC.



March 1, 2017



We have audited the
accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated balance sheets
as at December 31, 2016 and 2015 and the consolidated statement of earnings (loss), comprehensive income (loss), equity and cash
flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory
information.



Management’s responsibility for
the consolidated financial statements

Management is responsible
for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards (“IFRS”), and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.



Auditor’s responsibility

Our responsibility
is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.



An audit involves
performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal
control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements.



We believe that the
audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of Cascades Inc. and its subsidiaries
as at December 31, 2016 and 2015 and their financial performance and their cash flows for the years then ended in accordance with
International Financial Reporting Standards.



/s/ PricewaterhouseCoopers
LLP1Chartered Professional Accountants
- Montréal, Canada

| | 1 | CPA
auditor, CA, public accountancy permit No. A126402
| | - | ------------------------------------------------------



2







CONSOLIDATED BALANCE SHEETS

|                                                                
|----------------------------------------------------------------
|                                                                
|(in millions of Canadian dollars)                               
|Assets                                                          
|Current assets                                                  
|Cash and cash equivalents                                       
|Accounts receivable                                             
|Current income tax assets                                       
|Inventories                                                     
|Financial assets                                                
|                                                                
|Long-term assets                                                
|Investments in associates and joint ventures                    
|Property, plant and equipment                                   
|Intangible assets with finite useful life                       
|Financial assets                                                
|Other assets                                                    
|Deferred income tax assets                                      
|Goodwill and other intangible assets with indefinite useful life
|                                                                
|Liabilities and Equity                                          
|Current liabilities                                             
|Bank loans and advances                                         
|Trade and other payables                                        
|Current income tax liabilities                                  
|Current portion of long-term debt                               
|Current portion of provisions for contingencies and charges     
|Current portion of financial liabilities and other liabilities  
|                                                                
|Long-term liabilities                                           
|Long-term debt                                                  
|Provisions for contingencies and charges                        
|Financial liabilities                                           
|Other liabilities                                               
|Deferred income tax liabilities                                 
|                                                                
|Equity attributable to Shareholders                             
|Capital stock                                                   
|Contributed surplus                                             
|Retained earnings                                               
|Accumulated other comprehensive loss                            
|                                                                
|Non-controlling interests                                       
|Total equity                                                    
|                                                                

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



Approved by the Board of Directors

|                         |                             
|------------------------ | ----------------------------
|/s/ Alain Lemaire        | /s/ Georges Kobrynsky       
|Alain Lemaire - DIRECTOR | Georges Kobrynsky - DIRECTOR



3







CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS)

|                                                                                                                               |      |            |      |            |   |       |  
|------------------------------------------------------------------------------------------------------------------------------ | ---- | ---------- | ---- | ---------- | - | ----- | -
|For the years ended December 31 (in millions of Canadian dollars, except per common share amounts and number of common shares) | NOTE | 2016       |      | 2015       |  
|Sales                                                                                                                          |      | 4,001      |      | 3,861      |  
|Cost of sales and expenses                                                                                                     |      |            |     
|Cost of sales (including depreciation and amortization of $192 million; 2015 — $190 million)                                   | 22   | 3,380      |      | 3,261      |  
|Selling and administrative expenses                                                                                            | 22   | 402        |      | 360        |  
|Gain on acquisitions, disposals and others                                                                                     | 24   | (4         | )    | (1         | )
|Impairment charges and restructuring costs                                                                                     | 25   | 12         |      | 66         |  
|Foreign exchange gain                                                                                                          |      | (4         | )    | (6         | )
|Loss (gain) on derivative financial instruments                                                                                | 27   | (6         | )    | 28         |  
|                                                                                                                               |      | 3,780      |      | 3,708      |  
|Operating income                                                                                                               |      | 221        |      | 153        |  
|Financing expense                                                                                                              | 26   | 88         |      | 91         |  
|Interest expense on employee future benefits                                                                                   | 26   | 5          |      | 6          |  
|Loss on refinancing of long-term debt                                                                                          | 15   | —          |      | 19         |  
|Foreign exchange loss (gain) on long-term debt and financial instruments                                                       |      | (22        | )    | 91         |  
|Share of results of associates and joint ventures                                                                              | 9    | (32        | )    | (37        | )
|Earnings (loss) before income taxes                                                                                            |      | 182        |      | (17        | )
|Provision for income taxes                                                                                                     | 18   | 45         |      | 40         |  
|Net earnings (loss) from continuing operations including non-controlling interests for the year                                |      | 137        |      | (57        | )
|Net earnings from discontinued operations                                                                                      | 5    | —          |      | 1          |  
|Net earnings (loss) including non-controlling interests for the year                                                           |      | 137        |      | (56        | )
|Net earnings attributable to non-controlling interests                                                                         |      | 2          |      | 9          |  
|Net earnings (loss) attributable to Shareholders for the year                                                                  |      | 135        |      | (65        | )
|Net earnings (loss) from continuing operations per common share                                                                |      |            |      |            |  
|Basic                                                                                                                          |      | $          | 1.42 |            | $ | (0.70 | )
|Diluted                                                                                                                        |      | $          | 1.39 |            | $ | (0.70 | )
|Net earnings (loss) per common share                                                                                           |      |            |      |            |  
|Basic                                                                                                                          |      | $          | 1.42 |            | $ | (0.69 | )
|Diluted                                                                                                                        |      | $          | 1.39 |            | $ | (0.69 | )
|Weighted average basic number of common shares outstanding                                                                     |      | 94,709,048 |      | 94,384,308 |  
|Weighted average number of diluted common shares                                                                               |      | 96,877,848 |      | 96,261,484 |  
|                                                                                                                               |      |            |     
|Net earnings (loss) attributable to Shareholders:                                                                              |      |            |     
|Continuing operations                                                                                                          |      | 135        |      | (66        | )
|Discontinued operations                                                                                                        | 5    | —          |      | 1          |  
|Net earnings (loss)                                                                                                            |      | 135        |      | (65        | )



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



4







CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)



|                                                                                    |      |      |   |      |  
|----------------------------------------------------------------------------------- | ---- | ---- | - | ---- | -
|For the years ended December 31 (in millions of Canadian dollars)                   | NOTE | 2016 |   | 2015 |  
|Net earnings (loss) including non-controlling interests for the year                |      | 137  |   | (56  | )
|Other comprehensive income (loss)                                                   |      |      |  
|Items that may be reclassified subsequently to earnings                             |      |      |  
|Translation adjustments                                                             | 21   |      |  
|Change in foreign currency translation of foreign subsidiaries                      |      | (33  | ) | 115  |  
|Change in foreign currency translation related to net investment hedging activities |      | 21   |   | (101 | )
|Cash flow hedges                                                                    | 21   |      |  
|Change in fair value of foreign exchange forward contracts                          |      | —    |   | 2    |  
|Change in fair value of commodity derivative financial instruments                  |      | 10   |   | 2    |  
|Available-for-sale financial assets                                                 |      | (2   | ) | 2    |  
|Share of other comprehensive income of associates                                   |      | —    |   | 14   |  
|Provision for (recovery of) income taxes                                            | 18   | (6   | ) | 8    |  
|                                                                                    |      | (10  | ) | 42   |  
|Items that are reclassified to retained earnings                                    |      |      |  
|Actuarial gain on post-employment benefit obligations                               | 17   | 11   |   | 25   |  
|Income taxes                                                                        | 18   | (3   | ) | (7   | )
|                                                                                    |      | 8    |   | 18   |  
|Other comprehensive income (loss)                                                   |      | (2   | ) | 60   |  
|Comprehensive income including non-controlling interests for the year               |      | 135  |   | 4    |  
|Comprehensive income (loss) attributable to non-controlling interests for the year  |      | (4   | ) | 16   |  
|Comprehensive income (loss) attributable to Shareholders for the year               |      | 139  |   | (12  | )
|Comprehensive income (loss) attributable to Shareholders:                           |      |      |  
|Continuing operations                                                               |      | 139  |   | (13  | )
|Discontinued operations                                                             |      | —    |   | 1    |  
|Comprehensive income (loss)                                                         |      | 139  |   | (12  | )



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

.



5







CONSOLIDATED STATEMENTS OF EQUITY



|                                                                                         |                                      |   |                     |   |                   |   |                                      |   |                                           |   |                           |   |              |  
|---------------------------------------------------------------------------------------- | ------------------------------------ | - | ------------------- | - | ----------------- | - | ------------------------------------ | - | ----------------------------------------- | - | ------------------------- | - | ------------ | -
|                                                                                         | For the year ended December 31, 2016 |  
|(in millions of Canadian dollars)                                                        | CAPITAL STOCK                        |   | CONTRIBUTED SURPLUS |   | RETAINED EARNINGS |   | ACCUMULATED OTHER COMPREHENSIVE LOSS |   | TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS |   | NON-CONTROLLING INTERESTS |   | TOTAL EQUITY |  
|Balance - Beginning of year                                                              | 490                                  |   | 17                  |   | 387               |   | (27                                  | ) | 867                                       |   | 96                        |   | 963          |  
|Comprehensive income (loss)                                                              |                                      |   |                     |   |                   |   |                                      |  
|Net earnings                                                                             | —                                    |   | —                   |   | 135               |   | —                                    |   | 135                                       |   | 2                         |   | 137          |  
|Other comprehensive income (loss)                                                        | —                                    |   | —                   |   | 8                 |   | (4                                   | ) | 4                                         |   | (6                        | ) | (2           | )
|                                                                                         | —                                    |   | —                   |   | 143               |   | (4                                   | ) | 139                                       |   | (4                        | ) | 135          |  
|Dividends                                                                                | —                                    |   | —                   |   | (15               | ) | —                                    |   | (15                                       | ) | —                         |   | (15          | )
|Stock options                                                                            | 1                                    |   | —                   |   | —                 |   | —                                    |   | 1                                         |   | —                         |   | 1            |  
|Issuance of common shares                                                                | 1                                    |   | —                   |   | —                 |   | —                                    |   | 1                                         |   | —                         |   | 1            |  
|Redemption of common shares                                                              | (5                                   | ) | (1                  | ) | (3                | ) | —                                    |   | (9                                        | ) | —                         |   | (9           | )
|Dividends paid to non-controlling interests and acquisition of non-controlling interests | —                                    |   | —                   |   | —                 |   | —                                    |   | —                                         |   | (2                        | ) | (2           | )
|Balance - End of year                                                                    | 487                                  |   | 16                  |   | 512               |   | (31                                  | ) | 984                                       |   | 90                        |   | 1,074        |  
|                                                                                         |                                      |   |                     |   |                   |   |                                     
|                                                                                         | For the year ended December 31, 2015 |  
|(in millions of Canadian dollars)                                                        | CAPITAL STOCK                        |   | CONTRIBUTED SURPLUS |   | RETAINED EARNINGS |   | ACCUMULATED OTHER COMPREHENSIVE LOSS |   | TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS |   | NON-CONTROLLING INTERESTS |   | TOTAL EQUITY |  
|Balance - Beginning of year                                                              | 483                                  |   | 18                  |   | 454               |   | (62                                  | ) | 893                                       |   | 110                       |   | 1,003        |  
|Comprehensive income (loss)                                                              |                                      |   |                     |   |                   |   |                                      |  
|Net earnings (loss)                                                                      | —                                    |   | —                   |   | (65               | ) | —                                    |   | (65                                       | ) | 9                         |   | (56          | )
|Other comprehensive income                                                               | —                                    |   | —                   |   | 18                |   | 35                                   |   | 53                                        |   | 7                         |   | 60           |  
|                                                                                         | —                                    |   | —                   |   | (47               | ) | 35                                   |   | (12                                       | ) | 16                        |   | 4            |  
|Dividends                                                                                | —                                    |   | —                   |   | (15               | ) | —                                    |   | (15                                       | ) | —                         |   | (15          | )
|Stock options                                                                            | 2                                    |   | (1                  | ) | —                 |   | —                                    |   | 1                                         |   | —                         |   | 1            |  
|Issuance of common shares                                                                | 5                                    |   | —                   |   | —                 |   | —                                    |   | 5                                         |   | —                         |   | 5            |  
|Acquisition of non-controlling interests                                                 | —                                    |   | —                   |   | (5                | ) | —                                    |   | (5                                        | ) | (30                       | ) | (35          | )
|Balance - End of year                                                                    | 490                                  |   | 17                  |   | 387               |   | (27                                  | ) | 867                                       |   | 96                        |   | 963          |  



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



6







CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                         |      |  |      |   |      |  
|---------------------------------------------------------------------------------------- | ---- |  | ---- | - | ---- | -
|For the years ended December 31 (in millions of Canadian dollars)                        | NOTE |  | 2016 |   | 2015 |  
|Operating activities from continuing operations                                          |      |  |      |  
|Net earnings (loss) attributable to Shareholders for the year                            |      |  | 135  |   | (65  | )
|Net earnings from discontinued operations                                                | 5    |  | —    |   | (1   | )
|Net earnings (loss) from continuing operations                                           |      |  | 135  |   | (66  | )
|Adjustments for:                                                                         |      |  |      |  
|Financing expense and interest expense on employee future benefits                       | 26   |  | 93   |   | 97   |  
|Loss on refinancing of long-term debt                                                    |      |  | —    |   | 19   |  
|Depreciation and amortization                                                            |      |  | 192  |   | 190  |  
|Gain on acquisitions, disposals and others                                               | 24   |  | (4   | ) | (1   | )
|Impairment charges and restructuring costs                                               | 25   |  | 4    |   | 64   |  
|Unrealized loss (gain) on derivative financial instruments                               |      |  | (18  | ) | 18   |  
|Foreign exchange loss (gain) on long-term debt and financial instruments                 |      |  | (22  | ) | 91   |  
|Provision for income taxes                                                               | 18   |  | 45   |   | 40   |  
|Share of results of associates and joint ventures                                        | 9    |  | (32  | ) | (37  | )
|Net earnings attributable to non-controlling interests                                   |      |  | 2    |   | 9    |  
|Net financing expense paid                                                               |      |  | (89  | ) | (89  | )
|Premium paid on long-term debt refinancing                                               | 15   |  | —    |   | (13  | )
|Net income taxes received (paid)                                                         |      |  | 10   |   | (14  | )
|Dividend received                                                                        | 9    |  | 18   |   | 17   |  
|Employee future benefits and others                                                      |      |  | (18  | ) | (3   | )
|                                                                                         |      |  | 316  |   | 322  |  
|Changes in non-cash working capital components                                           | 26   |  | 56   |   | (38  | )
|                                                                                         |      |  | 372  |   | 284  |  
|Investing activities from continuing operations                                          |      |  |      |  
|Investments in associates and joint ventures                                             |      |  | (6   | ) | (2   | )
|Payments for property, plant and equipment                                               |      |  | (182 | ) | (163 | )
|Proceeds on disposals of property, plant and equipment                                   |      |  | 5    |   | 4    |  
|Change in intangible and other assets                                                    |      |  | 14   |   | 8    |  
|Business acquisition                                                                     | 6    |  | (16  | ) | —    |  
|                                                                                         |      |  | (185 | ) | (153 | )
|Financing activities from continuing operations                                          |      |  |      |  
|Bank loans and advances                                                                  |      |  | (8   | ) | (14  | )
|Change in revolving credit facilities                                                    |      |  | (146 | ) | (120 | )
|Issuance of senior notes, net of related expenses                                        | 15   |  | —    |   | 300  |  
|Repayment of senior notes                                                                | 15   |  | —    |   | (305 | )
|Increase in other long-term debt                                                         |      |  | 40   |   | 73   |  
|Payments of other long-term debt                                                         |      |  | (47  | ) | (48  | )
|Settlement of derivative financial instruments                                           |      |  | 3    |   | —    |  
|Issuance of common shares                                                                | 19   |  | 1    |   | 5    |  
|Redemption of common shares                                                              | 19   |  | (9   | ) | —    |  
|Dividends paid to non-controlling interests and acquisition of non-controlling interests | 9    |  | (1   | ) | (5   | )
|Dividends paid to the Corporation's Shareholders                                         | 19   |  | (15  | ) | (15  | )
|                                                                                         |      |  | (182 | ) | (129 | )
|Change in cash and cash equivalents during the year from continuing operations           |      |  | 5    |   | 2    |  
|Change in cash and cash equivalents during the year from discontinued operations         | 5    |  | —    |   | 30   |  
|Net change in cash and cash equivalents during the year                                  |      |  | 5    |   | 32   |  
|Currency translation on cash and cash equivalents                                        |      |  | (3   | ) | (1   | )
|Cash and cash equivalents - Beginning of year                                            |      |  | 60   |   | 29   |  
|Cash and cash equivalents - End of year                                                  |      |  | 62   |   | 60   |  



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





7







SEGMENTED INFORMATION



The
Corporation analyzes the performance of its operating segments based on their operating income before depreciation and amortization,
which is not a measure of performance under International Financial Reporting Standards (IFRS); however, the chief operating decision-maker
(“CODM”)
uses this performance measure to assess the operating performance of each reportable segment. Earnings for each segment are prepared
on the same basis as those of the Corporation. Intersegment operations are recorded on the same basis as are sales to third parties,
which are at fair market value. The accounting policies of the reportable segments are the same as the Corporation’s accounting
policies described in Note 2.



The Corporation's
operating segments are reported in a manner consistent with the internal reporting provided to the CODM. The Chief Executive Officer
has authority for resource allocation and management of the Corporation's performance, and is therefore the CODM.



The Corporation's
operations are managed in four segments: Containerboard, Boxboard Europe, Specialty Products (which constitutes the Corporation's
Packaging Products) and Tissue Papers.

|                                                                         |                                                                    |   |       |  
|------------------------------------------------------------------------ | ------------------------------------------------------------------ | - | ----- | -
|                                                                         | SALES                                                             
|For the years ended December 31 (in millions of Canadian dollars)        | 2016                                                               |   | 2015  |  
|Packaging Products                                                       |                                                                    |  
|Containerboard                                                           | 1,370                                                              |   | 1,301 |  
|Boxboard Europe                                                          | 796                                                                |   | 825   |  
|Specialty Products                                                       | 620                                                                |   | 579   |  
|Intersegment sales                                                       | (61                                                                | ) | (55   | )
|                                                                         | 2,725                                                              |   | 2,650 |  
|Tissue Papers                                                            | 1,305                                                              |   | 1,236 |  
|Intersegment sales and Corporate activities                              | (29                                                                | ) | (25   | )
|                                                                         | 4,001                                                              |   | 3,861 |  
|                                                                         |                                                                    |   |       |  
|                                                                         | OPERATING INCOME (LOSS)BEFORE DEPRECIATION AND AMORTIZATION (OIBD)
|For the years ended December 31 (in millions of Canadian dollars)        | 2016                                                               |   | 2015  |  
|Packaging Products                                                       |                                                                    |  
|Containerboard                                                           | 214                                                                |   | 233   |  
|Boxboard Europe                                                          | 51                                                                 |   | 6     |  
|Specialty Products                                                       | 71                                                                 |   | 52    |  
|                                                                         | 336                                                                |   | 291   |  
|Tissue Papers                                                            | 139                                                                |   | 119   |  
|Corporate                                                                | (62                                                                | ) | (67   | )
|Operating income before depreciation and amortization                    | 413                                                                |   | 343   |  
|Depreciation and amortization                                            | (192                                                               | ) | (190  | )
|Financing expense and interest expense on employee future benefits       | (93                                                                | ) | (97   | )
|Loss on refinancing of long-term debt                                    | —                                                                  |   | (19   | )
|Foreign exchange gain (loss) on long-term debt and financial instruments | 22                                                                 |   | (91   | )
|Share of results of associates and joint ventures                        | 32                                                                 |   | 37    |  
|Earnings (loss) before income taxes                                      | 182                                                                |   | (17   | )



8







|                                                                                     |                                            |   |                   |  
|------------------------------------------------------------------------------------ | ------------------------------------------ | - | ----------------- | -
|                                                                                     | PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT
|For the years ended December 31 (in millions of Canadian dollars)                    | 2016                                       |   | 2015              |  
|Packaging Products                                                                   |                                            |  
|Containerboard                                                                       | 51                                         |   | 64                |  
|Boxboard Europe                                                                      | 26                                         |   | 23                |  
|Specialty Products                                                                   | 26                                         |   | 14                |  
|                                                                                     | 103                                        |   | 101               |  
|Tissue Papers                                                                        | 77                                         |   | 57                |  
|Corporate                                                                            | 26                                         |   | 7                 |  
|Total acquisitions                                                                   | 206                                        |   | 165               |  
|Proceeds on disposals of property, plant and equipment                               | (5                                         | ) | (4                | )
|Capital-lease acquisitions and included in other debts                               | (18                                        | ) | (3                | )
|                                                                                     | 183                                        |   | 158               |  
|Acquisitions of property, plant and equipment included in “Trade and other payables” |                                            |  
|Beginning of year                                                                    | 19                                         |   | 20                |  
|End of year                                                                          | (25                                        | ) | (19               | )
|Payments for property, plant and equipment net of proceeds on disposals              | 177                                        |   | 159               |  
|                                                                                     |                                            |   |                   |  
|                                                                                     | TOTAL ASSETS                              
|(in millions of Canadian dollars)                                                    | December 31, 2016                          |   | December 31, 2015 |  
|Packaging Products                                                                   |                                            |  
|Containerboard                                                                       | 1,285                                      |   | 1,277             |  
|Boxboard Europe                                                                      | 567                                        |   | 620               |  
|Specialty Products                                                                   | 336                                        |   | 330               |  
|                                                                                     | 2,188                                      |   | 2,227             |  
|Tissue Papers                                                                        | 922                                        |   | 940               |  
|Corporate                                                                            | 400                                        |   | 381               |  
|Intersegment eliminations                                                            | (37                                        | ) | (29               | )
|                                                                                     | 3,473                                      |   | 3,519             |  
|Investments in associates and joint ventures                                         | 335                                        |   | 322               |  
|Other investments                                                                    | 5                                          |   | 7                 |  
|                                                                                     | 3,813                                      |   | 3,848             |  



9







Information by geographic segment is as
follows:

|                                                                                                                 |                   |  |                   | 
|---------------------------------------------------------------------------------------------------------------- | ----------------- |  | ----------------- | 
|For the years ended December 31 (in millions of Canadian dollars)                                                | 2016              |  | 2015              | 
|Sales                                                                                                            |                   | 
|Operations located in Canada                                                                                     |                   | 
|Within Canada                                                                                                    | 1,511             |  | 1,376             | 
|To the United States                                                                                             | 505               |  | 542               | 
|Offshore                                                                                                         | 14                |  | 21                | 
|                                                                                                                 | 2,030             |  | 1,939             | 
|Operations located in the United States                                                                          |                   | 
|Within the United States                                                                                         | 1,065             |  | 976               | 
|To Canada                                                                                                        | 45                |  | 62                | 
|Offshore                                                                                                         | 2                 |  | 6                 | 
|                                                                                                                 | 1,112             |  | 1,044             | 
|Operations located in Italy                                                                                      |                   | 
|Within Italy                                                                                                     | 241               |  | 234               | 
|Other countries                                                                                                  | 140               |  | 149               | 
|                                                                                                                 | 381               |  | 383               | 
|Operations located in other countries                                                                            |                   | 
|Within Europe                                                                                                    | 399               |  | 426               | 
|Other countries                                                                                                  | 79                |  | 69                | 
|                                                                                                                 | 478               |  | 495               | 
|                                                                                                                 | 4,001             |  | 3,861             | 
|                                                                                                                 |                   |  |                   | 
|(in millions of Canadian dollars)                                                                                | December 31, 2016 |  | December 31, 2015 | 
|Property, plant and equipment                                                                                    |                   | 
|Canada                                                                                                           | 830               |  | 838               | 
|United States                                                                                                    | 505               |  | 464               | 
|Italy                                                                                                            | 179               |  | 199               | 
|Other countries                                                                                                  | 104               |  | 107               | 
|                                                                                                                 | 1,618             |  | 1,608             | 
|                                                                                                                 |                   |  |                   | 
|(in millions of Canadian dollars)                                                                                | December 31, 2016 |  | December 31, 2015 | 
|Goodwill, customer relationships and client lists, and other finite and indefinite useful life intangible assets |                   | 
|Canada                                                                                                           | 441               |  | 447               | 
|United States                                                                                                    | 71                |  | 64                | 
|Italy                                                                                                            | 9                 |  | 9                 | 
|                                                                                                                 | 521               |  | 520               | 



10







NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(Tabular amounts
in millions of Canadian dollars, except per common share and option amounts and number of common shares and options)



NOTE 1

GENERAL INFORMATION



Cascades Inc. and
its subsidiaries (together “Cascades” or the “Corporation”) produce, convert and market packaging and tissue
products composed mainly of recycled fibres. Cascades Inc. is incorporated and domiciled in Québec, Canada. The address
of its registered office is 404, Marie-Victorin Boulevard, Kingsey Falls. Its shares are listed on the Toronto Stock Exchange.



The Board of Directors approved the consolidated
financial statements on March 1, 2017.



NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



BASIS OF PRESENTATION

The Corporation prepares
its financial statements in accordance with Canadian generally accepted accounting principles (‘‘GAAP’’)
as set forth in Part 1 of the Chartered Professional Accountants of Canada (‘‘CPA Canada’’) Handbook –
Accounting which incorporates IFRS as issued by the International Accounting Standards Board. The key accounting policies applied
in the preparation of these consolidated financial statements are described below. These policies have been consistently applied
to all years presented, unless otherwise stated.



BASIS OF MEASUREMENT

The consolidated
financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets
and liabilities, including derivative instruments, which are measured at fair value.



BASIS OF CONSOLIDATION

These consolidated
financial statements include the accounts of the Corporation, which include:



| | A. | SUBSIDIARIES
| | -- | ------------

Subsidiaries are
all entities over which the Corporation has control, where control is defined as the power to direct decisions about relevant activities.
The Corporation does not have any interest in a structured entity. The existence and effect of potential voting rights that are
exercisable or convertible are considered when assessing whether the Corporation controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Corporation. They are deconsolidated from the date on which control
ceases. Accounting policies of subsidiaries have been changed, where necessary, to ensure consistency with the policies adopted
by the Corporation. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Corporation.
Results of operations are consolidated commencing on the date of acquisition. The purchase consideration is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. The transaction
costs directly attributable to the acquisition are expensed. Identifiable assets acquired, as well as liabilities and contingent
liabilities assumed in a business combination, are measured initially at their fair values at the acquisition date, irrespective
of the extent of any non-controlling interests. The excess of the purchase consideration over the fair value of the Corporation's
share of the identifiable net assets acquired is recorded as goodwill. If the purchase consideration is less than the fair value
of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statement of earnings.
Intercompany transactions, balances and unrealized gains on transactions between subsidiaries are eliminated.

The following are
the principal subsidiaries of the Corporation:

|                       |                      |             
|---------------------- | -------------------- | ------------
|                       | PERCENTAGE OWNED (%) | JURISDICTION
|Cascades Canada ULC    | 100                  | Canada      
|Cascades Recovery Inc. | 100                  | Canada      
|Cascades USA Inc.      | 100                  | Delaware    
|Cascades Europe S.A.S. | 100                  | France      
|Reno de Medici S.p.A.  | 57.7                 | Italy       



11







| | B. | TRANSACTIONS
AND CHANGE IN OWNERSHIP
| | -- | ------------------------------------

Acquisitions or disposals
of equity interests that do not result in the Corporation obtaining or losing control are treated as equity transactions. When
the Corporation obtains or loses control, the revaluation of the previously held interest or the non-controlling interests that
results in gains or losses for the Corporation is recognized in the consolidated statement of earnings.



| | C. | ASSOCIATES
| | -- | ----------

Associates are all
entities over which the Corporation has significant influence but not control, generally accompanying a shareholding of between
20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized
at cost. The Corporation's investment from associates includes goodwill identified on acquisition, net of any accumulated impairment
loss.



Unrealized gains
on transactions between the Corporation and its associates are eliminated to the extent of the Corporation's interest in the associates.
Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Corporation.
Dilution gains and losses arising in investments in associates are recognized in the consolidated statement of earnings.



The Corporation assesses,
at each year-end, whether there is any objective evidence that its interest in associates is impaired. If impaired, the carrying
value of the Corporation's share of the underlying assets of associates is written down to its estimated recoverable amount (being
the higher of fair value less cost of disposal or value in use) and charged to the consolidated statement of earnings.



| | D. | JOINT
VENTURES
| | -- | --------------

A joint venture is
an entity in which the Corporation holds a long-term interest and for which it shares joint control over decisions regarding relevant
activities. The Corporation reports its interests in joint ventures using the equity method. Accounting policies of joint ventures
have been adjusted where necessary to ensure consistency with the policies adopted by the Corporation.



REVENUE RECOGNITION

The Corporation recognizes
its sales, which consist of product sales, when it is probable that the economic benefits will flow to the Corporation, the goods
are shipped and the significant risks and benefits of ownership are transferred, the amount of revenue can be measured reliably,
and collection of the resulting receivable is reasonably assured.



Revenue is measured
based on the price specified in the sales contract, net of discounts and estimated returns at the time of sale. Historical experience
is used to estimate and provide for discounts and returns. Volume discounts are assessed based on anticipated annual sales.



FINANCIAL INSTRUMENTS
AND HEDGING RELATIONSHIPS

Financial assets
and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument.
Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and
the Corporation has transferred substantially all risks and rewards of ownership. Financial assets and financial liabilities are
offset and the net amount is reported in the consolidated balance sheet when there is a legally enforceable right to offset the
recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.



CLASSIFICATION

The
Corporation classifies its financial instruments in the following categories: at fair value through profit or loss, held to maturity
(“HTM”),
loans and receivables, available for sale (“AFS”)
and other liabilities. The classification depends on the purpose for which the financial instruments were acquired or issued. Management
determines the classification of its financial assets and financial liabilities at initial recognition. Settlement date accounting
is used by the Corporation for all financial assets.



| | A. | FINANCIAL
ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
| | -- | ---------------------------------------------------------------------

A financial asset
or financial liability is classified in this category if it is acquired principally for the purpose of selling or repurchasing
in the short term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in
this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the consolidated statement
of earnings. Gains and losses arising from changes in fair value are presented in the consolidated statement of earnings in loss
(gain) on acquisition, disposal and others in the period in which they arise. Financial assets and financial liabilities at fair
value through profit or loss are classified as current, except for the portion expected to be realized or paid beyond 12 months
of the consolidated balance sheet date, which is classified as long-term.



| | B. | HELD
TO MATURITY
| | -- | ----------------

HTM financial assets
are non-derivative financial assets with fixed or determinable payments and fixed maturities, other than loans and receivables,
AFS or fair value through profit or loss that the entity has the positive intention and ability to hold to maturity. These financial
assets are measured at amortized cost. The Corporation had no HTM financial assets as at December 31, 2016 and 2015.



12







| | C. | AVAILABLE-FOR-SALE
FINANCIAL ASSETS
| | -- | -----------------------------------

AFS investments are
non-derivative financial assets that are either designated in this category or not classified in any of the other categories. AFS
investments are recognized initially at fair value plus transaction costs, and are subsequently carried at fair value. Gains or
losses arising from changes in fair value are recognized in the statement of other comprehensive income (loss). AFS investments
are classified as long-term, unless the investment matures within 12 months, or Management expects to dispose of them within 12
months.



Interest on AFS investments,
calculated using the effective interest method, is recognized in the consolidated statement of earnings as part of financing expense.
Dividends on AFS equity instruments are recognized in the consolidated statement of earnings as part of loss (gain) on derivative
financial instruments when the Corporation's right to receive payment is established. When an AFS investment is sold or impaired,
the accumulated gains or losses are moved from Accumulated other comprehensive income (loss) to the consolidated statement of earnings
and included in loss (gain) on derivative financial instruments.



| | D. | LOANS
AND RECEIVABLES
| | -- | ---------------------

Loans and receivables
are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Corporation's
loans and receivables comprise accounts receivable, notes receivable from business disposals and cash and cash equivalents. Loans
and receivables are initially recognized at fair value. Subsequently, loans and receivables are measured at amortized cost using
the effective interest method less a provision for impairment.



| | E. | FINANCIAL
LIABILITIES AT AMORTIZED COST
| | -- | ---------------------------------------

Financial liabilities
at amortized cost include bank loans and advances, trade and other payables, and long-term debt. Financial liabilities at amortized
cost are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair
value. Subsequently, they are measured at amortized cost using the effective interest method. They are classified as current liabilities
if payment is due within 12 months. Otherwise, they are presented as long-term liabilities.



IMPAIRMENT OF
FINANCIAL ASSETS

At each report date,
the Corporation assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Corporation
recognizes an impairment loss, as follows:



| | i) | Financial
assets carried at amortized cost: The impairment loss is the difference between the amortized cost of the loan or receivable and
the present value of the estimated future cash flows, discounted using the instrument's original effective interest rate. The
carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ii) | AFS
financial assets: The impairment loss is the difference between the original cost of the asset and its permanent fair value decrease
at the measurement date, less any impairment losses previously recognized in the consolidated statement of earnings. This amount
represents the cumulative loss in“Accumulated
other comprehensive income (loss)”that is reclassified to
net earnings (loss).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Impairment losses
on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognized. Impairment losses on AFS equity instruments
are not reversed.



DERIVATIVE FINANCIAL
INSTRUMENTS AND HEDGING ACTIVITIES

Derivative financial
instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured
at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and, if so, the nature of the item being hedged. The Corporation designates certain derivative financial instruments
as either:



| | i) | hedges
of the fair value of recognized assets or liabilities or a firm commitment (fair value hedge);
| | -- | -----------------------------------------------------------------------------------------------------



| | ii) | hedges
of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge);
or
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



| | iii) | hedges
of a net investment in a foreign operation (net investment hedge).
| | ---- | -------------------------------------------------------------------------



The Corporation formally
documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging transactions. The Corporation also documents its assessment,
both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective
in offsetting changes in fair values or cash flows of hedged items.



The full fair value
of a hedging derivative is classified as a long-term asset or liability when the remaining maturity of the hedged item is more
than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading
derivatives are classified as current assets or liabilities.



13







| | A. | FAIR
VALUE HEDGE
| | -- | ----------------

The periodic change
in fair value of the hedging derivative is recorded in net income. The periodic change in the cumulative gain or loss on the hedged
item is recorded as an adjustment to its carrying amount on the balance sheet and is also recorded in net income. Hedging ineffectiveness
is automatically recorded to net income as the difference between the above amounts recorded in net income. Realized gains and
losses on the hedging item, resulting from the difference between the interest payments on the receive leg and the pay leg of the
hedging derivative, are recorded on an accrual basis in net income as interest income or expense.



If the hedge no longer
meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest
method is used is amortized to profit or loss over the period to maturity using a recalculated effective interest rate.



| | B. | CASH
FLOW HEDGE
| | -- | ---------------

The effective portion
of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the statement
of other comprehensive income (loss). The gain or loss relating to the ineffective portion is recognized immediately in the consolidated
statement of earnings.



Amounts accumulated
in equity are reclassified to profit or loss in the period when the hedged item affects profit or loss (for example, when the forecast
sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate
borrowings is recognized in the consolidated statement of earnings on the same line as the hedged item. The gain or loss relating
to the ineffective portion is recognized in the consolidated statement of earnings as part of loss (gain) on derivative financial
instruments. However, when the forecasted transaction that is hedged results in the recognition of a non-financial asset (for example,
inventory or property, plant and equipment), the gains and losses previously deferred in equity are transferred from equity and
included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognized in Cost of goods sold
in the case of inventory or in Depreciation in the case of property, plant and equipment.



When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated
statement of earnings. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to the consolidated statement of earnings.



| | C. | NET
INVESTMENT HEDGE
| | -- | --------------------

Hedges of net investments
in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the
effective portion of the hedge is recognized in the statement of other comprehensive income (loss). The gain or loss relating to
the ineffective portion is recognized immediately in the consolidated statement of earnings. Gains and losses accumulated in equity
are included in the consolidated statement of earnings when the foreign operation is partially disposed of or sold.



The Corporation also
uses cross-currency interest rate swaps to manage the currency fluctuations risk associated with forecasted cash flows in foreign
currency. These cross-currency interest rate swaps are designated as foreign exchange hedge of its net investment in foreign operations.
The portion of the gains and losses arising from the translation of those derivatives that are determined to be an effective hedge
are recognized in Other Comprehensive Income, counterbalancing gains and losses arising from the translation of the Corporation's
net investment in its foreign operations.



CASH AND CASH
EQUIVALENTS

Cash and cash equivalents
consist of cash on hand, bank balances and short-term liquid investments with original maturities of three months or less.



ACCOUNTS RECEIVABLE

Accounts receivable
are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less a
provision for doubtful accounts that is based on expected collectability.



INVENTORIES

Inventories of finished
goods are valued at the lower of cost, determined by either average production cost or retail method, or net realizable value.
Inventories of raw material and supplies are valued at the lower of cost or replacement value, which is the best available measure
of their net realizable value. Cost of raw material and supplies is determined using the average cost and first-in, first-out methods
respectively. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs
of completion and the estimated costs necessary to make the sale.



14







PROPERTY, PLANT
AND EQUIPMENT AND DEPRECIATION

Property, plant and
equipment are recorded at cost less accumulated depreciation and net impairment losses, including interest incurred during the
construction period of qualifying property, plant and equipment. Repairs and maintenance costs are charged to the consolidated
statement of earnings during the period in which they are incurred. Residual values, method of depreciation and useful lives of
the assets are reviewed annually and adjusted if appropriate.



Depreciation is calculated
on a straight-line basis as follows:



Buildings                Between
10 and 33 years

Machinery and equipment        Between
7 and 30 years

Automotive equipment        Between
5 and 10 years

Other property, plant
and equipment    Between 3 and 10 years



GRANTS AND INVESTMENT
TAX CREDITS

Grants and investment
tax credits for property, plant and equipment are accounted for using the cost reduction method and are amortized to earnings as
a reduction of depreciation, using the same basis as that used to depreciate the related property, plant and equipment.



BORROWING COSTS

Borrowing costs directly
attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial
period of time to get ready for their intended use, are added to the cost of those assets, until all the activities necessary to
prepare the asset for its intended use are complete. All other borrowing costs are recognized in the consolidated statement of
earnings in the period in which they are incurred.



INTANGIBLE ASSETS

Intangible assets
consist primarily of customer relationships and client lists, application software and favourable leases. They are recorded at
cost less accumulated amortization and impairment losses and amortized on a straight-line basis over the estimated useful lives
as follows:



Customer relationships
and client lists    Between 2 and 20 years

Other finite-life
intangible assets    Between 2 and 20 years

Application software    Between
3 and 10 years

Enterprise
Resource Planning (“ERP”)    7
years

Favourable leases    Term
of the lease



Expenditure on research
activities is recognized as an expense in the period in which it is incurred.



IMPAIRMENT



| | A. | PROPERTY,
PLANT AND EQUIPMENT AND INTANGIBLE ASSETS WITH FINITE USEFUL LIFE
| | -- | ---------------------------------------------------------------------------

At the
end of each reporting period, the Corporation assesses whether there is an indicator that the carrying amount of an asset or a
group of assets may be higher than its recoverable amount which is described in section C hereunder. For that purpose, assets are
grouped at the lowest levels for which there are separately identifiable cash inflows (cash generating units (“CGUs”)).



When the recoverable
amount is lower than the carrying amount, the carrying amount is reduced to the recoverable amount. Impairment losses are recorded
immediately in the consolidated statement of earnings in the line item Impairment charges and restructuring costs. Impairment losses
are evaluated for potential reversals when events or changes in circumstances warrant such consideration. The revalued carrying
value is the lower of the estimated recoverable amount and the carrying amount that would have been determined had no impairment
loss been recognized and depreciation had been taken previously on the asset or CGU. A reversal of impairment loss is recorded
directly in the consolidated statement of earnings in the line item Impairment charges and restructuring costs.



| | B. | GOODWILL
AND OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
| | -- | ----------------------------------------------------------------

Goodwill and other
intangible assets with an indefinite useful life are recognized at cost less any accumulated impairment losses. They have an indefinite
useful life due to their permanent nature since they are acquired rights or not subject to wear and tear. They are reviewed for
impairment annually on December 31 or when an event or a circumstance occurs and indicates that the value could be permanently
impaired. Goodwill is allocated to CGUs for the purpose of impairment testing based on the level at which Management monitors it,
which is not higher than an operating segment. The allocation is made to CGUs that are expected to benefit from the business combination
in which the goodwill and other intangible assets with an indefinite useful life arose. Impairment loss on goodwill is not reversed.



15







| | C. | RECOVERABLE
AMOUNTS
| | -- | -------------------

A recoverable amount
is the higher of fair value less cost of disposal or value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a discount rate that reflects current market assessment of the time value of money and
the risks specific to the asset or CGU. When determining fair value less cost of disposal, the Corporation considers if there is
a market price for the asset being evaluated. Otherwise, the Corporation uses the income approach.



LEASES

Leases in which a
significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments
made under operating leases are charged to the consolidated statement of earnings on a straight-line basis over the term of the
lease.



The Corporation leases
certain property, plant and equipment. Leases of property, plant and equipment for which the Corporation has substantially all
the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease's commencement
at the lower of the fair value of the leased property or the present value of the minimum lease payments. Property, plant and equipment
acquired under a finance lease are depreciated over the shorter of the estimated useful life of the asset or the lease term using
the straight-line method. Each lease payment is allocated between the liability and the financing expense so as to achieve a constant
rate on the finance balance outstanding. The corresponding rental obligations, net of financing expense, are included in long-term
debt.



PROVISIONS FOR
CONTINGENCIES AND CHARGES

Provisions for contingencies
include mainly legal and other claims. A provision is recognized when the Corporation has a legal or constructive obligation as
a result of a past event and it is probable that settlement of the obligation will require a financial payment or cause a financial
loss, and a reliable estimate of the amount of the obligation can be made.



If some or all of
the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recorded in
the consolidated balance sheet as a separate asset, but only if it is virtually certain that the reimbursement will be received.



Provisions are measured
at the present value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current
market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the
passage of time is recognized as a financing expense.



ENVIRONMENTAL
RESTORATION OBLIGATIONS AND ENVIRONMENTAL COSTS

An obligation to
incur restoration and environmental costs arises when environmental disturbance is caused by the development or ongoing production
of a plant or landfill site. Such costs arising from the installation of a plant and other site preparation work are provided for
and capitalized at the start of each project, or as soon as the obligation to incur such costs arises. Decommissioning costs are
recorded at the estimated amount at which the obligation could be settled at the consolidated balance sheet date, and are charged
against profit over the life of the operation, through the depreciation of the asset and the unwinding of the discount on the provision.
The discount rate is the pre-tax rate that reflects current market assessments of the time value of money and the risks specific
to the liability. Costs for restoring subsequent site damage which is created on an ongoing basis during production are provided
for at their present values and charged against profit as the obligation arises.



Changes in the measurement
of a liability relating to the decommissioning of a plant or other site preparation work which result from changes in the estimated
timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset
in the current year. If a decrease in the liability exceeds the carrying amount of the asset, the excess is recognized immediately
in the consolidated statement of earnings. If the asset value is increased and there is an indication that the revised carrying
value is not recoverable, an impairment test is performed in accordance with the accounting policy for impairment testing.



LONG-TERM DEBT

Long-term debt is
recognized initially at fair value, net of financing costs incurred. Long-term debt is subsequently carried at amortized cost;
any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement
of earnings over the period of the term of the debt using the effective interest method.



Financing costs paid
on establishment of the revolving credit facility are recognized as deferred financing costs and amortized on a straight-line basis
over the anticipated period of the credit facility.



16







EMPLOYEE BENEFITS

The
Corporation offers funded and unfunded defined benefit pension plans, defined contribution pension plans and group registered retirement
savings plans (“RRSP”)
that provide retirement benefit payments for most of its employees. The defined benefit pension plans are usually contributory
and are based on the number of years of service and, in most cases, the average salaries or compensation at the end of a career.
Retirement benefits are not adjusted based on inflation. The Corporation also offers its employees some post-employment benefit
plans, such as a retirement allowance, group life insurance and medical and dental plans. However, these benefits, other than pension
plans, are not funded. Furthermore, the medical and dental plans upon retirement are being phased out and are no longer offered
to the majority of new retirees, and the retirement allowance is not offered to those who do not meet certain criteria.



The liability recognized
in the consolidated balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation
at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated at least every
three years by independent actuaries using the projected unit credit method, and updated regularly by management for any material
transactions and changes in circumstances, including changes in market prices and interest rates up to the end of the reporting
period.



As well, when an
asset is recorded for a pension plan, its carrying value cannot be greater than the future economic benefit that the Corporation
will get from the asset. The future economic benefit includes the suspension of contribution if the pension plan provisions allow
for it under the minimum funding requirements. When there is a minimum funding requirement, it can increase the liability recorded.
All special contributions legally required to fund a plan deficit are considered. For plans for which an actuarial evaluation is
required as at December 31, 2016, a schedule of contributions is estimated to establish the minimum funding requirement. For other
plans, we have used contributions from the most recent actuarial report.



Actuarial gains and
losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recorded
in the statement of other comprehensive income (loss) and recognized immediately in retained earnings without recycling to the
consolidated statement of earnings. Past service costs are recognized immediately in the consolidated statement of earnings.



When restructuring
a plan results in a curtailment and settlement occurring at the same time, the curtailment is accounted for before the settlement.



Interest costs on
pension and other post-employment benefits are recognized in the consolidated statement of earnings as Interest expense on employee
future benefits. The measurement date of employee future benefit plans is December 31 of each year. An actuarial evaluation is
performed at least every three years. Based on their balances as at December 31, 2016, 18% of the plans were evaluated on December 31, 2015
(17% in 2014).



INCOME TAXES

The Corporation uses
the liability method to recognize deferred income taxes. According to this method, deferred income taxes are determined using the
difference between the accounting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are measured
using enacted or substantively enacted tax rates at the consolidated balance sheet date that are expected to apply when the deferred
income taxes are expected to be recovered or settled. Deferred income tax assets are recognized when it is probable that the asset
will be realized.



Deferred income tax
assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either
the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.



FOREIGN CURRENCY
TRANSLATION

Items
included in the financial statements of each of the Corporation's entities are measured using the currency of the primary economic
environment in which the entity operates (the“functional
currency”). The consolidated financial statements
are presented in Canadian dollars, which is Cascades' functional currency.



| | A. | FOREIGN
CURRENCY TRANSACTIONS
| | -- | -----------------------------

Transactions denominated
in currencies other than the business unit's functional currency are recorded at the rate of exchange prevailing at the transaction
date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the
consolidated balance sheet date. Unrealized gains and losses on translation of monetary assets and liabilities are reflected in
the consolidated statement of earnings for the year.



| | B. | FOREIGN
OPERATIONS
| | -- | ------------------

The assets and liabilities
of foreign operations are translated into Canadian dollars at the exchange rate prevailing at the consolidated balance sheet date.
Revenues and expenses are translated at the average monthly exchange rate. Translation gains or losses are deferred and included
in Accumulated other comprehensive income.



17







SHARE-BASED PAYMENTS

The Corporation uses
the fair value method of accounting for stock-based compensation awards granted to officers and key employees. This method consists
in recording expenses to earnings based on the vesting period of each tranche of options granted. The fair value of each tranche
is calculated based on the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. When stock options are exercised, any considerations
paid by employees, as well as the related stock-based compensation, are credited to capital stock.



DIVIDEND DISTRIBUTION

Dividend distribution
to the Corporation's Shareholders is recognized as a liability in the consolidated financial statements in the period in which
the dividends are approved by the Corporation's Board of Directors.



EARNINGS PER COMMON
SHARE

Basic earnings per
common share are determined using the weighted average number of common shares outstanding during the period. Diluted earnings
per common share are determined by adjusting the weighted average number of common shares outstanding for dilutive instruments,
which are primarily stock options, using the treasury stock method to evaluate the dilutive effect of stock options. Under this
method, instruments with a dilutive effect, which is when the average market price of a share for the period exceeds the exercise
price, are considered to have been exercised at the beginning of the period and the proceeds received are considered to have been
used to redeem common shares of the Corporation at the average market price for the period.



NOTE 3

CHANGES IN ACCOUNTING POLICY AND DISCLOSURES



A) NEW IFRS ADOPTED



IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

In December 2014,
the IASB issued amendments to IAS 1, Presentation of Financial Statements (IAS 1 amendments). The IAS 1 amendments provide guidance
on the application of judgment in the preparation of financial statements and disclosures. The IAS 1 amendments are effective for
annual periods beginning on or after January 1, 2016. The application of the standard did not result in significant changes.



B) RECENT IFRS PRONOUNCEMENTS NOT YET
ADOPTED



IFRS 15 —
REVENUE RECOGNITION

In May 2014, the
International Accounting Standards Board (IASB) issued IFRS 15 - Revenue from Contracts with Customers. IFRS 15 replaces all previous
revenue recognition standards, including IAS 18 - Revenue, and related interpretations such as IFRIC 13 - Customer Loyalty Programs.
The standard sets out the requirements for recognizing revenue. Specifically, the new standard introduces a comprehensive framework
with the general principle being that an entity recognizes revenue to depict the transfer of promised goods and services in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The
standard introduces more prescriptive guidance than was included in previous standards and may result in changes in classification
and disclosure in addition to changes in the timing of recognition for certain types of revenues. The new standard is effective
for annual periods beginning on or after January 1, 2018 with early adoption permitted. At this time, the Corporation is reviewing
the impact that this standard will have on its consolidated financial statements.



IFRS 9 — FINANCIAL INSTRUMENTS

In July 2014, the
IASB released the final version of IFRS 9, Financial Instruments. This standard addresses classification and measurement of financial
assets and replaces the multiple category and measurement models for debt instruments in IAS 39, Financial Instruments: Recognition
and Measurement, with a new mixed measurement model having only two categories: amortized cost and fair value through profit or
loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are recognized either at fair value
through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair
value through other comprehensive income, dividends are recognized in profit or loss insofar as they do not clearly represent a
return on investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated
comprehensive income indefinitely. Requirements for financial liabilities carry forward existing requirements in IAS 39, except
that fair value changes due to credit risk for liabilities designated at fair value through profit and loss would generally be
recorded in the statement of other comprehensive income. It also includes guidance on hedge accounting. The standard is effective
for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Corporation is currently evaluating
the impact of the standard on its consolidated financial statements.



18







IFRS 16 — LEASES

In January 2016,
the IASB released IFRS 16, Leases, which supersedes IAS 17, Leases, and the related interpretations on leases: IFRIC 4, Determining
whether an arrangement contains a lease, SIC 15, Operating Leases - Incentives and SIC 27, Evaluating the substance of transactions
in the legal form of a lease. The standard is effective for annual periods beginning on or after January 1, 2019, with earlier
application permitted for companies that also apply IFRS 15, Revenue from Contracts with Customers. The Corporation is currently
evaluating the impact of the standard on its consolidated financial statements. As at December 31, 2016, the Corporation has $65
million of operating lease commitments.



IAS 7 - STATEMENT OF CASH FLOWS

In January 2016,
the IASB published amendments to IAS 7, Statement of Cash Flows. The amendments are intended to clarify IAS 7 to improve information
provided to users of financial statements about an entity’s financing activities. They are effective for annual periods beginning
on or after January 1, 2017, with earlier application being permitted. The Corporation is currently evaluating the impact of IAS
7 on its consolidated financial statements.



IAS 12 - INCOME TAXES

In February 2016,
the IASB issued amendments to IAS 12, Income Taxes regarding the recognition of deferred tax assets for unrealized losses, effective
for annual periods beginning on or after January 1, 2017. The amendments clarify how to account for deferred tax assets related
to debt instruments measured at fair value. The Corporation is currently evaluating the impact of these amendments on its consolidated
financial statements.



NOTE 4

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS



Estimates and judgments
are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances.



CRITICAL ACCOUNTING
ESTIMATES AND ASSUMPTIONS

The preparation of
financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of
assets and liabilities in the financial statements and disclosure of contingencies at the balance sheet date, and the reported
amounts of revenues and expenses during the reporting period. On a regular basis and with the information available, Management
reviews its estimates, including those related to environmental costs, employee future benefits, collectability of accounts receivable,
financial instruments, contingencies, income taxes, useful life and residual value of property, plant and equipment and impairment
of property, plant and equipment and intangible assets. Actual results could differ from those estimates. When adjustments become
necessary, they are reported in earnings in the period in which they occur.



A. IMPAIRMENT
OF LONG-LIVED ASSETS, INTANGIBLE ASSETS AND GOODWILL

In determining the
recoverable amount of an asset or a ‘‘CGU‘‘, the Corporation uses several key assumptions, based on external
information on the industry when available, and including estimated production levels, selling prices, volume, raw material costs,
foreign exchange rates, growth rates, discounting rates and capital spending.



The Corporation believes
its assumptions are reasonable. Based on available information at the assessment date, however these assumptions involve a high
degree of judgment and complexity. Management believes that the following assumptions are the most susceptible to change and therefore
could impact the valuation of the assets in the next year.



DESCRIPTION OF
SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Notes 5 and 25 of consolidated financial statements)



GROWTH RATES

The assumptions used
were based on the Corporation's internal budget. Revenues, operating margins and cash flows were projected for a period of five
years, and a perpetual long-term growth rate was applied thereafter. In arriving at its forecasts, the Corporation considers past
experience, economic trends such as gross domestic product growth and inflation, as well as industry and market trends.



DISCOUNT RATES

The Corporation assumed
a discount rate in order to calculate the present value of its projected cash flows. The discount rate represents a weighted average
cost of capital ("WACC") for comparable companies operating in similar industries of the applicable "CGU,"
group of "CGUs" or reportable segment, based on publicly available information.



19







FOREIGN EXCHANGE
RATES

When estimating the
fair value less cost of disposal, foreign exchange rates are determined using the financial institutions' average forecast for
the first two years of forecasting. For the following three years, the Corporation uses the last five years' historical average
of the foreign exchange rate. Terminal rate is based on historical data of the last 20 years and adjusted to reflect management's
best estimate.



Considering the sensitivity
of the key assumptions used, there is measurement uncertainty, since adverse changes in one or a combination of the Corporation's
key assumptions could cause a significant change in the carrying amounts of these assets.



B. INCOME TAXES

The Corporation is
required to estimate the income taxes in each jurisdiction in which it operates. This includes estimating a value for existing
tax losses based on the Corporation's assessment of its ability to use them against future taxable income before they expire. If
the Corporation's assessment of its ability to use the tax losses proves inaccurate in the future, more or less of the tax losses
might be recognized as assets, which would increase or decrease the income tax expense and, consequently, affect the Corporation's
results in the relevant year.



C. EMPLOYEE BENEFITS

The present value
of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality
corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating
the terms of the related pension liability.



The cost of pensions
and other retirement benefits earned by employees is actuarially determined using the projected benefit method pro-rated on years
of service and Management's best estimate of expected plan investment performance, salary escalations, retirement ages of employees
and expected healthcare costs. The accrued benefit obligation is evaluated using the market interest rate at the evaluation date.
Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed
annually.



CRITICAL JUDGMENTS
IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES



SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS

Significant judgment
is applied in assessing whether certain investment structures result in control, joint control or significant influence over the
operations of the investment. Management's assessment of control, joint control or significant influence over an investment will
determine the accounting treatment for the investment. The Corporation has a 59.7% interest in an associate ("Greenpac").
Greenpac's Shareholders agreement requires a majority of 80% for all decision-making related to relevant activities. Consequently,
the Corporation does not have power over relevant activities of Greenpac and its participation is accounted for as an associate.



20







NOTE 5

DISCONTINUED OPERATIONS AND DISPOSALS



CONSOLIDATED NET EARNINGS FROM DISCONTINUED
OPERATIONS

|                                                                     |      |  |      |      | 
|-------------------------------------------------------------------- | ---- |  | ---- | ---- | 
|(in millions of Canadian dollars)                                    | 2016 |  | 2015 |     
|Condensed net earnings from discontinued operations                  | —    |  | 1    |     
|Condensed net earnings from discontinued operations per common share |      |  |      |     
|Basic and diluted                                                    | —    |  | $    | 0.01 | 



CONSOLIDATED CASH FLOW FROM DISCONTINUED
OPERATIONS

|                                                    |      |  |      |  
|--------------------------------------------------- | ---- |  | ---- | -
|(in millions of Canadian dollars)                   | 2016 |  | 2015 |  
|Consolidated cash flow from discontinued operations |      | 
|Cash flow from (used for):                          |      |  |      |  
|Operating activities                                | —    |  | (14  | )
|Investing activities                                | —    |  | 45   |  
|Financing activities                                | —    |  | (1   | )
|                                                    | —    |  | 30   |  



Containerboard Packaging Group

On December 11, 2014,
the Containerboard Packaging Group announced that it had reached an agreement for the sale of its boxboard activities in North
America to Graphic Packaging Holding Company. The sale was completed on February 4, 2015, and the Corporation received $46 million
in the first quarter. A selling price adjustment of $8 million was agreed on, of which $6 million was paid in 2015. The Corporation
recorded a loss of $4 million 2015.



The Containerboard
Packaging Group also recorded a $4 million gain in the first quarter of 2015 on the reversal of a post-employment benefit liability,
which was not part of the boxboard activities transaction, but settled as a consequence of the sale.



Assets and liabilities
of the North American Boxboard activities at the time of disposal were as follows:

|                                                           |                                    |  
|---------------------------------------------------------- | ---------------------------------- | -
|BUSINESS SEGMENT                                           | CONTAINERBOARD PACKAGING           |  
|                                                           | North American Boxboard Activities |  
|(in millions of Canadian dollars)                          |                                   
|Accounts receivable                                        | 27                                 |  
|Inventories                                                | 27                                 |  
|Property, plant and equipment                              | 19                                 |  
|Other assets                                               | 3                                  |  
|Total assets                                               | 76                                 |  
|                                                           |                                    |  
|Trade and other payables                                   | 28                                 |  
|Other liabilities                                          | 6                                  |  
|Total liabilities                                          | 34                                 |  
|                                                           | 42                                 |  
|Loss on disposal before tax                                | (4                                 | )
|Selling price adjustment liability as at December 31, 2015 | 2                                  |  
|Total consideration received                               | 40                                 |  



21







The operating results
and cash flow from these activities are presented as discontinued operations.

|                                                                                                       |      |  |      |  
|------------------------------------------------------------------------------------------------------ | ---- |  | ---- | -
|(in millions of Canadian dollars)                                                                      | 2016 |  | 2015 |  
|Results of the discontinued operations of North American boxboard activities                           |      | 
|Sales, net of intercompany transactions                                                                | —    |  | 24   |  
|Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions | —    |  | 22   |  
|Selling and administrative expenses                                                                    | —    |  | 3    |  
|Loss on acquisitions, disposals and others                                                             | —    |  | 4    |  
|Impairment charges and restructuring gain                                                              | —    |  | (4   | )
|Foreign exchange gain                                                                                  | —    |  | (1   | )
|Net earnings from discontinued operations                                                              | —    |  | —    |  
|                                                                                                       |      |  |      |  
|(in millions of Canadian dollars)                                                                      | 2016 |  | 2015 |  
|Net cash flow of discontinued operations of North American boxboard activities                         |      | 
|Cash flow from :                                                                                       |      |  |      |  
|Investing activities                                                                                   | —    |  | 40   |  



Boxboard Europe
Group

On June 15, 2014,
following the announcement made in 2013, the Corporation definitively ceased the operation of its virgin boxboard mill located
in Sweden.



The operating results
from this activity are nil while cash flows are presented as discontinued operations.

|                                                                                   |      |  |      |  
|---------------------------------------------------------------------------------- | ---- |  | ---- | -
|(in millions of Canadian dollars)                                                  | 2016 |  | 2015 |  
|Net cash flow of the discontinued operations of Swedish virgin boxboard activities |      | 
|Cash flow from (used for):                                                         |      |  |      |  
|Operating activities                                                               | —    |  | (4   | )
|Investing activities                                                               | —    |  | 1    |  
|                                                                                   | —    |  | (3   | )



Specialty Products Group

On June 30, 2014,
we sold our fine papers activities of the Specialty Products Group to Les Entreprises Rolland, a subsidiary of H.I.G. Capital.



The Corporation finalized
the working capital selling price adjustment related to this transaction and recorded a $1 million gain in 2015 by reducing its
final selling price adjustment provision to $2 million. In 2015, the Corporation also sold a piece of land that was not part of
the transaction and recorded a $1 million reversal of impairment.



On September 26,
2014, we ceased the operation of our kraft papers manufacturing activities of the Specialty Products Group located in East Angus,
Québec. In 2015, the Group paid $6 million for the settlement of the pension plan.



The operating results
and cash flows from these activities, which constituted the specialty papers sectors, are presented as discontinued operations.

|                                                                  |      |  |      |  
|----------------------------------------------------------------- | ---- |  | ---- | -
|(in millions of Canadian dollars)                                 | 2016 |  | 2015 |  
|Results of the discontinued operations of specialty papers sector |      | 
|Selling and administrative expenses                               | —    |  | 2    |  
|Gain on acquisitions, disposals and others                        | —    |  | (1   | )
|Impairment reversal                                               | —    |  | (1   | )
|Operating income                                                  | —    |  | —    |  
|Recovery of income tax                                            | —    |  | (1   | )
|Net earnings from discontinued operations                         | —    |  | 1    |  



22







|                                                                    |      |  |      |  
|------------------------------------------------------------------- | ---- |  | ---- | -
|(in millions of Canadian dollars)                                   | 2016 |  | 2015 |  
|Net cash flow of discontinued operations of specialty papers sector |      | 
|Cash flow from (used for):                                          |      |  |      |  
|Operating activities                                                | —    |  | (10  | )
|Investing activities                                                | —    |  | 4    |  
|Financing activities                                                | —    |  | (1   | )
|                                                                    | —    |  | (7   | )



NOTE 6

BUSINESS ACQUISITION



On May 31, 2016,
the Containerboard Packaging Group purchased from Rand-Whitney Container LLC its corrugated products plant located in Newtown,
Connecticut. A total consideration of $18 million was paid by the Corporation and consisted of $15 million (US$12 million) in cash
and certain assets of our corrugated containerboard plant located in Thompson, Connecticut, valued at $3 million. The excess of
the consideration paid over the net fair value of the assets acquired resulted in a tax deductible goodwill of $7 million and has
been allocated to Containerboard Packaging Group CGU. This acquisition is expected to create synergies. The purchase price was
finalized on September 30, 2016.



Assets acquired were
as follows:

|                                             |                            |      | 
|-------------------------------------------- | -------------------------- | ---- | 
|(in millions of Canadian dollars)            |                            | 2016 | 
|BUSINESS SEGMENT:                            | CONTAINERBOARD
 PACKAGING  |     
|ACQUIRED COMPANY:                            | Rand-Whitney Newtown Plant |     
|Fair values of identifiable assets acquired: |                            |     
|Property, plant and equipment                |                            | 10   | 
|Client list                                  |                            | 1    | 
|Goodwill                                     |                            | 7    | 
|                                             |                            | 18   | 
|                                             |                            |      | 
|Cash paid                                    |                            | 15   | 
|Fair market value of assets exchanged        |                            | 3    | 
|Total consideration                          |                            | 18   | 



In addition to the
purchase price paid to Rand-Whitney, the Corporation also incurred transaction fees amounting to $1 million.



On a stand-alone
basis, Newtown, since the date of acquisition, represents sales amounting to $35 million and the contribution to net earnings attributable
to Shareholders is nil. Had the acquisition occurred on January 1, 2016, consolidated sales would have been $60 million higher
and consolidated net earnings attributable to Shareholders would have remained unchanged for the year ended December 31, 2016.
These estimates are based on the assumption that fair value adjustments made as at the acquisition date would have been the same
had the acquisition occurred on January 1, 2016.



23







NOTE 7

ACCOUNTS RECEIVABLE

|                                      |      |     |      |     |      | 
|------------------------------------- | ---- | --- | ---- | --- | ---- | 
|(in millions of Canadian dollars)     | NOTE |     | 2016 |     | 2015 | 
|Accounts receivable - Trade           |      | 465 |      | 494 |     
|Receivables from related parties      | 29   |     | 39   |     | 30   | 
|Less: provision for doubtful accounts |      | (6  | )    | (12 | )   
|Trade receivables - net               |      | 498 |      | 512 |     
|Provisions for volume rebates         |      | (35 | )    | (35 | )   
|Other                                 |      | 61  |      | 63  |     
|                                      |      | 524 |      | 540 |     



As at December 31,
2016, trade receivables of $118 million (December 31, 2015 - $164 million) were past due but not impaired.



The aging of these
trade receivables at each reporting date is as follows:

|                                  |      |  |      | 
|--------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars) | 2016 |  | 2015 | 
|Past due 1-30 days                | 69   |  | 114  | 
|Past due 31-60 days               | 22   |  | 27   | 
|Past due 61-90 days               | 8    |  | 13   | 
|Past due 91 days and over         | 19   |  | 10   | 
|                                  | 118  |  | 164  | 



Movements in the Corporation's allowance
for doubtful accounts are as follows:

|                                                                 |      |   |      |  
|---------------------------------------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars)                                | 2016 |   | 2015 |  
|Balance at beginning of year                                     | 12   |   | 12   |  
|Provision for doubtful accounts, net of unused beginning balance | (3   | ) | 4    |  
|Receivables written off during the year as uncollectable         | (3   | ) | (4   | )
|Balance at end of year                                           | 6    |   | 12   |  



The change in the
provision for doubtful accounts has been included in Selling and administrative expenses in the consolidated statement of earnings.



The maximum exposure
to credit risk at the reporting date approximates the carrying value of each class of receivable mentioned above.



NOTE 8

INVENTORIES

|                                  |      |  |      | 
|--------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars) | 2016 |  | 2015 | 
|Finished goods                    | 219  |  | 230  | 
|Raw material                      | 107  |  | 113  | 
|Supplies and spare parts          | 151  |  | 151  | 
|                                  | 477  |  | 494  | 



As at
December 31, 2016, finished goods, raw material and supplies and spare parts were adjusted to net realizable value (“NRV”)
by $7 million, nil and nil, respectively (December 31, 2015 - $7 million, nil, and nil). As at December 31, 2016, the
carrying amount of inventory carried at net realizable value consisted of $9 million in finished goods inventory, nil in
raw material inventory and nil in supplies and spare parts (December 31, 2015 - $15 million, nil and nil).



The Corporation has
sold all the goods that were written down in 2015. No reversal of previously written-down inventory occurred in 2016 or 2015. The
cost of raw material and supplies and spare parts included in Cost of sales amounted to $1,612 million (2015 - $1,532 million).



24







NOTE 9

INVESTMENTS IN ASSOCIATES AND JOINT
VENTURES



| | A. | INVESTMENTS
IN ASSOCIATES AND JOINT VENTURES ARE DETAILED AS FOLLOWS:
| | -- | ---------------------------------------------------------------------



|                                  |      |  |      | 
|--------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars) | 2016 |  | 2015 | 
|Investments in associates         | 281  |  | 275  | 
|Investments in joint ventures     | 54   |  | 47   | 
|                                  | 335  |  | 322  | 



Investments in associates
and joint ventures as at December 31, 2016, include goodwill of $28 million (December 31, 2015 - $29 million).



| | B. | INVESTMENTS
IN ASSOCIATES
| | -- | -------------------------

The following are
the principal associates of the Corporation:

|                      |                                |                                       
|--------------------- | ------------------------------ | --------------------------------------
|                      | PERCENTAGE OF EQUITY OWNED (%) | PRINCIPAL ESTABLISHMENT               
|Boralex Inc.1         | 20.12                          | Kingsey Falls, Québec, Canada         
|Greenpac Holding LLC2 | 59.7                           | Niagara Falls, New York, United States

1
Boralex Inc., is a Canadian public corporation and a major electricity producer whose core business is the development and operation
of power stations that generate renewable energy, with operations in Canada, the Northeastern United States and France. On January
18, 2017, Boralex issued common shares to partly finance the acquisition of the interest of Enercon Canada Inc in Niagara Region
Wind Farm. Following this transaction, the Corporation's participation stands at 17.37%.

2
Greenpac Holding LLC is an American corporation that manufactures a light-weight linerboard made with 100% recycled fibres.



The Corporation's
financial information from its principal associates (100%), and translated in millions of Canadian dollars if required, is as follows:

|                                                                                  |              |   |                      |  |              |   |                      |  
|--------------------------------------------------------------------------------- | ------------ | - | -------------------- |  | ------------ | - | -------------------- | -
|                                                                                  | 2016         |   | 2015                 | 
|(in millions of Canadian dollars)                                                 | BORALEX INC. |   | GREENPAC HOLDING LLC |  | BORALEX INC. |   | GREENPAC HOLDING LLC |  
|Balance sheet                                                                     |              |   |                      |  |              |   |                      |  
|Cash and cash equivalents                                                         | 100          |   | 28                   |  | 100          |   | 69                   |  
|Current assets(other than cash and cash equivalents and current financial assets) | 288          |   | 103                  |  | 100          |   | 71                   |  
|Current financial assets                                                          | 1            |   | 1                    |  | 1            |   | 1                    |  
|Long-term assets(other than long-term financial assets)                           | 2,311        |   | 513                  |  | 2,241        |   | 554                  |  
|Long-term financial assets                                                        | 2            |   | 11                   |  | —            |   | 11                   |  
|Current liabilities(other than current financial liabilities)                     | 131          |   | 41                   |  | 94           |   | 53                   |  
|Current financial liabilities                                                     | 321          |   | 19                   |  | 187          |   | 49                   |  
|Long-term liabilities(other than long-term financial liabilities)                 | 131          |   | —                    |  | 163          |   | —                    |  
|Long-term financial liabilities                                                   | 1,605        |   | 251                  |  | 1,446        |   | 275                  |  
|                                                                                  |              |   |                      |  |              |   |                      |  
|Statements of earnings (loss)                                                     |              |   |                      |  |              |   |                      |  
|Sales                                                                             | 299          |   | 340                  |  | 266          |   | 314                  |  
|Depreciation and amortization                                                     | 116          |   | 28                   |  | 97           |   | 26                   |  
|Financing expense                                                                 | 76           |   | 27                   |  | 74           |   | 30                   |  
|Recovery of income taxes                                                          | (9           | ) | —                    |  | (1           | ) | —                    |  
|Net earnings (loss)                                                               | 2            |   | 22                   |  | (8           | ) | 32                   |  
|                                                                                  |              |   |                      |  |              |   |                      |  
|Other comprehensive income (loss)                                                 |              |   |                      |  |              |   |                      |  
|Translation adjustment                                                            | (12          | ) | —                    |  | 14           |   | (2                   | )
|Cash flow hedges                                                                  | —            |   | 4                    |  | (2           | ) | (1                   | )
|                                                                                  | (12          | ) | 4                    |  | 12           |   | (3                   | )
|Total comprehensive income (loss)                                                 | (10          | ) | 26                   |  | 4            |   | 29                   |  
|                                                                                  |              |   |                      |  |              |   |                      |  
|Cash flow                                                                         |              |   |                      |  |              |   |                      |  
|Dividend received from associates                                                 | 7            |   | —                    |  | 7            |   | —                    |  



Investment in Boralex
Inc. has a fair value of $252 million as at December 31, 2016 (December 31, 2015 - $190 million).



25







On May 6, 2016, the
Corporation announced that its associate company Greenpac, located in Niagara Falls, NY, successfully refinanced its debt. The
debt package included a term loan and a revolving credit facility. The five-year agreement allows the mill to reduce its financing
costs by approximately 225 basis points, increasing its flexibility to successfully address future market fluctuations.



In September 2015,
Boralex redeemed or converted all of its 6.75% convertible unsecured subordinated debentures. As a result, the Corporation's participation
in Boralex decreased to 20.29% from 27.43%, which resulted in a dilution gain of $15 million for the Corporation.



In February 2015,
Boralex acquired the non-controlling interests in Boralex Europe and became its sole shareholder. The $51 million amount paid over
carrying value was accounted for by Boralex as a decrease in net assets and retained earnings. Our $14 million share of the decrease
is recorded as a loss under share of results of associates and joint ventures in the consolidated statement of earnings.



In January 2015,
Boralex proceeded with a public offering of common shares in order to fully repay a bridge loan in connection with its acquisition
of Enel Green Power France SAS in December 2014. The Corporation's participation in Boralex decreased to 27.44%, compared to 34.23%
as at December 31, 2014, which resulted in a dilution gain of $9 million for the Corporation.



| | C. | INVESTMENT
IN JOINT VENTURES
| | -- | ----------------------------

The following are
the principal joint ventures of the Corporation and the Corporation's percentage of equity owned:

|                                                     |                                  |                                                          
|---------------------------------------------------- | -------------------------------- | ---------------------------------------------------------
|                                                     | PERCENTAGE
    EQUITY OWNED
 (%) | PRINCIPAL ESTABLISHMENT                                  
|Cascades Sonoco US Inc.1                             | 50                               | Birmingham, Alabama and Tacoma, Washington, United States
|Cascades Sonoco inc.1                                | 50                               | Kingsey Falls and Berthierville, Québec, Canada          
|Maritime Paper Products Limited Partnership (MPPLP)2 | 40                               | Dartmouth, Nova Scotia, Canada                           

1 Joint ventures
producing specialty paper packaging products such as headers, rolls and wrappers.

2 MPPLP is a Canadian
corporation converting containerboard.



The Corporation's
joint ventures information (100%), translated in millions of Canadian dollar if required, is as follows:

|                                                                                  |                                                              |   |                                                                                   |  |                                                  | 
|--------------------------------------------------------------------------------- | ------------------------------------------------------------ | - | --------------------------------------------------------------------------------- |  | ------------------------------------------------ | 
|                                                                                  | 2016                                                         |  
|(in millions of Canadian dollars)                                                 | CASCADES
    SONOCO US INC.
 (Formerly Cascades Sonoco Inc.) |   | CASCADES
    SONOCO INC.
 (Formerly Cascades Conversion
 Inc. and Converdis Inc.) |  | MARITIME
    PAPER PRODUCTS
 LIMITED PARTNERSHIP | 
|Balance sheet                                                                     |                                                              |   |                                                                                  
|Cash and cash equivalents                                                         | 5                                                            |   | 3                                                                                 |  | 3                                                | 
|Current assets(other than cash and cash equivalents and current financial assets) | 26                                                           |   | 23                                                                                |  | 20                                               | 
|Long-term assets(other than long-term financial assets)                           | 16                                                           |   | 18                                                                                |  | 28                                               | 
|Current liabilities(other than current financial liabilities)                     | 9                                                            |   | 9                                                                                 |  | 6                                                | 
|Current financial liabilities                                                     | 1                                                            |   | —                                                                                 |  | 1                                                | 
|Long-term liabilities(other than long-term financial liabilities)                 | 4                                                            |   | 3                                                                                 |  | —                                                | 
|Long-term financial liabilities                                                   | 1                                                            |   | 1                                                                                 |  | 5                                                | 
|                                                                                  |                                                              |   |                                                                                  
|Statement of earnings                                                             |                                                              |   |                                                                                  
|Sales                                                                             | 119                                                          |   | 88                                                                                |  | 96                                               | 
|Depreciation and amortization                                                     | 2                                                            |   | 2                                                                                 |  | 2                                                | 
|Financing expense                                                                 | 1                                                            |   | —                                                                                 |  | 1                                                | 
|Provision for income taxes                                                        | 4                                                            |   | 2                                                                                 |  | —                                                | 
|Net earnings                                                                      | 9                                                            |   | 6                                                                                 |  | 8                                                | 
|                                                                                  |                                                              |   |                                                                                  
|Other comprehensive income (loss)                                                 |                                                              |   |                                                                                  
|Translation adjustment                                                            | (1                                                           | ) | —                                                                                 |  | —                                                | 
|Total comprehensive income                                                        | 8                                                            |   | 6                                                                                 |  | 8                                                | 
|                                                                                  |                                                              |   |                                                                                  
|Cash flow                                                                         |                                                              |   |                                                                                  
|Dividend received from joint ventures                                             | 4                                                            |   | 4                                                                                 |  | —                                                | 



26







|                                                                                  |                      |  |                          |  |                |  |                                              |  
|--------------------------------------------------------------------------------- | -------------------- |  | ------------------------ |  | -------------- |  | -------------------------------------------- | -
|                                                                                  | 2015                 | 
|(in millions of Canadian dollars)                                                 | CASCADES SONOCO INC. |  | CASCADES CONVERSION INC. |  | CONVERDIS INC. |  | MARITIME PAPER PRODUCTS 
LIMITED PARTNERSHIP |  
|Balance sheet                                                                     |                      |  |                          | 
|Cash and cash equivalents                                                         | 2                    |  | 2                        |  | 1              |  | —                                            |  
|Current assets(other than cash and cash equivalents and current financial assets) | 26                   |  | 14                       |  | 7              |  | 18                                           |  
|Long-term assets(other than long-term financial assets)                           | 15                   |  | 21                       |  | 5              |  | 32                                           |  
|Current liabilities(other than current financial liabilities)                     | 5                    |  | 3                        |  | 2              |  | 5                                            |  
|Current financial liabilities                                                     | 1                    |  | 1                        |  | 2              |  | 3                                            |  
|Long-term liabilities(other than long-term financial liabilities)                 | 4                    |  | 2                        |  | 1              |  | —                                            |  
|Long-term financial liabilities                                                   | 1                    |  | —                        |  | —              |  | 12                                           |  
|                                                                                  |                      |  |                          | 
|Statement of earnings (loss)                                                      |                      |  |                          | 
|Sales                                                                             | 120                  |  | 64                       |  | 25             |  | 96                                           |  
|Depreciation and amortization                                                     | 1                    |  | 1                        |  | —              |  | 2                                            |  
|Financing expense                                                                 | 1                    |  | —                        |  | —              |  | 1                                            |  
|Provision for income taxes                                                        | 4                    |  | 2                        |  | —              |  | —                                            |  
|Net earnings (loss)                                                               | 9                    |  | 7                        |  | 1              |  | (1                                           | )
|                                                                                  |                      |  |                          | 
|Other comprehensive income (loss)                                                 |                      |  |                          | 
|Translation adjustment                                                            | 5                    |  | —                        |  | —              |  | —                                            |  
|Total comprehensive income (loss)                                                 | 14                   |  | 7                        |  | 1              |  | (1                                           | )
|                                                                                  |                      |  |                          | 
|Cash flow                                                                         |                      |  |                          | 
|Dividend received from joint ventures                                             | 4                    |  | 3                        |  | —              |  | —                                            |  



There are no contingent
liabilities relating to the Corporation's interest in the joint ventures, and no contingent liabilities of the ventures themselves.



27







| | D. | SUBSIDIARIES
WITH NON-CONTROLLING INTERESTS
| | -- | -------------------------------------------

The Corporation's
information for its subsidiaries with significant non-controlling interests is as follows:

|                                                                                  |                              |   |                         |   |                              |   |                            |  
|--------------------------------------------------------------------------------- | ---------------------------- | - | ----------------------- | - | ---------------------------- | - | -------------------------- | -
|                                                                                  | As
    at December 31,  2016 |   | As at December 31, 2015 |  
|(in millions of Canadian dollars, unless otherwise noted)                         | RENO DE MEDICI S.p.A.        |   | RENO DE MEDICI S.p.A.   |   | NORCAN FLEXIBLE 
PACKAGING   |   | CASCADES
    RECOVERY INC. |  
|Principal establishment                                                           | Milan, Italy                 |   | Milan, Italy            |   | Mississauga, Ontario, Canada |   | Toronto, Ontario, Canada   |  
|% of shares held by non-controlling interests                                     | 42.30                        | % | 42.39                   | % | —                            | % | —                          | %
|Net earnings attributable to non-controlling interests                            | 2                            |   | 6                       |   | 1                            |   | 2                          |  
|Non-controlling interests accumulated at the end of the year                      | 90                           |   | 96                      |   | N/A                          |   | N/A                        |  
|Dividends paid to non-controlling interests                                       | 1                            |   | —                       |   | —                            |   | —                          |  
|                                                                                  |                              |   |                         |   |                              |   |                            |  
|Balance sheet                                                                     |                              |   |                         |   |                              |   |                            |  
|Cash and cash equivalents                                                         | 41                           |   | 35                      |   | N/A                          |   | N/A                        |  
|Current assets(other than cash and cash equivalents and current financial assets) | 231                          |   | 214                     |   | N/A                          |   | N/A                        |  
|Long-term assets(other than long-term financial assets)                           | 299                          |   | 305                     |   | N/A                          |   | N/A                        |  
|Current liabilities(other than current financial liabilities)                     | 178                          |   | 159                     |   | N/A                          |   | N/A                        |  
|Current financial liabilities                                                     | 23                           |   | 24                      |   | N/A                          |   | N/A                        |  
|Long-term liabilities(other than long-term financial liabilities)                 | 68                           |   | 61                      |   | N/A                          |   | N/A                        |  
|Long-term financial liabilities                                                   | 82                           |   | 81                      |   | N/A                          |   | N/A                        |  
|                                                                                  |                              |   |                         |   |                              |   |                            |  
|Statement of earnings                                                             |                              |   |                         |   |                              |   |                            |  
|Sales                                                                             | 702                          |   | 655                     |   | 16                           |   | 222                        |  
|Depreciation and amortization                                                     | 32                           |   | 32                      |   | 1                            |   | 8                          |  
|Provision for income taxes                                                        | 5                            |   | 5                       |   | —                            |   | 3                          |  
|Net earnings                                                                      | 5                            |   | 13                      |   | 4                            |   | 8                          |  
|                                                                                  |                              |   |                         |   |                              |   |                            |  
|Cash flow                                                                         |                              |   |                         |   |                              |   |                            |  
|Cash flows from operating activities                                              | 56                           |   | 41                      |   | 1                            |   | 12                         |  
|Cash flows used for investing activities                                          | (39                          | ) | (24                     | ) | —                            |   | (6                         | )
|Cash flows from (used for) financing activities                                   | (9                           | ) | 12                      |   | —                            |   | (7                         | )



In the third quarter
of 2015, the Specialty Products Group proceeded with the legal restructuring of its Norcan Flexible Packaging subsidiary, which
was owned at 62.1%. As a result of the restructuring, the Corporation now owns 100% of the net assets of this business through
its Cascades Flexible Packaging subsidiary. The Corporation recorded a gain of $5 million on the extinguishment of some liabilities
following the transaction (including $2 million attributable to non-controlling interests). The Corporation paid $2 million for
the purchase of the non-controlling interests and is attributed to retained earnings.



On November 27, 2015,
the Corporation entered into an agreement for the acquisition of the 27% minority interest of Cascades Recovery for a cash consideration
of $32 million, payable over a 10-year period, and a $1 million contingent consideration. The $3 million excess of the consideration
over the carrying value of the non-controlling interests was attributed to retained earnings.This transaction consolidates our
leading position in recovery and recycling activities in Canada.



28







| | E. | NON-SIGNIFICANT
ASSOCIATES AND JOINT VENTURES
| | -- | ---------------------------------------------

The carrying value of investments in associates
and joint ventures that are not significant for the Corporation is as follows:

|                                  |      |  |      | 
|--------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars) | 2016 |  | 2015 | 
|Non-significant associates        | 16   |  | 14   | 
|Non-significant joint ventures    | 14   |  | 10   | 
|                                  | 30   |  | 24   | 



The shares of results
of non-significant associates and joint ventures for the Corporation are as follows:

|                                  |      |  |      | 
|--------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars) | 2016 |  | 2015 | 
|Non-significant associates        | 2    |  | 1    | 
|Non-significant joint ventures    | 4    |  | 4    | 
|                                  | 6    |  | 5    | 



The Corporation received dividends of
$3 million from these associates and joint ventures as at December 31, 2016 (December 31, 2015 - $3 million).



In 2015, the Corporation
reviewed the recoverable amount of some of its other investments and recorded impairment charges of $2 million in the share of
results of associates and joint ventures in the consolidated statement of earnings.



29







NOTE 10

PROPERTY, PLANT AND EQUIPMENT

|                                                |      |     |      |     |           |       |                          |     |                       |     |       |       |       |  
|----------------------------------------------- | ---- | --- | ---- | --- | --------- | ----- | ------------------------ | --- | --------------------- | --- | ----- | ----- | ----- | -
|(in millions of Canadian dollars)               | NOTE |     | LAND |     | BUILDINGS |       | MACHINERY AND 
EQUIPMENT |     | AUTOMOTIVE 
EQUIPMENT |     | OTHER |       | TOTAL |  
|As at January 1, 2015                           |      |     |      |     |           |       |                         
|Cost                                            |      | 110 |      | 681 |           | 2,554 |                          | 93  |                       | 195 |       | 3,633 |      
|Accumulated depreciation and impairment         |      | 3   |      | 313 |           | 1,587 |                          | 60  |                       | 97  |       | 2,060 |      
|Net book amount                                 |      | 107 |      | 368 |           | 967   |                          | 33  |                       | 98  |       | 1,573 |      
|Year ended December 31, 2015                    |      |     |      |     |           |       |                         
|Opening net book amount                         |      | 107 |      | 368 |           | 967   |                          | 33  |                       | 98  |       | 1,573 |      
|Additions                                       |      | —   |      | 4   |           | 32    |                          | 11  |                       | 118 |       | 165   |      
|Disposals                                       |      | —   |      | (1  | )         | (2    | )                        | —   |                       | (2  | )     | (5    | )    
|Depreciation                                    |      | —   |      | (25 | )         | (130  | )                        | (9  | )                     | (8  | )     | (172  | )    
|Impairment charges                              | 25   |     | —    |     | (9        | )     | (43                      | )   | —                     |     | (3    | )     | (55   | )
|Other                                           |      | —   |      | 11  |           | 66    |                          | 1   |                       | (74 | )     | 4     |      
|Exchange differences                            |      | 4   |      | 18  |           | 63    |                          | 1   |                       | 12  |       | 98    |      
|Closing net book amount                         |      | 111 |      | 366 |           | 953   |                          | 37  |                       | 141 |       | 1,608 |      
|As at December 31, 2015                         |      |     |      |     |           |       |                         
|Cost                                            |      | 113 |      | 717 |           | 2,675 |                          | 104 |                       | 272 |       | 3,881 |      
|Accumulated depreciation and impairment         |      | 2   |      | 351 |           | 1,722 |                          | 67  |                       | 131 |       | 2,273 |      
|Net book amount                                 |      | 111 |      | 366 |           | 953   |                          | 37  |                       | 141 |       | 1,608 |      
|Year ended December 31, 2016                    |      |     |      |     |           |       |                         
|Opening net book amount                         |      | 111 |      | 366 |           | 953   |                          | 37  |                       | 141 |       | 1,608 |      
|Additions                                       |      | —   |      | 5   |           | 45    |                          | 25  |                       | 131 |       | 206   |      
|Disposals                                       |      | (1  | )    | —   |           | (1    | )                        | —   |                       | (3  | )     | (5    | )    
|Depreciation                                    |      | —   |      | (28 | )         | (116  | )                        | (13 | )                     | (13 | )     | (170  | )    
|Business acquisition, net of assets transferred | 6    |     | 1    |     | 7         |       | —                        |     | —                     |     | —     |       | 8     |  
|Reversal of impairment (charges)                | 25   |     | —    |     | 2         |       | (3                       | )   | —                     |     | (2    | )     | (3    | )
|Other                                           |      | 1   |      | 39  |           | 55    |                          | 6   |                       | (98 | )     | 3     |      
|Exchange differences                            |      | (2  | )    | (4  | )         | (22   | )                        | —   |                       | (1  | )     | (29   | )    
|Closing net book amount                         |      | 110 |      | 387 |           | 911   |                          | 55  |                       | 155 |       | 1,618 |      
|As at December 31, 2016                         |      |     |      |     |           |       |                         
|Cost                                            |      | 110 |      | 740 |           | 2,553 |                          | 126 |                       | 282 |       | 3,811 |      
|Accumulated depreciation and impairment         |      | —   |      | 353 |           | 1,642 |                          | 71  |                       | 127 |       | 2,193 |      
|Net book amount                                 |      | 110 |      | 387 |           | 911   |                          | 55  |                       | 155 |       | 1,618 |      



Other property, plant
and equipment include buildings and machinery and equipment in the process of construction or installation with a book value of
$90 million (December 31, 2015 - $94 million) and deposits on purchases of equipment amounting to $7 million (December
31, 2015 - $5 million). The carrying value of finance-lease assets is $24 million (December 31, 2015 - $22
million).



In 2016, $2 million
(2015 - $1 million) of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on funds
borrowed in 2016 was 5.56% (2015 - 5.84%).



30







NOTE 11

GOODWILL AND OTHER INTANGIBLE ASSETS
WITH FINITE AND INDEFINITE USEFUL LIFE

|                                        |      |     |                                |     |                                           |    |                                                     |     |                                                    |     |          |    |                                                         |     |                                                        | 
|--------------------------------------- | ---- | --- | ------------------------------ | --- | ----------------------------------------- | -- | --------------------------------------------------- | --- | -------------------------------------------------- | --- | -------- | -- | ------------------------------------------------------- | --- | ------------------------------------------------------ | 
|(in millions of Canadian dollars)       | NOTE |     | APPLICATION 
SOFTWARE AND 
ERP |     | CUSTOMER 
RELATIONSHIPS 
AND CLIENT LISTS |    | OTHER 
INTANGIBLE 
ASSETS WITH 
FINITE USEFUL 
LIFE |     | TOTAL INTANGIBLE 
ASSETS WITH 
FINITE USEFUL 
LIFE |     | GOODWILL |    | OTHER 
INTANGIBLE 
ASSETS WITH 
INDEFINITE 
USEFUL LIFE |     | TOTAL INTANGIBLE 
ASSETS WITH 
INDEFINITE 
USEFUL LIFE | 
|As at January 1, 2015                   |      |     |                                |     |                                           |    |                                                     |    
|Cost                                    |      | 102 |                                | 170 |                                           | 35 |                                                     | 307 |                                                    | 332 |          | 8  |                                                         | 340 |                                                       
|Accumulated amortization and impairment |      | 28  |                                | 68  |                                           | 28 |                                                     | 124 |                                                    | 4   |          | 1  |                                                         | 5   |                                                       
|Net book amount                         |      | 74  |                                | 102 |                                           | 7  |                                                     | 183 |                                                    | 328 |          | 7  |                                                         | 335 |                                                       
|Year ended December 31, 2015            |      |     |                                |     |                                           |    |                                                     |    
|Opening net book amount                 |      | 74  |                                | 102 |                                           | 7  |                                                     | 183 |                                                    | 328 |          | 7  |                                                         | 335 |                                                       
|Additions                               |      | 9   |                                | —   |                                           | —  |                                                     | 9   |                                                    | —   |          | —  |                                                         | —   |                                                       
|Amortization                            |      | (7  | )                              | (10 | )                                         | (1 | )                                                   | (18 | )                                                  | —   |          | —  |                                                         | —   |                                                       
|Exchange differences                    |      | —   |                                | —   |                                           | —  |                                                     | —   |                                                    | 11  |          | —  |                                                         | 11  |                                                       
|Closing net book amount                 |      | 76  |                                | 92  |                                           | 6  |                                                     | 174 |                                                    | 339 |          | 7  |                                                         | 346 |                                                       
|As at December 31, 2015                 |      |     |                                |     |                                           |    |                                                     |    
|Cost                                    |      | 110 |                                | 170 |                                           | 35 |                                                     | 315 |                                                    | 343 |          | 8  |                                                         | 351 |                                                       
|Accumulated amortization and impairment |      | 34  |                                | 78  |                                           | 29 |                                                     | 141 |                                                    | 4   |          | 1  |                                                         | 5   |                                                       
|Net book amount                         |      | 76  |                                | 92  |                                           | 6  |                                                     | 174 |                                                    | 339 |          | 7  |                                                         | 346 |                                                       
|Year ended December 31, 2016            |      |     |                                |     |                                           |    |                                                     |    
|Opening net book amount                 |      | 76  |                                | 92  |                                           | 6  |                                                     | 174 |                                                    | 339 |          | 7  |                                                         | 346 |                                                       
|Additions                               |      | 17  |                                | —   |                                           | —  |                                                     | 17  |                                                    | —   |          | —  |                                                         | —   |                                                       
|Business acquisition                    | 6    |     | —                              |     | 1                                         |    | —                                                   |     | 1                                                  |     | 7        |    | —                                                       |     | 7                                                      | 
|Amortization                            |      | (10 | )                              | (9  | )                                         | (3 | )                                                   | (22 | )                                                  | —   |          | —  |                                                         | —   |                                                       
|Other                                   |      | —   |                                | —   |                                           | 1  |                                                     | 1   |                                                    | —   |          | (1 | )                                                       | (1  | )                                                     
|Exchange differences                    |      | —   |                                | —   |                                           | —  |                                                     | —   |                                                    | (2  | )        | —  |                                                         | (2  | )                                                     
|Closing net book amount                 |      | 83  |                                | 84  |                                           | 4  |                                                     | 171 |                                                    | 344 |          | 6  |                                                         | 350 |                                                       
|As at December 31, 2016                 |      |     |                                |     |                                           |    |                                                     |    
|Cost                                    |      | 126 |                                | 171 |                                           | 35 |                                                     | 332 |                                                    | 349 |          | 7  |                                                         | 356 |                                                       
|Accumulated amortization and impairment |      | 43  |                                | 87  |                                           | 31 |                                                     | 161 |                                                    | 5   |          | 1  |                                                         | 6   |                                                       
|Net book amount                         |      | 83  |                                | 84  |                                           | 4  |                                                     | 171 |                                                    | 344 |          | 6  |                                                         | 350 |                                                       



NOTE 12

OTHER ASSETS

|                                                        |      |     |      |     |      | 
|------------------------------------------------------- | ---- | --- | ---- | --- | ---- | 
|(in millions of Canadian dollars)                       | NOTE |     | 2016 |     | 2015 | 
|Notes receivable from business disposals                |      |     | 9    |     | 12   | 
|Other investments                                       |      | 5   |      | 7   |     
|Other assets                                            |      | 27  |      | 43  |     
|Employee future benefits                                | 17   |     | 46   |     | 33   | 
|                                                        |      | 87  |      | 95  |     
|Less: Current portion, included in accounts receivables |      | (15 | )    | (15 | )   
|                                                        |      | 72  |      | 80  |     



In 2012, the Corporation
granted a US$15 million ($15 million) bridge loan to Greenpac Holding LLC (Greenpac) bearing interest ranging from 7.5%
to 9.5% depending on the mill debt/OIBD ratio. In May 2016, following the refinancing of its debt, Greenpac repaid the entire bridge
loan and accrued interest. As at December 31, 2015 the balance of the bridge loan was $8 million including accrued interest
and was included in Other assets. Deferred revenue for the supervision of Greenpac Mill, recorded in Other assets, stands at $12
million as at December 31, 2016 (December 31, 2015 - $17 million). These costs are repayable to the Corporation by Greenpac
Mill over a five-year period.



31







NOTE 13

TRADE AND OTHER PAYABLES

|                                  |      |     |      |     |      | 
|--------------------------------- | ---- | --- | ---- | --- | ---- | 
|(in millions of Canadian dollars) | NOTE |     | 2016 |     | 2015 | 
|Trade payables                    |      | 472 |      | 440 |     
|Payables to related parties       | 29   |     | 44   |     | 31   | 
|Accrued expenses                  |      | 145 |      | 142 |     
|                                  |      | 661 |      | 613 |     



NOTE 14

PROVISIONS FOR CONTINGENCIES AND CHARGES

|                                  |                                       |   |                     |   |              |   |            |   |                  |   |       |   |                  |  
|--------------------------------- | ------------------------------------- | - | ------------------- | - | ------------ | - | ---------- | - | ---------------- | - | ----- | - | ---------------- | -
|(in millions of Canadian dollars) | ENVIRONMENTAL RESTORATION OBLIGATIONS |   | ENVIRONMENTAL COSTS |   | LEGAL CLAIMS |   | SEVERANCES |   | ONEROUS CONTRACT |   | OTHER |   | TOTAL PROVISIONS |  
|As at January 1, 2015             | 8                                     |   | 14                  |   | 3            |   | 5          |   | 7                |   | 7     |   | 44               |  
|Additional provision              | —                                     |   | 1                   |   | —            |   | 2          |   | —                |   | 4     |   | 7                |  
|Reversal of provision             | —                                     |   | —                   |   | —            |   | —          |   | (1               | ) | (1    | ) | (2               | )
|Payments                          | (1                                    | ) | (1                  | ) | (1           | ) | (6         | ) | (1               | ) | (4    | ) | (14              | )
|Revaluation                       | 2                                     |   | —                   |   | —            |   | 1          |   | —                |   | —     |   | 3                |  
|Exchange differences              | —                                     |   | —                   |   | 1            |   | —          |   | —                |   | —     |   | 1                |  
|As at December 31, 2015           | 9                                     |   | 14                  |   | 3            |   | 2          |   | 5                |   | 6     |   | 39               |  
|Additional provision              | —                                     |   | 5                   |   | 1            |   | 7          |   | 3                |   | 4     |   | 20               |  
|Reversal of provision             | —                                     |   | (1                  | ) | —            |   | —          |   | (1               | ) | —     |   | (2               | )
|Payments                          | (3                                    | ) | (2                  | ) | (1           | ) | (6         | ) | (1               | ) | (3    | ) | (16              | )
|Revaluation                       | 2                                     |   | —                   |   | —            |   | —          |   | —                |   | —     |   | 2                |  
|As at December 31, 2016           | 8                                     |   | 16                  |   | 3            |   | 3          |   | 6                |   | 7     |   | 43               |  



Analysis of total provisions:

|                                  |      |  |      | 
|--------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars) | 2016 |  | 2015 | 
|Long-term                         | 34   |  | 34   | 
|Current                           | 9    |  | 5    | 
|                                  | 43   |  | 39   | 



ENVIRONMENTAL
RESTORATION

The Corporation uses
some landfill sites. A provision has been recognized at fair value for the costs to be incurred for the restoration of these sites.



ENVIRONMENTAL
COSTS

An environmental
provision is recorded when the Corporation has an obligation caused by its ongoing or abandoned operations.



LEGAL CLAIMS

In the normal course
of operations, the Corporation is party to various legal actions and contingencies related to contract disputes and labour issues.



In the normal course
of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes, environmental
and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending as
at December 31, 2016, cannot be predicted with certainty, it is Management's opinion that the outcome will not have a material
adverse effect on the Corporation's consolidated financial position, the results of its operations or its cash flows.



32







The
Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and Environment
Canada - Great Lakes Sustainability Fund in Toronto, regarding its potential responsibility for an environmental impact identified
at its former Thunder Bay facility (“Thunder Bay”).
Both authorities have requested that the Corporation look into a site management plan relating to the sediment quality adjacent
to Thunder Bay's lagoon. Several meetings have been held during the last years with the MOE and Environment Canada and a management
plan based on sediment dredging has been proposed by a third party consultant. Both governments are looking at this proposal with
stakeholders to agree on this remediation action plan that would likely be implemented in the coming years.



The
Corporation is also in discussions with representatives of the MOE, regarding its potential responsibility for an environmental
impact identified at Thunder Bay. This facility was sold to Thunder Bay Fine Papers Inc. (“Fine
Papers”) in 2007. Fine Papers has since sold the
facility to Superior Fine Papers Inc. (“Superior”).
The MOE has requested that the Corporation, together with the former owner Fine Papers and the current owner Superior, submit a
closure plan for the Waste Disposal Site and a decommissioning plan for the closure and long-term monitoring for the Sewage Works
(the“Plans”).
Although the Corporation recognizes that, where as a result of past events, there may be an outflow of resources embodying future
economic benefits in settlement of a possible obligation, it is not possible at this time to estimate the Corporation's obligation,
since Superior has not submitted all of the Plans and related costs to allow the Corporation to perform an evaluation nor does
the Corporation have access to the site. Moreover, the Corporation is unable to ascertain the value of the assets remaining on
its former site which may be available to fund this potential obligation. The Corporation is pursuing all available legal remedies
to resolve the situation. In any event, Management does not consider the Corporation's potential obligation to be material.



The Corporation has
recorded an environmental reserve to address its estimated exposure for these matters.



NOTE 15

LONG-TERM DEBT

|                                                                                                                                                                                                                        |          |       |  |       | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ----- |  | ----- | 
|(in millions of Canadian dollars)                                                                                                                                                                                       | MATURITY | 2016  |  | 2015  | 
|Revolving credit facility, weighted average interest rate of 2.30% as at December 31, 2016, consists of $(19)million; US$82 million and €(1) million (December 31, 2015 - $(11) million; US$151 million and €27million) | 2019     | 90    |  | 238   | 
|5.50% Unsecured senior notes of $250 million                                                                                                                                                                            | 2021     | 250   |  | 250   | 
|5.50% Unsecured senior notes of US$550 million                                                                                                                                                                          | 2022     | 738   |  | 761   | 
|5.75% Unsecured senior notes of US$250 million                                                                                                                                                                          | 2023     | 336   |  | 346   | 
|Other debts of subsidiaries                                                                                                                                                                                             |          | 62    |  | 61    | 
|Other debts without recourse to the Corporation                                                                                                                                                                         |          | 105   |  | 106   | 
|                                                                                                                                                                                                                        |          | 1,581 |  | 1,762 | 
|Less: Unamortized financing costs                                                                                                                                                                                       |          | 15    |  | 18    | 
|Total long-term debt                                                                                                                                                                                                    |          | 1,566 |  | 1,744 | 
|Less:                                                                                                                                                                                                                   |          |       | 
|Current portion of debts of subsidiaries                                                                                                                                                                                |          | 13    |  | 10    | 
|Current portion of debts without recourse to the Corporation                                                                                                                                                            |          | 23    |  | 24    | 
|                                                                                                                                                                                                                        |          | 36    |  | 34    | 
|                                                                                                                                                                                                                        |          | 1,530 |  | 1,710 | 



| | a. | On
May 19, 2015, the Corporation issued US$250 million ($305 million) aggregate principal amount of 5.75% senior notes due in 2023.
The Corporation used the proceeds from this offering of notes to repurchase a total of US$250 million aggregate principal amount
of 7.875% senior notes due in 2020 for a total consideration of US$250 million ($305 million). The Corporation also paid premiums
of US$11 million ($13 million) to repurchase the 2020 notes, as well as fees and expenses in connection with the offering and
the tender offer totalling $5 million.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Issuance proceeds
and credit facility were used as follows:

|                                  |  |  |      |  
|--------------------------------- |  |  | ---- | -
|(in millions of Canadian dollars) |  |  | 2015 |  
|Debt issuance                     |  |  | 305  |  
|Offering and tender offer fees    |  |  | (5   | )
|Refinanced debt repurchase        |  |  | (305 | )
|Premium paid on refinanced debt   |  |  | (13  | )
|Increase of credit facility       |  |  | 18   |  



33







| | b. | On
July 7, 2015, the Corporation entered into an agreement with its lenders to extend and amend its existing $750 million credit
facility. The amendment provides that the term of the facility is extended to July 2019, and that the applicable pricing grid
is slightly lowered to better reflect market conditions. The other existing financial conditions are essentially unchanged.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | As
at December 31, 2016, accounts receivable and inventories totaling approximately $715 million (December 31, 2015 - $672 million)
as well as property, plant and equipment totaling approximately $250 million (December 31, 2015 - $265 million) were
pledged as collateral for the Corporation's revolving credit facility.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d. | The
Corporation has finance leases for various items of property, plant and equipment. Renewals and purchase options are specific
to the entity that holds the lease. Lease liabilities are effectively secured as the rights to the leased asset revert to the
lessor in the event of default.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Future minimum lease
payments under finance leases together with the present value of the net minimum lease payments are as follows:

|                                            |                  |  |                           |  |                  |  |                           | 
|------------------------------------------- | ---------------- |  | ------------------------- |  | ---------------- |  | ------------------------- | 
|                                            | 2016             |  | 2015                      | 
|(in millions of Canadian dollars)           | MINIMUM PAYMENTS |  | PRESENT VALUE OF PAYMENTS |  | MINIMUM PAYMENTS |  | PRESENT VALUE OF PAYMENTS | 
|Within one year                             | 8                |  | 7                         |  | 5                |  | 4                         | 
|Later than 1 year but no later than 5 years | 19               |  | 15                        |  | 16               |  | 13                        | 
|More than 5 years                           | 7                |  | 6                         |  | 8                |  | 6                         | 
|Total minimum lease payments                | 34               |  | 28                        |  | 29               |  | 23                        | 
|Less: amounts representing finance charges  | 6                |  | —                         |  | 6                |  | —                         | 
|Present value of minimum lease payments     | 28               |  | 28                        |  | 23               |  | 23                        | 



NOTE 16

OTHER LIABILITIES

|                                                            |      |     |      |     |      | 
|----------------------------------------------------------- | ---- | --- | ---- | --- | ---- | 
|(in millions of Canadian dollars)                           | NOTE |     | 2016 |     | 2015 | 
|Employee future benefits                                    | 17   |     | 174  |     | 174  | 
|Other                                                       |      | 8   |      | 9   |     
|                                                            |      | 182 |      | 183 |     
|Less: Current portion, included in Trade and other payables |      | (4  | )    | (5  | )   
|                                                            |      | 178 |      | 178 |     



34







NOTE 17

EMPLOYEE FUTURE BENEFITS



The Corporation operates
various post-employment plans, including both defined benefit and defined contribution pension plans and post-employment benefit
plans, such as retirement allowance, group life insurance and medical and dental plans. The table below outlines where the Corporation’s
post-employment amounts and activity are included in the financial statements.

|                                                                  |       |      |   |      |  
|----------------------------------------------------------------- | ----- | ---- | - | ---- | -
|(in millions of Canadian dollars)                                 | NOTE  | 2016 |   | 2015 |  
|Balance sheet obligations for                                     |       |      |  
|Defined pension benefits                                          | 17(a) | 22   |   | 36   |  
|Post-employment benefits other than defined benefit pension plans | 17(b) | 106  |   | 105  |  
|Net long-term liabilities on balance sheet                        |       | 128  |   | 141  |  
|                                                                  |       |      |   |      |  
|Income statement charge for                                       |       |      |   |      |  
|Defined pension benefits                                          |       | 7    |   | 9    |  
|Defined contribution benefits                                     |       | 20   |   | 20   |  
|Post-employment benefits other than defined benefit pension plans |       | 5    |   | 8    |  
|                                                                  |       | 32   |   | 37   |  
|Remeasurements for                                                |       |      |   |      |  
|Defined pension benefits                                          | 17(a) | (13  | ) | (22  | )
|Post-employment benefits other than defined benefit pension plans | 17(b) | 2    |   | (3   | )
|                                                                  |       | (11  | ) | (25  | )



| | A. | DEFINED
BENEFIT PENSION PLANS
| | -- | -----------------------------

The Corporation offers
funded and unfunded defined benefit pension plans, defined contribution pension plans and group RRSPs that provide retirement benefit
payments for most of its employees. The defined benefit pension plans are usually contributory and are based on the number of years
of service and, in most cases, the average salaries or compensation at the end of a career. Retirement benefits are not partially
adjusted based on inflation.



The majority of benefit
payments are payable from trustee administered funds; however, for the unfunded plans, the Corporation meets the benefit payment
obligation as it falls due. Plan assets held in trusts are governed by local regulations and practices in each country. Responsibility
for governance of the plans - overseeing all aspects of the plans including investment decisions and contribution schedules - lies
with the Corporation. The Corporation has established Investment Committees to assist in the management of the plans and has also
appointed experienced, independent professional experts such as investments managers, investment consultants, actuaries and custodians.



35







The movement in the
net defined benefit obligation and fair value of plan assets of pension plans over the year is as follows:

|                                                                               |                              |   |                            |   |       |   |                                                          |   |       |  
|------------------------------------------------------------------------------ | ---------------------------- | - | -------------------------- | - | ----- | - | -------------------------------------------------------- | - | ----- | -
|(in millions of Canadian dollars)                                              | PRESENT VALUE OF 
OBLIGATION |   | FAIR VALUE OF 
PLAN ASSETS |   | TOTAL |   | IMPACT OF 
MINIMUM FUNDING 
REQUIREMENT 
(ASSET CEILING) |   | TOTAL |  
|As at January 1, 2015                                                          | 512                          |   | (453                       | ) | 59    |   | —                                                        |   | 59    |  
|Current service cost                                                           | 6                            |   | —                          |   | 6     |   | —                                                        |   | 6     |  
|Interest expense (income)                                                      | 18                           |   | (15                        | ) | 3     |   | —                                                        |   | 3     |  
|Impact on profit or loss                                                       | 24                           |   | (15                        | ) | 9     |   | —                                                        |   | 9     |  
|Remeasurements                                                                 |                              |   |                            |   |       |   |                                                          |   |       |  
|Return on plan assets, excluding amounts included in interest expense (income) | —                            |   | (16                        | ) | (16   | ) | —                                                        |   | (16   | )
|Gain from change in financial assumptions                                      | (10                          | ) | —                          |   | (10   | ) | —                                                        |   | (10   | )
|Experience gains                                                               | (2                           | ) | —                          |   | (2    | ) | —                                                        |   | (2    | )
|Change in asset ceiling, excluding amounts included in interest expense        | —                            |   | —                          |   | —     |   | 6                                                        |   | 6     |  
|Impact of remeasurements on other comprehensive income                         | (12                          | ) | (16                        | ) | (28   | ) | 6                                                        |   | (22   | )
|Exchange differences                                                           | 3                            |   | (1                         | ) | 2     |   | —                                                        |   | 2     |  
|Business disposal                                                              | —                            |   | 2                          |   | 2     |   | —                                                        |   | 2     |  
|Contributions                                                                  |                              |   |                            |   |       |   |                                                          |   |       |  
|Employers                                                                      | —                            |   | (14                        | ) | (14   | ) | —                                                        |   | (14   | )
|Plan participants                                                              | 2                            |   | (2                         | ) | —     |   | —                                                        |   | —     |  
|Benefit payments                                                               | (45                          | ) | 45                         |   | —     |   | —                                                        |   | —     |  
|As at December 31, 2015                                                        | 484                          |   | (454                       | ) | 30    |   | 6                                                        |   | 36    |  
|Current service cost                                                           | 5                            |   | —                          |   | 5     |   | —                                                        |   | 5     |  
|Interest expense (income)                                                      | 18                           |   | (16                        | ) | 2     |   | —                                                        |   | 2     |  
|Impact on profit or loss                                                       | 23                           |   | (16                        | ) | 7     |   | —                                                        |   | 7     |  
|Remeasurements                                                                 |                              |   |                            |   |       |   |                                                          |   |       |  
|Return on plan assets, excluding amounts included in interest expense (income) | —                            |   | (9                         | ) | (9    | ) | —                                                        |   | (9    | )
|Loss from change in financial assumptions                                      | 11                           |   | —                          |   | 11    |   | —                                                        |   | 11    |  
|Experience gains                                                               | (9                           | ) | —                          |   | (9    | ) | —                                                        |   | (9    | )
|Change in asset ceiling, excluding amounts included in interest expense        | —                            |   | —                          |   | —     |   | (6                                                       | ) | (6    | )
|Impact of remeasurements on other comprehensive income                         | 2                            |   | (9                         | ) | (7    | ) | (6                                                       | ) | (13   | )
|Exchange differences                                                           | (1                           | ) | —                          |   | (1    | ) | —                                                        |   | (1    | )
|Contributions                                                                  |                              |   |                            |   |       |   |                                                          |   |       |  
|Employers                                                                      | —                            |   | (7                         | ) | (7    | ) | —                                                        |   | (7    | )
|Plan participants                                                              | 2                            |   | (2                         | ) | —     |   | —                                                        |   | —     |  
|Benefit payments                                                               | (28                          | ) | 28                         |   | —     |   | —                                                        |   | —     |  
|As at December 31, 2016                                                        | 482                          |   | (460                       | ) | 22    |   | —                                                        |   | 22    |  



36







The defined benefit
obligation and plan assets are composed by country and by sector as follows:

|                                      |        |   |               |  |        |  |       |  
|------------------------------------- | ------ | - | ------------- |  | ------ |  | ----- | -
|                                      | 2016   |  
|(in millions of Canadian dollars)     | CANADA |   | UNITED STATES |  | EUROPE |  | TOTAL |  
|Present value of funded obligations   | 411    |   | 10            |  | —      |  | 421   |  
|Fair value of plan assets             | 454    |   | 6             |  | —      |  | 460   |  
|Deficit (surplus) of funded plans     | (43    | ) | 4             |  | —      |  | (39   | )
|Present value of unfunded obligations | 37     |   | —             |  | 24     |  | 61    |  
|Liabilities (assets) on balance sheet | (6     | ) | 4             |  | 24     |  | 22    |  



|                                      |                |   |                 |  |                    |  |               |  |           |  |       |  
|------------------------------------- | -------------- | - | --------------- |  | ------------------ |  | ------------- |  | --------- |  | ----- | -
|                                      | 2016           |  
|(in millions of Canadian dollars)     | CONTAINERBOARD |   | BOXBOARD EUROPE |  | SPECIALTY PRODUCTS |  | TISSUE PAPERS |  | CORPORATE |  | TOTAL |  
|Present value of funded obligations   | 385            |   | —               |  | —                  |  | 35            |  | 1         |  | 421   |  
|Fair value of plan assets             | 427            |   | —               |  | —                  |  | 32            |  | 1         |  | 460   |  
|Deficit (surplus) of funded plans     | (42            | ) | —               |  | —                  |  | 3             |  | —         |  | (39   | )
|Present value of unfunded obligations | 8              |   | 24              |  | 2                  |  | 2             |  | 25        |  | 61    |  
|Liabilities (assets) on balance sheet | (34            | ) | 24              |  | 2                  |  | 5             |  | 25        |  | 22    |  



|                                                      |        |   |               |  |        |  |       |  
|----------------------------------------------------- | ------ | - | ------------- |  | ------ |  | ----- | -
|                                                      | 2015   |  
|(in millions of Canadian dollars)                     | CANADA |   | UNITED STATES |  | EUROPE |  | TOTAL |  
|Present value of funded obligations                   | 413    |   | 10            |  | —      |  | 423   |  
|Fair value of plan assets                             | 448    |   | 6             |  | —      |  | 454   |  
|Deficit (surplus) of funded plans                     | (35    | ) | 4             |  | —      |  | (31   | )
|Impact of minimum funding requirement (asset ceiling) | 6      |   | —             |  | —      |  | 6     |  
|Present value of unfunded obligations                 | 36     |   | —             |  | 25     |  | 61    |  
|Liabilities on balance sheet                          | 7      |   | 4             |  | 25     |  | 36    |  



|                                                      |                |   |                 |  |                    |  |               |  |           |   |       |  
|----------------------------------------------------- | -------------- | - | --------------- |  | ------------------ |  | ------------- |  | --------- | - | ----- | -
|                                                      | 2015           |  
|(in millions of Canadian dollars)                     | CONTAINERBOARD |   | BOXBOARD EUROPE |  | SPECIALTY PRODUCTS |  | TISSUE PAPERS |  | CORPORATE |   | TOTAL |  
|Present value of funded obligations                   | 388            |   | —               |  | —                  |  | 34            |  | 1         |   | 423   |  
|Fair value of plan assets                             | 422            |   | —               |  | —                  |  | 30            |  | 2         |   | 454   |  
|Deficit (surplus) of funded plans                     | (34            | ) | —               |  | —                  |  | 4             |  | (1        | ) | (31   | )
|Impact of minimum funding requirement (asset ceiling) | 6              |   | —               |  | —                  |  | —             |  | —         |   | 6     |  
|Present value of unfunded obligations                 | 8              |   | 25              |  | 1                  |  | 2             |  | 25        |   | 61    |  
|Liabilities (assets) on balance sheet                 | (20            | ) | 25              |  | 1                  |  | 6             |  | 24        |   | 36    |  



Effective on January
1, 2016, the Corporation uses different discount rates to determine the obligation and the current service cost. The significant
actuarial assumptions are as follows:

|                                            |                        |   |               |   |        |   |                        |   |               |   |        |  
|------------------------------------------- | ---------------------- | - | ------------- | - | ------ | - | ---------------------- | - | ------------- | - | ------ | -
|                                            | 2016                   |   | 2015          |  
|                                            | CANADA                 |   | UNITED STATES |   | EUROPE |   | CANADA                 |   | UNITED STATES |   | EUROPE |  
|Discount rate obligation (ending period)    | 3.7                    | % | 3.73          | % | 1.9    | % | 3.9                    | % | 3.9           | % | 2.1    | %
|Discount rate obligation (beginning period) | 3.9                    | % | 3.9           | % | 2.1    | % | 3.75                   | % | 3.62          | % | 1.9    | %
|Discount rate (current service cost)        | 4.1                    | % | 3.9           | % | 2.1    | % | 3.75                   | % | 3.62          | % | 1.9    | %
|Salary growth rate                          | Between 1.75% and 3%   |   | N/A           |   | —      |   | Between 1.75% and 3%   |   | N/A           |   | —      |  
|Inflation rate                              | Between 2.25% and 2.5% |   | N/A           |   | 1.75   | % | Between 2.25% and 2.5% |   | N/A           |   | 1.75   | %



37







Assumptions regarding
future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. For
Canadian pension plans, which represent 93% of all pension plans, these assumptions translate into an average life expectancy in
years for a pensioner retiring at age 65:

|                                                      |      |  |      | 
|----------------------------------------------------- | ---- |  | ---- | 
|                                                      | 2016 |  | 2015 | 
|Retiring at the end of the year                       |      |  |      | 
|Male                                                  | 21.6 |  | 21.6 | 
|Female                                                | 24.1 |  | 24   | 
|Retiring 20 years after the end of the reporting year |      |  |      | 
|Male                                                  | 22.7 |  | 22.7 | 
|Female                                                | 25   |  | 25   | 



The sensitivity of
the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an assumption
are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.

|                   |                                      |                                             |                        |    |      |   
|------------------ | ------------------------------------ | ------------------------------------------- | ---------------------- | -- | ---- | --
|                   | IMPACT ON DEFINED BENEFIT OBLIGATION
|                   | CHANGE IN ASSUMPTION                 | INCREASE IN ASSUMPTION                      | DECREASE IN ASSUMPTION
|Discount rate      | 0.25                                 | %                                           | (3.1                   | )% | 3.1  | % 
|Salary growth rate | 0.25                                 | %                                           | 0.4                    | %  | (0.4 | )%
|                   |                                      |                                             |                       
|                   |                                      | INCREASE / DECREASE BY 1 YEAR IN ASSUMPTION |                       
|Life expectancy    |                                      | 2.8                                         | %                     



Plan assets, which are funding the Corporation’s
defined pension plans, are comprised as follows:

|                                  |         |  |         |  |         |  |       |  |      |  
|--------------------------------- | ------- |  | ------- |  | ------- |  | ----- |  | ---- | -
|                                  | 2016    | 
|(in millions of Canadian dollars) | LEVEL 1 |  | LEVEL 2 |  | LEVEL 3 |  | TOTAL |  | %    |  
|Cash and short-term investments   | 9       |  | —       |  | —       |  | 9     |  | 2.0  | %
|                                  |         |  |         |  |         |  |       |  |      |  
|Bonds                             |         |  |         |  |         |  |       | 
|Canadian bonds                    | 47      |  | 67      |  | —       |  | 114   |  | 24.8 | %
|                                  |         |  |         |  |         |  |       | 
|Shares                            |         |  |         |  |         |  |       | 
|Canadian shares                   | 71      |  | —       |  | —       |  | 71    |  |      |  
|Foreign shares                    | 14      |  | —       |  | —       |  | 14    |  |      |  
|                                  |         |  |         |  |         |  | 85    |  | 18.5 | %
|Mutual funds                      |         |  |         |  |         |  |       | 
|Foreign bond mutual funds         | —       |  | 2       |  | —       |  | 2     |  |      |  
|Canadian equity mutual funds      | 16      |  | 3       |  | —       |  | 19    |  |      |  
|Foreign equity mutual funds       | —       |  | 109     |  | —       |  | 109   |  |      |  
|Alternative investments funds     | —       |  | 21      |  | —       |  | 21    |  |      |  
|                                  |         |  |         |  |         |  | 151   |  | 32.8 | %
|Other                             |         |  |         |  |         |  |       | 
|Insured annuities                 | —       |  | 94      |  | —       |  | 94    |  |      |  
|Derivatives contract, net         | 7       |  | —       |  | —       |  | 7     |  |      |  
|                                  |         |  |         |  |         |  | 101   |  | 21.9 | %
|                                  | 164     |  | 296     |  | —       |  | 460   |  |      |  



38







|                                  |         |  |         |     |         |      |       |  |      |  
|--------------------------------- | ------- |  | ------- | --- | ------- | ---- | ----- |  | ---- | -
|                                  | 2015    | 
|(in millions of Canadian dollars) | LEVEL 1 |  | LEVEL 2 |     | LEVEL 3 |      | TOTAL |  | %    |  
|Cash and short-term investments   | 17      |  | —       |     | —       |      | 17    |  | 3.8  | %
|                                  |         |  |         |     |         |      |       |  |      |  
|Bonds                             |         |  |         |     |         |      |       | 
|Canadian bonds                    | 57      |  | 72      |     | —       |      | 129   |  | 28.4 | %
|                                  |         |  |         |     |         |      |       | 
|Shares                            |         |  |         |     |         |      |       | 
|Canadian shares                   | 65      |  | —       |     | —       |      | 65    |  |      |  
|Foreign shares                    | 15      |  | —       |     | —       |      | 15    |  |      |  
|                                  |         |  |         | 80  |         | 17.6 | %    
|Mutual funds                      |         |  |         |     |         |      |       | 
|Foreign bond mutual funds         | —       |  | 2       |     | —       |      | 2     |  |      |  
|Canadian equity mutual funds      | —       |  | 18      |     | —       |      | 18    |  |      |  
|Foreign equity mutual funds       | —       |  | 118     |     | —       |      | 118   |  |      |  
|Alternative investments funds     | —       |  | 20      |     | —       |      | 20    |  |      |  
|                                  |         |  |         | 158 |         | 34.8 | %    
|Other                             |         |  |         |     |         |      |       | 
|Insured annuities                 | —       |  | 63      |     | —       |      | 63    |  |      |  
|Derivatives contract, net         | 7       |  | —       |     | —       |      | 7     |  |      |  
|                                  |         |  |         | 70  |         | 15.4 | %    
|                                  | 161     |  | 293     |     | —       |      | 454   |  |      |  



The plan assets include
shares of the Corporation for an amount of less than $1 million. These shares were bought by one of the asset managers. Annual
benefit annuities of an approximate value of $94 million are pledged by insurance contracts.



| | B. | POST-EMPLOYMENT
BENEFITS OTHER THAN DEFINED BENEFIT PENSION PLANS
| | -- | -----------------------------------------------------------------

The Corporation also
offers its employees some post-employment benefit plans, such as retirement allowance, group life insurance and medical and dental
plans. However, these benefits, other than pension plans, are not funded. Furthermore, the medical and dental plans upon retirement
are being phased out and are no longer offered to the majority of new retirees, and the retirement allowance is not offered to
the majority of employees hired after 2002.



The amounts recognized
in the balance sheet composed by country and by sector are determined as follows:

|                                      |                |  |                  |  |                     |  |               | 
|------------------------------------- | -------------- |  | ---------------- |  | ------------------- |  | ------------- | 
|                                      | 2016           | 
|(in millions of Canadian dollars)     | CANADA         |  | UNITED STATES    |  | EUROPE              |  | TOTAL         | 
|Present value of unfunded obligations | 78             |  | 4                |  | 24                  |  | 106           | 
|Liabilities on balance sheet          | 78             |  | 4                |  | 24                  |  | 106           | 
|                                      |                |  |                  |  |                     |  |               | 
|                                      | 2016           | 
|(in millions of Canadian dollars)     | CONTAINERBOARD |  | BOXBOARD 
EUROPE |  | SPECIALTY 
PRODUCTS |  | TISSUE PAPERS | 
|Present value of unfunded obligations | 41             |  | 24               |  | 6                   |  | 13            | 
|Liabilities on balance sheet          | 41             |  | 24               |  | 6                   |  | 13            | 
|                                      |                |  |                  |  |                     |  |               | 



|                                      |                |  |                  |  |                     |  |               | 
|------------------------------------- | -------------- |  | ---------------- |  | ------------------- |  | ------------- | 
|                                      | 2015           | 
|(in millions of Canadian dollars)     | CANADA         |  | UNITED STATES    |  | EUROPE              |  | TOTAL         | 
|Present value of unfunded obligations | 77             |  | 4                |  | 24                  |  | 105           | 
|Liabilities on balance sheet          | 77             |  | 4                |  | 24                  |  | 105           | 
|                                      |                |  |                  |  |                     |  |               | 
|                                      | 2015           | 
|(in millions of Canadian dollars)     | CONTAINERBOARD |  | BOXBOARD 
EUROPE |  | SPECIALTY 
PRODUCTS |  | TISSUE PAPERS | 
|Present value of unfunded obligations | 42             |  | 24               |  | 6                   |  | 13            | 
|Liabilities on balance sheet          | 42             |  | 24               |  | 6                   |  | 13            | 
|                                      |                |  |                  |  |                     |  |               | 



39







The movement in the net defined benefit
obligation for post-employment benefits over the year is as follows:

|                                                       |                              |   |                          |   |       |  
|------------------------------------------------------ | ---------------------------- | - | ------------------------ | - | ----- | -
|(in millions of Canadian dollars)                      | PRESENT VALUE OF 
OBLIGATION |   | FAIR VALUE OF PLAN ASSET |   | TOTAL |  
|As at January 1, 2015                                  | 109                          |   | —                        |   | 109   |  
|Current service cost                                   | 2                            |   | —                        |   | 2     |  
|Interest expense                                       | 4                            |   | —                        |   | 4     |  
|Plan changes                                           | 3                            |   | —                        |   | 3     |  
|Impact on profit or loss                               | 9                            |   | —                        |   | 9     |  
|Remeasurements                                         |                              |   |                         
|Gain from change in financial assumptions              | (1                           | ) | —                        |   | (1    | )
|Experience gains                                       | (2                           | ) | —                        |   | (2    | )
|Impact of remeasurements on other comprehensive income | (3                           | ) | —                        |   | (3    | )
|Exchange differences                                   | 2                            |   | —                        |   | 2     |  
|Business disposal                                      | (4                           | ) | —                        |   | (4    | )
|Contributions and premiums paid by the employer        | —                            |   | (8                       | ) | (8    | )
|Benefit payments                                       | (8                           | ) | 8                        |   | —     |  
|As at December 31, 2015                                | 105                          |   | —                        |   | 105   |  
|Current service cost                                   | 2                            |   | —                        |   | 2     |  
|Interest expense                                       | 3                            |   | —                        |   | 3     |  
|Impact on profit or loss                               | 5                            |   | —                        |   | 5     |  
|Remeasurements                                         |                              |   |                          |   |       |  
|Loss from change in financial assumptions              | 2                            |   | —                        |   | 2     |  
|Impact of remeasurements on other comprehensive income | 2                            |   | —                        |   | 2     |  
|Exchange differences                                   | (1                           | ) | —                        |   | (1    | )
|Contributions and premiums paid by the employer        | —                            |   | (5                       | ) | (5    | )
|Benefit payments                                       | (5                           | ) | 5                        |   | —     |  
|As at December 31, 2016                                | 106                          |   | —                        |   | 106   |  



The method of accounting,
assumptions relating to discount rate and life expectancy, and the frequency of valuations for post-employment benefits are similar
to those used for defined benefit pension plans, with the addition of actuarial assumptions relating to the long-term increase
in healthcare costs of 4.50% a year (2015 - 4.50%).



The sensitivity of
the defined benefit obligation to changes in assumptions is set out below. The effects on each plan of a change in an assumption
are weighted proportionately to the total plan obligations to determine the total impact for each assumption presented.

|                          |                                                   |                                             |                        |    |      |   
|------------------------- | ------------------------------------------------- | ------------------------------------------- | ---------------------- | -- | ---- | --
|                          | IMPACT ON OBLIGATION FOR POST-EMPLOYMENT BENEFITS
|                          | CHANGE IN ASSUMPTION                              | INCREASE IN ASSUMPTION                      | DECREASE IN ASSUMPTION
|Discount rate             | 0.25                                              | %                                           | (2.4                   | )% | 2.5  | % 
|Salary growth rate        | 0.25                                              | %                                           | 0.6                    | %  | (0.6 | )%
|Health care cost increase | 1.0                                               | %                                           | 2.3                    | %  | (1.9 | )%
|                          |                                                   |                                             |                       
|                          |                                                   | INCREASE / DECREASE BY 1 YEAR IN ASSUMPTION |                       
|Life expectancy           |                                                   | 1.3                                         | %                     



40







| | C. | RISKS
AND OTHER CONSIDERATIONS RELATIVE TO POST-EMPLOYMENT BENEFITS
| | -- | -------------------------------------------------------------------

Through its defined
benefit plans, the Corporation is exposed to a number of risks, the most significant of which are detailed below.



Asset volatility

The plan liabilities
are calculated using a discount rate set with reference to corporate bond yields; and if plan assets underperform this yield, it
will create an experience loss. Both the Canadian and U.S. plans hold a proportion of equities, which are expected to outperform
corporate bonds in the long term while contributing volatility and risk in the short term.



For Canadian pension
plans, which represent 98% of funded pension plans, the Corporation intends to reduce the level of investment risk by investing
more in assets that better match the liabilities when the financial situation of the plans improves and/or the rate of return on
bonds used for solvency valuations increases.



The first step of
this process was completed in 2013 with the sale of a number of equity holdings and the purchase of a mixture of government and
corporate bonds for smaller pension plans ($50 million or less); for larger pension plans, this has been done through future
contracts. The government bonds represent investments in Canadian government securities only. The corporate bonds are global securities
with an emphasis on Canada. As at December 31, 2016, 59% of the plan's assets are invested in bonds, in kind or through futures.
The second step began in 2014 with the purchase of annuities from a life insurance company for some pensioners. In September 2016,
the Corporation continues the process by purchasing annuities for other groups of retirees. As at December 31, 2016, the total
value of insured annuities is $94 million.



However, the Corporation
believes that due to the long-term nature of the plan liabilities and the strength of the supporting group, a level of continuing
equity investment is an appropriate element of the Corporation’s long-term strategy to manage the plans efficiently. Plan
assets are diversified, so the failure of an individual stock would not have a big impact on the plan assets taken as a whole.
The pension plans do not face a significant currency risk.



Changes in bond
yields

A decrease in corporate
bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’
bond holdings, particularly for plans in a good financial position that have a greater proportion of bonds.



Inflation risk

The benefits paid
are not indexed. Only future benefits for active members are based on salaries. Therefore, this risk is not significant.



Life expectancy

The majority of the
plans’ obligations are to provide benefits for the member's lifetime, so increases in life expectancy will result in an increase
in the plans’ liabilities.



Each sensitivity
analysis disclosed in this note is based on changing one assumption while holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined
benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation
calculated using the projected unit credit method at the end of the reporting period) has been applied as for calculating the liability
recognized in the statement of financial position.



As at December 31,
2016, the aggregate surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $39 million (a
surplus of $31 million as at December 31, 2015). The Corporation will make special payments of $1 million for past service
to fund the Canadian pension plan deficit over ten years. Current agreed expected service contributions amount to $3 million
and will be made in the normal course. As for the cash flow requirement, these pension plans are expected to require a net contribution
of approximately $7 million in 2017.



The weighted average
duration of the defined benefit obligation is 12 years (2015 - 12 years).



Expected maturity
analysis of undiscounted pension and other post-employment benefits:

|                                                                  |                  |  |                    |  |                    |  |              |  |       | 
|----------------------------------------------------------------- | ---------------- |  | ------------------ |  | ------------------ |  | ------------ |  | ----- | 
|(in millions of Canadian dollars)                                 | LESS THAN A YEAR |  | BETWEEN 1-2 
YEARS |  | BETWEEN 2-5 
YEARS |  | OVER 5 YEARS |  | TOTAL | 
|Pension benefits                                                  | 29               |  | 30                 |  | 91                 |  | 772          |  | 922   | 
|Post-employment benefits other than defined benefit pension plans | 9                |  | 7                  |  | 28                 |  | 130          |  | 174   | 
|As at December 31, 2016                                           | 38               |  | 37                 |  | 119                |  | 902          |  | 1,096 | 



These amounts represent
all the benefits payable to current members during the following years and thereafter without limitations. The majority of benefit
payments are payable from trustee administered funds. The difference will come from future investment returns expected on plan
assets and future contributions that will be made by the Corporation for services rendered after December 31, 2016.



41







NOTE 18

INCOME TAXES



| | a. | The
provision for (recovery of) income taxes is as follows:
| | -- | -----------------------------------------------------------



|                                  |      |  |      |  
|--------------------------------- | ---- |  | ---- | -
|(in millions of Canadian dollars) | 2016 |  | 2015 |  
|Current taxes                     | 11   |  | (1   | )
|Deferred taxes                    | 34   |  | 41   |  
|                                  | 45   |  | 40   |  



| | b. | The
provision for income taxes based on the effective income tax rate differs from the provision for (recovery of) income taxes based
on the combined basic rate for the following reasons:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                                             |      |   |      |  
|------------------------------------------------------------------------------------------------------------ | ---- | - | ---- | -
|(in millions of Canadian dollars)                                                                            | 2016 |   | 2015 |  
|Provision for (recovery of) income taxes based on the combined basic Canadian and provincial income tax rate | 48   |   | (4   | )
|Adjustment of provision for (recovery of) income taxes arising from the following:                           |      |  
|Difference in statutory income tax rate of foreign operations                                                | 2    |   | (4   | )
|Reassessment                                                                                                 | 1    |   | 5    |  
|Reversal of deferred tax assets on tax losses                                                                | —    |   | 18   |  
|Permanent differences - others                                                                               | (5   | ) | 7    |  
|Change in unrecognized to recognized tax asset in operating losses                                           | (3   | ) | —    |  
|Tax rates changes                                                                                            | 2    |   | —    |  
|Change in temporary differences                                                                              | —    |   | 18   |  
|                                                                                                             | (3   | ) | 44   |  
|Provision for income taxes                                                                                   | 45   |   | 40   |  



Weighted average income tax rate for the
year ended December 31, 2016, was 26.2% (2015 - 26.8%).



| | c. | The
provision for (recovery of) income taxes relating to components of other comprehensive income is as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------



|                                                           |      |  |      |  
|---------------------------------------------------------- | ---- |  | ---- | -
|(in millions of Canadian dollars)                          | 2016 |  | 2015 |  
|Foreign currency translation related to hedging activities | 3    |  | (13  | )
|Cash flow hedge                                            | 3    |  | 1    |  
|Actuarial gain on post-employment benefit obligations      | 3    |  | 7    |  
|                                                           | 9    |  | (5   | )



| | d. | The
analysis of deferred tax assets and deferred tax liabilities, without taking into consideration the offsetting of balances within
the same tax jurisdiction, is as follows:
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                     |      |   |      |  
|-------------------------------------------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars)                                    | 2016 |   | 2015 |  
|Deferred income tax assets:                                          |      |  
|Deferred income tax assets to be recovered after more than 12 months | 279  |   | 297  |  
|Deferred income tax liabilities:                                     |      |  
|Deferred income tax liabilities to be used after more than 12 months | 319  |   | 305  |  
|                                                                     | (40  | ) | (8   | )



The movement of the deferred income tax
account is as follows:

|                                                         |      |   |      |  
|-------------------------------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars)                        | 2016 |   | 2015 |  
|As at January 1                                          | (8   | ) | 47   |  
|Through statement of earnings (loss)                     | (34  | ) | (41  | )
|Variance of income tax credit, net of related income tax | 5    |   | —    |  
|Through statement of comprehensive income (loss)         | (9   | ) | 5    |  
|Included in discontinued operations                      | —    |   | 1    |  
|Exchange differences                                     | 6    |   | (20  | )
|As at December 31                                        | (40  | ) | (8   | )



42







The movement in deferred
income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same
tax jurisdiction, is as follows:



DEFERRED INCOME TAX ASSET

|                                                 |                                                           |   |                            |   |                      |   |                     |   |                        |   |                                            |   |        |  |       |  
|------------------------------------------------ | --------------------------------------------------------- | - | -------------------------- | - | -------------------- | - | ------------------- | - | ---------------------- | - | ------------------------------------------ | - | ------ |  | ----- | -
|(in millions of Canadian dollars)                | RECOGNIZED 
TAX BENEFIT 
ARISING FROM 
INCOME TAX 
LOSSES |   | EMPLOYEE 
FUTURE 
BENEFITS |   | EXPENSE ON 
RESEARCH |   | UNUSED TAX 
CREDITS |   | FINANCIAL 
INSTRUMENTS |   | FOREIGN 
EXCHANGE 
LOSS ON LONG-
TERM DEBT |   | OTHERS |  | TOTAL |  
|As at January 1, 2015                            | 163                                                       |   | 34                         |   | 70                   |   | 39                  |   | 8                      |   | —                                          |   | 14     |  | 328   |  
|Through statement of earnings (loss)             | (24                                                       | ) | (3                         | ) | (32                  | ) | (1                  | ) | 7                      |   | 23                                         |   | 1      |  | (29   | )
|Through statement of comprehensive income (loss) | —                                                         |   | (7                         | ) | —                    |   | —                   |   | —                      |   | —                                          |   | —      |  | (7    | )
|Exchange differences                             | 2                                                         |   | 1                          |   | —                    |   | 1                   |   | 1                      |   | —                                          |   | —      |  | 5     |  
|As at December 31, 2015                          | 141                                                       |   | 25                         |   | 38                   |   | 39                  |   | 16                     |   | 23                                         |   | 15     |  | 297   |  
|Through statement of earnings (loss)             | 19                                                        |   | 2                          |   | (23                  | ) | (3                  | ) | (8                     | ) | (2                                         | ) | 1      |  | (14   | )
|Variance of income tax credit                    | —                                                         |   | —                          |   | —                    |   | 5                   |   | —                      |   | —                                          |   | —      |  | 5     |  
|Through statement of comprehensive income (loss) | —                                                         |   | (3                         | ) | —                    |   | —                   |   | (3                     | ) | (3                                         | ) | —      |  | (9    | )
|Exchange differences                             | (1                                                        | ) | —                          |   | —                    |   | —                   |   | —                      |   | 1                                          |   | —      |  | —     |  
|As at December 31, 2016                          | 159                                                       |   | 24                         |   | 15                   |   | 41                  |   | 5                      |   | 19                                         |   | 16     |  | 279   |  



DEFERRED INCOME TAX LIABILITIES

|                                        |                                 |   |                                            |   |                    |   |             |   |        |   |       |  
|--------------------------------------- | ------------------------------- | - | ------------------------------------------ | - | ------------------ | - | ----------- | - | ------ | - | ----- | -
|(in millions of Canadian dollars)       | PROPERTY, 
PLANT AND 
EQUIPMENT |   | FOREIGN 
EXCHANGE GAIN 
ON LONG-TERM 
DEBT |   | INTANGIBLE 
ASSETS |   | INVESTMENTS |   | OTHERS |   | TOTAL |  
|As at January 1, 2015                   | 134                             |   | 17                                         |   | 51                 |   | 68          |   | 11     |   | 281   |  
|Through statement of earnings (loss)    | 22                              |   | (5                                         | ) | (1                 | ) | 5           |   | (9     | ) | 12    |  
|Through statement of comprehensive loss | —                               |   | (12                                        | ) | —                  |   | —           |   | —      |   | (12   | )
|Included in discontinued operations     | —                               |   | —                                          |   | —                  |   | —           |   | (1     | ) | (1    | )
|Exchange differences                    | 13                              |   | —                                          |   | 1                  |   | 11          |   | —      |   | 25    |  
|As at December 31, 2015                 | 169                             |   | —                                          |   | 51                 |   | 84          |   | 1      |   | 305   |  
|Through statement of earnings (loss)    | 14                              |   | —                                          |   | 3                  |   | 3           |   | —      |   | 20    |  
|Exchange differences                    | (3                              | ) | —                                          |   | (1                 | ) | (2          | ) | —      |   | (6    | )
|As at December 31, 2016                 | 180                             |   | —                                          |   | 53                 |   | 85          |   | 1      |   | 319   |  



When taking into
consideration the offsetting of balances within the same tax jurisdiction, the net deferred tax liability of $40 million is presented
on the balance sheet as $179 million of deferred income tax asset amounts and $219 million of deferred income tax liabilities.



43







| | e. | The
Corporation has recognized accumulated losses for income tax purposes amounting to approximately $575 million, which may
be carried forward to reduce taxable income in future years. The future tax benefit of $159 million resulting from the deferral
of these losses has been recognized in the accounts as a deferred income tax asset. Deferred income tax assets are recognized
for tax loss carry forward to the extent that the realization of the related tax benefits through future taxable profits is probable.
Income tax losses as at December 31, 2016 are detailed as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                  |                       |  |             
|--------------------------------- | --------------------- |  | ------------
|(in millions of Canadian dollars) | RECOGNIZED TAX LOSSES |  | MATURITY    
|Canada                            | 7                     |  | 2026        
|                                  | 14                    |  | 2027        
|                                  | 2                     |  | 2029        
|                                  | 16                    |  | 2030        
|                                  | 69                    |  | 2031        
|                                  | 135                   |  | 2032        
|                                  | 82                    |  | 2033        
|                                  | 123                   |  | 2034        
|                                  | 16                    |  | 2035        
|                                  | 60                    |  | 2036        
|United States                     | 2                     |  | 2020        
|                                  | 2                     |  | 2029        
|                                  | 2                     |  | 2031        
|                                  | 3                     |  | 2032        
|                                  | 2                     |  | 2033        
|                                  | 1                     |  | 2034        
|                                  | 13                    |  | 2035        
|                                  | 1                     |  | 2036        
|Europe                            | 25                    |  | Indefinitely
|                                  | 575                   |  |             



NOTE 19

CAPITAL STOCK



| | A. | CAPITAL
MANAGEMENT
| | -- | ------------------

Capital is defined
as long-term debt, bank loans and advances net of cash and cash equivalents and Shareholders' equity which includes capital stock.

|                                          |       |   |       |  
|----------------------------------------- | ----- | - | ----- | -
|(in millions of Canadian dollars)         | 2016  |   | 2015  |  
|Cash and cash equivalents                 | (62   | ) | (60   | )
|Bank loans and advances                   | 28    |   | 37    |  
|Long-term debt, including current portion | 1,566 |   | 1,744 |  
|                                          | 1,532 |   | 1,721 |  
|Total equity                              | 1,074 |   | 963   |  
|Total capital                             | 2,606 |   | 2,684 |  



The Corporation's objectives when managing
capital are:



| | • | to
safeguard the Corporation's ability to continue as a going concern in order to provide returns to Shareholders;
| | - | ------------------------------------------------------------------------------------------------------------------



| | • | to
maintain an optimal capital structure and reduce the cost of capital;
| | - | ------------------------------------------------------------------------



| | • | to
make proper capital investments that are significant to ensure that the Corporation remains competitive; and
| | - | ---------------------------------------------------------------------------------------------------------------



| | • | to
redeem common shares based on an annual redemption program.
| | - | --------------------------------------------------------------



The Corporation sets
the amount of capital in proportion to risk. The Corporation manages its capital structure and makes adjustments to it in light
of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital
structure, the Corporation may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares
and acquire or sell assets to improve its financial performance and flexibility.



44







The
Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance
indicators. Also, the Corporation must conform to certain financial ratios under its various credit agreements. These ratios are
calculated on an adjusted consolidated basis of restricted subsidiaries only. These are a maximum ratio of funded debt to capitalization
of 65% and a minimum interest coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio
to incur additional debt. Funded debt is defined as liabilities as per the consolidated balance sheet, including guarantees and
liens granted in respect of funded debt of another person but excluding other long-term liabilities, trade accounts payable, obligations
under operating leases and other accrued obligations (2016 - $1,512 million; 2015 - $1,711 million). The capitalization
ratio is calculated as“Shareholders' equity”
as shown in the consolidated balance sheet plus the funded debt. Shareholders' equity is adjusted
to add back the effect of IFRS adjustments as at December 31, 2010, in the amount of $208 million. The interest coverage ratio
is defined as OIBD to interest expense. The OIBD is defined as net earnings of the last four quarters plus interest expense, income
taxes, amortization and depreciation, expense for stock options and dividends received from a person who is not a credit party
(2016 - $379 million; 2015 - $364 million). Excluded from net earnings are share of results of equity investments and
gains or losses from non-recurring items. Interest expense is calculated as interest and financial charges determined in accordance
with IFRS plus any capitalized interest but excluding the amortization of deferred financing costs, up-front and financing costs
and unrealized gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of long-term
debt denominated in a foreign currency. The consolidated interest coverage ratio to incur additional debt is calculated as
defined in the Senior notes indentures dated June 19, 2014 and May 19, 2015.



As at December 31,
2016, the funded debt-to-capitalization ratio stood at 55.91% and the interest coverage ratio was 4.52x. The Corporation is in
compliance with the ratio requirements of its lenders.



The Corporation's
credit facility is subject to terms and conditions for loans of this nature, including limits on incurring additional indebtedness
and granting liens or selling assets without the consent of the lenders.



The unsecured senior
notes are subject to customary covenants restricting the Corporation's ability to, among other things, incur additional debt, pay
dividends and make other restricted payments as defined in the Indentures dated June 19, 2014 and May 19, 2015.



The Corporation historically
invests between $100 million and $200 million annually on purchases of property, plant and equipment. These amounts are
carefully reviewed during the course of the year in relation to operating results and strategic actions approved by the Board of
Directors. These investments, combined with annual maintenance, enhance the stability of the Corporation's business units and improve
cost competitiveness through new technology and improved process procedures.



The Corporation has
an annual share redemption program in place to redeem its outstanding common shares when the market price is judged appropriate
by Management. In addition to limitations on the normal course issuer bid, the Corporation's ability to redeem common shares is
limited by its senior notes indenture.



| | B. | ISSUED
AND OUTSTANDING
| | -- | ----------------------

The authorized capital
stock of the Corporation consists of an unlimited number of common shares, without nominal value, and an unlimited number of Class
A and B shares issuable in series without nominal value. Over the past two years, the common shares have fluctuated as follows:

|                                                             |       |                         |   |                                  |   |                          |   |                                  | 
|------------------------------------------------------------ | ----- | ----------------------- | - | -------------------------------- | - | ------------------------ | - | -------------------------------- | 
|                                                             |       | 2016                    |   | 2015                             |  
|                                                             | NOTE  | NUMBER OF COMMON SHARES |   | IN MILLIONS OF CANADIAN 
DOLLARS |   | NUMBER OF COMMON 
SHARES |   | IN MILLIONS OF CANADIAN 
DOLLARS | 
|Balance - beginning of year                                  |       | 95,310,923              |   | 490                              |   | 94,186,474               |   | 483                              | 
|Common shares issued on exercise of stock options            | 19(d) | 262,836                 |   | 1                                |   | 1,168,349                |   | 5                                | 
|Reversal of contributed surplus on exercise of stock options |       | —                       |   | 1                                |   | —                        |   | 2                                | 
|Redemption of common shares                                  | 19(c) | (1,047,243              | ) | (5                               | ) | (43,900                  | ) | —                                | 
|Balance - end of year                                        |       | 94,526,516              |   | 487                              |   | 95,310,923               |   | 490                              | 



45







| | C. | REDEMPTION
OF COMMON SHARES
| | -- | ---------------------------

In 2016, in the normal
course of business, the Corporation renewed its redemption program of a maximum of 1,907,173 common shares with the Toronto Stock
Exchange, said shares representing approximately 2% of issued and outstanding common shares. The redemption authorization is valid
from March 17, 2016 to March 16, 2017. In 2016, the Corporation redeemed 1,047,243 common shares under this program for an amount
of $9 million (2015 - 43,900 common shares for a non-significant consideration).



| | D. | COMMON
SHARE ISSUANCE
| | -- | ---------------------

The Corporation issued
262,836 common shares upon the exercise of options for an amount of $1 million (2015 - $5 million for 1,168,349 common shares
issued).



| | E. | NET
EARNINGS (LOSS) PER COMMON SHARE
| | -- | ------------------------------------

The basic and diluted net earnings (loss)
per common share is calculated as follows:

|                                                                                       |      |      |      |   |       |  
|-------------------------------------------------------------------------------------- | ---- | ---- | ---- | - | ----- | -
|                                                                                       | 2016 |      | 2015 |  
|Net earnings (loss) available to common shareholders (in millions of Canadian dollars) | 135  |      | (65  | )
|Weighted average number of basic common shares outstanding (in millions)               | 95   |      | 94   |  
|Weighted average number of diluted common shares outstanding (in millions)             | 97   |      | 94   |  
|Basic net earnings (loss) per common share (in Canadian dollars)                       | $    | 1.42 |      | $ | (0.69 | )
|Diluted net earnings (loss) per common share (in Canadian dollars)                     | $    | 1.39 |      | $ | (0.69 | )



As at December 31,
2016 and 2015, no stock option had an antidilutive effect. As of March 1, 2017, no common share had been redeemed by the Corporation
since the beginning of the financial year.



| | F. | DETAILS
OF DIVIDENDS DECLARED PER COMMON SHARE ARE AS FOLLOWS
| | -- | -------------------------------------------------------------



|                                    |      |      |      |   |      | 
|----------------------------------- | ---- | ---- | ---- | - | ---- | 
|                                    | 2016 |      | 2015 |  
|Dividends declared per common share | $    | 0.16 |      | $ | 0.16 | 



NOTE 20

STOCK-BASED COMPENSATION



| | a. | Under
the terms of a share option plan adopted on December 15, 1998, amended on March 15, 2013, and approved by Shareholders on May
8, 2013, a remaining balance of 2,368,580 common shares has been specifically reserved for issuance for officers and key employees
of the Corporation. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise
price of an option shall not be lower than the market value of the share at the date of grant, determined as the average of the
closing price of the share on the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising
the options are 25% of the number of shares under option within 12 months after the first anniversary date of grant, and up to
an additional 25% every 12 months after the second, third and fourth anniversaries of grant date. Options cannot be exercised
if the market value of the share at exercise date is lower than the book value at the date of grant. Options exercised are settled
in shares. The stock-based compensation cost related to these options amounted to $1 million (2015 - $1 million).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Changes in the number
of options outstanding as at December 31, 2016 and 2015 are as follows:

|                                  |                   |   |                                   |  |                   |   |                                   | 
|--------------------------------- | ----------------- | - | --------------------------------- |  | ----------------- | - | --------------------------------- | 
|                                  | 2016              |   | 2015                              | 
|                                  | NUMBER OF OPTIONS |   | WEIGHTED AVERAGE EXERCISE PRICE $ |  | NUMBER OF OPTIONS |   | WEIGHTED AVERAGE EXERCISE PRICE $ | 
|Beginning of year                 | 5,262,796         |   | 6.16                              |  | 6,432,328         |   | 5.96                              | 
|Granted                           | 351,461           |   | 9.75                              |  | 462,644           |   | 7.66                              | 
|Exercised                         | (262,836          | ) | 5.51                              |  | (1,168,349        | ) | 4.44                              | 
|Expired                           | (257,885          | ) | 11.49                             |  | (258,090          | ) | 11.85                             | 
|Forfeited                         | —                 |   | —                                 |  | (205,737          | ) | 5.92                              | 
|End of year                       | 5,093,536         |   | 6.17                              |  | 5,262,796         |   | 6.16                              | 
|Options exercisable - end of year | 4,086,275         |   | 5.79                              |  | 4,027,950         |   | 6.17                              | 



The weighted average
share price at the time of exercise of the options was $12.14 (2015 - $10.35).



46







The following options
were outstanding as at December 31, 2016:

|             |                     |                     |                                   |  |                   |  |                                   |  |                
|------------ | ------------------- | ------------------- | --------------------------------- |  | ----------------- |  | --------------------------------- |  | ---------------
|             | OPTIONS OUTSTANDING | OPTIONS EXERCISABLE |                                  
|YEAR GRANTED | NUMBER OF OPTIONS   |                     | WEIGHTED AVERAGE EXERCISE PRICE $ |  | NUMBER OF OPTIONS |  | WEIGHTED AVERAGE EXERCISE PRICE $ |  | EXPIRATION DATE
|2007         | 282,383             |                     | 11.83                             |  | 282,383           |  | 11.83                             |  | 2017           
|2008         | 359,236             |                     | 7.81                              |  | 359,236           |  | 7.81                              |  | 2018           
|2009         | 24,298              |                     | 2.28                              |  | 24,298            |  | 2.28                              |  | 2019           
|2009         | 968,333             |                     | 3.92                              |  | 968,333           |  | 3.92                              |  | 2019           
|2010         | 444,124             |                     | 6.43                              |  | 444,124           |  | 6.43                              |  | 2020           
|2011         | 512,622             |                     | 6.26                              |  | 512,622           |  | 6.46                              |  | 2021           
|2012         | 832,726             |                     | 4.46                              |  | 832,726           |  | 4.46                              |  | 2017 & 2022    
|2013         | 464,284             |                     | 5.18                              |  | 347,574           |  | 5.18                              |  | 2017 & 2023    
|2014         | 453,647             |                     | 6.10                              |  | 221,977           |  | 6.10                              |  | 2017 & 2024    
|2015         | 400,422             |                     | 7.66                              |  | 93,002            |  | 7.66                              |  | 2025           
|2016         | 351,461             |                     | 9.75                              |  | —                 |  | —                                 |  | 2026           
|             | 5,093,536           |                     |                                   |  | 4,086,275         |  |                                   |  |                



FAIR VALUE OF
THE SHARE OPTIONS GRANTED

Options were priced
using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over the past
five years. The following weighted average assumptions were used to estimate the fair value of $2.75 (2015 - $2.05), as at the
date of grant, of each option issued to employees:

|                         |         |       |         |   |      | 
|------------------------ | ------- | ----- | ------- | - | ---- | 
|                         | 2016    |       | 2015    |  
|Grant date share price   | $       | 10.09 |         | $ | 7.76 | 
|Exercise price           | $       | 9.75  |         | $ | 7.66 | 
|Risk-free interest rate  | 1.04    | %     | 1.29    | %
|Expected dividend yield  | 1.58    | %     | 2.06    | %
|Expected life of options | 6 years |       | 6 years |  
|Expected volatility      | 31      | %     | 32      | %



| | b. | The
Corporation offers its Canadian employees a share purchase plan for its common shares. Employees can voluntarily contribute up
to a maximum of 5% of their salary and, if certain conditions are met, the Corporation will contribute 25% of the employee's contribution
to the plan.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The shares are purchased
on the market on a predetermined date each month. For the year ended December 31, 2016, the Corporation's contribution to the plan
amounted to $1 million (2015 - $1 million).



| | c. | The
Corporation has a Deferred Share Unit Plan for the benefit of its external directors, allowing them to receive all or a portion
of their annual compensation in the form of Deferred Share Units (“DSUs”).
A DSU is a notional unit equivalent in value to the Corporation's common share. Upon resignation from the Board of Directors,
participants are entitled to receive the payment of their cumulated DSUs in the form of cash based on the average price of the
Corporation's common shares as traded on the open market during the five days before the date of the participant's resignation.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The DSU expense and
the related liability are recorded at the grant date. The liability is adjusted periodically to reflect any variation in the market
value of the common shares. As at December 31, 2016, the Corporation had a total of 205,773 DSUs outstanding (2015 - 185,041 DSUs),
representing a long-term liability of $3 million (2015 - $3 million). On January 15, 2017, the Corporation issued 41,503 DSUs
and had a total of 247,276 DSUs outstanding.



| | d. | In
2013, the Corporation put in place a Performance Share Unit (“PSU”)
Plan for the benefit of officers and key employees, allowing them to receive a portion of their annual compensation in the form
of PSUs. A PSU is a notional unit equivalent in value to the Corporation's common share. Periodically, the number of PSUs forming
part of the award shall be adjusted depending upon the three-year average return on capital employed of the Corporation (“ROCE”).
Such adjusted number shall be obtained by multiplying the number of PSUs forming part of the award by the applicable multiplier
based on the ROCE level. Participants are entitled to receive the payment of their PSUs in the form of cash based on the average
price of the Corporation's common shares as traded on the open market during the five days before the vesting date.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47







The PSUs vest over
a period of two years starting on the award date. The expense and the related liability are recorded during the vesting period.
The liability is adjusted periodically to reflect any variation in the market value of the common shares, the expected average
ROCE and the passage of time. As at December 31, 2016, the Corporation had a total of 761,367 PSUs outstanding (2015 - 931,786 PSUs),
representing a liability of $5 million (2015 - $7 million). In 2016, the Corporation made payments totaling $5 million in relation
to PSUs (2015 - $2 million).



NOTE 21

ACCUMULATED OTHER COMPREHENSIVE LOSS

|                                                                                                                                                                                   |      |   |      |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars)                                                                                                                                                  | 2016 |   | 2015 |  
|Foreign currency translation, net of hedging activities and related income tax of $16 million (December 31, 2015 - $19million)                                                     | (13  | ) | (4   | )
|Unrealized loss arising from commodity derivative financial instruments designated as cash flow hedges, net of related income taxes of $2 million (December 31, 2015 - $5 million) | (5   | ) | (12  | )
|Unrealized gain (loss) on available-for-sale financial assets, net of related income taxes of nil (December 31, 2015 - nil)                                                        | (1   | ) | 1    |  
|Unrealized loss on share of other comprehensive income of associates, net of related income taxes of $9million (December 31, 2015 - $9 million)                                    | (12  | ) | (12  | )
|                                                                                                                                                                                   | (31  | ) | (27  | )



NOTE 22

COST OF SALES BY NATURE

|                                     |       |  |       | 
|------------------------------------ | ----- |  | ----- | 
|(in millions of Canadian dollars)    | 2016  |  | 2015  | 
|Raw material                         | 1,612 |  | 1,532 | 
|Wages and employee benefits expenses | 662   |  | 641   | 
|Energy                               | 248   |  | 266   | 
|Delivery                             | 269   |  | 259   | 
|Depreciation and amortization        | 192   |  | 190   | 
|Other                                | 397   |  | 373   | 
|                                     | 3,380 |  | 3,261 | 



SELLING AND ADMINISTRATIVE EXPENSES
BY NATURE

|                                     |      |  |      | 
|------------------------------------ | ---- |  | ---- | 
|(in millions of Canadian dollars)    | 2016 |  | 2015 | 
|Wages and employee benefits expenses | 271  |  | 244  | 
|Information technology               | 46   |  | 28   | 
|Publicity and marketing              | 15   |  | 16   | 
|Other                                | 70   |  | 72   | 
|                                     | 402  |  | 360  | 



48







NOTE 23

EMPLOYEE BENEFITS EXPENSES

|                                                                 
|-----------------------------------------------------------------
|                                                                 
|(in millions of Canadian dollars)                                
|Wages and employee benefits expenses                             
|Share options granted to directors and employees                 
|Pension costs - defined benefit plans                            
|Pension costs - defined contribution plans                       
|Post-employment benefits other than defined benefit pension plans
|                                                                 



KEY MANAGEMENT COMPENSATION

Key management includes the members of
the Board of Directors, Presidents and Vice Presidents of the Corporation (same as disclosed in annual information form in section
8.3). The compensation paid or payable to key management for their services is shown below:

|                                       |      |  |      | 
|-------------------------------------- | ---- |  | ---- | 
|(in millions of Canadian dollars)      | 2016 |  | 2015 | 
|Salaries and other short-term benefits | 11   |  | 11   | 
|Share-based payments                   | 4    |  | 4    | 
|                                       | 15   |  | 15   | 



NOTE 24

GAIN ON ACQUISITIONS, DISPOSALS AND
OTHERS

|                                  |      |   |      |  
|--------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars) | 2016 |   | 2015 |  
|Gain on disposal of assets        | (4   | ) | (1   | )



2016

Fourth quarter

|• | The Specialty Products Group recorded a $3 million gain on the sale of pieces of land close to the former fine paper plant located in St-Jérôme, Québec. The Group also recorded a $3 million environmental provision mainly related to closed plants in Québec, closed in previous years.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Second quarter

|• | The Specialty Products Group recorded a $4 million gain on the sale of assets following the closure of its de-inked pulp mill located in Auburn, Maine.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------



2015

Third quarter

|• | The Containerboard Packaging Group sold a warehouse in Québec City and recorded a $1 million gain.
|- | --------------------------------------------------------------------------------------------------



49







NOTE 25

IMPAIRMENT CHARGES AND RESTRUCTURING
COSTS



| | A. | IMPAIRMENT
CHARGES (REVERSALS) ON PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE ASSETS WITH FINITE USEFUL LIFE AND OTHER ASSETS
| | -- | ---------------------------------------------------------------------------------------------------------------------------



The Corporation recorded
net impairment charges totaling $3 million in 2016 and net impairment charges of $69 million in 2015. The recoverable
amount of CGUs was determined using a fair value less cost of disposal sell model based on the income approach, unless otherwise
indicated. Level 2 inputs are used to measure fair value. Impairments are detailed as follows:

|                                  |                    |  |                  |  |                     |   |           |   |               |  |                       |  |       | 
|--------------------------------- | ------------------ |  | ---------------- |  | ------------------- | - | --------- | - | ------------- |  | --------------------- |  | ----- | 
|                                  | 2016               | 
|                                  | PACKAGING PRODUCTS |  |                  | 
|(in millions of Canadian dollars) | CONTAINER-BOARD    |  | BOXBOARD 
EUROPE |  | SPECIALTY 
PRODUCTS |   | SUB-TOTAL |   | TISSUE PAPERS |  | CORPORATE 
ACTIVITIES |  | TOTAL | 
|Property, plant and equipment     | 2                  |  | —                |  | (3                  | ) | (1        | ) | 4             |  | —                     |  | 3     | 



|                                                           |                    |  |                  |  |                     |  |           |  |               |  |                       |  |       | 
|---------------------------------------------------------- | ------------------ |  | ---------------- |  | ------------------- |  | --------- |  | ------------- |  | --------------------- |  | ----- | 
|                                                           | 2015               | 
|                                                           | PACKAGING PRODUCTS |  |                  | 
|(in millions of Canadian dollars)                          | CONTAINER-BOARD    |  | BOXBOARD 
EUROPE |  | SPECIALTY 
PRODUCTS |  | SUB-TOTAL |  | TISSUE PAPERS |  | CORPORATE 
ACTIVITIES |  | TOTAL | 
|Property, plant and equipment                              | —                  |  | 45               |  | 10                  |  | 55        |  | —             |  | —                     |  | 55    | 
|Spare parts                                                | —                  |  | 11               |  | 1                   |  | 12        |  | —             |  | —                     |  | 12    | 
|Intangible assets with finite useful life and other assets | —                  |  | —                |  | —                   |  | —         |  | —             |  | 2                     |  | 2     | 
|                                                           | —                  |  | 56               |  | 11                  |  | 67        |  | —             |  | 2                     |  | 69    | 



2016

Fourth quarter

| | • | The
Specialty Products Group sold the building of its closed de-inked pulp mill located in Auburn, Maine, and recorded a $2 million
reversal of impairment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



Third quarter

| | • | The
Tissue Group incurred an additional impairment charge of $2 million related to the revaluation of some equipment following the
closure of its Toronto converting plant in the second quarter.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Second quarter

| | • | The
Containerboard Packaging Group recorded a $2 million impairment charge on the assets of its converting plant in Connecticut which
were not part of the disposal related to the Rand-Whitney - Newtown plant acquisition.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The
Specialty Products Group sold a piece of land related to a closed plant and recorded a $1 million reversal of impairment.
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | • | As
a result of the transfer of the converting operations of the Toronto plant to other sites, the Tissue Group recorded an impairment
charge of $2 million related to the revaluation of some equipment that was not transferred. The recoverable amount was based on
the selling price of assets.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2015

Fourth quarter

| | • | The
Boxboard Europe Group reviewed the recoverable value of its virgin boxboard mill located in France and allocated impairment charges
of $42 million on fixed assets and $11 million on spare parts. Sustained difficult market conditions led to insufficient profitability
to support the carrying value of these assets. The Group also recorded impairment charges of $2 million on fixed assets of plants
that were closed over past years.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Corporate
activities reviewed the recoverable amount of a note receivable related to the sale of a plant in 2014 and recorded an impairment
charge of $2 million.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



Third quarter

| | • | The
Specialty Products Group reviewed the recoverable value of one of its plant and recorded impairment charges of $10 million
on fixed assets and $1 million on spare parts. Sustained difficult market conditions led to insufficient profitability to
support the carrying value of these assets. The recoverable amount was based on the selling price of assets.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Second quarter

| | • | The
Boxboard Europe Group recorded impairment charges of $1 million related to closed plants. The recoverable amount was based on
the selling price of assets.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



50







| | B. | GOODWILL
AND OTHER INDEFINITE USEFUL LIFE INTANGIBLE ASSETS
| | -- | -----------------------------------------------------------

Allocation of goodwill
and other indefinite useful life intangible assets is as follows:



| | • | Packaging
Containerboard Group goodwill of $292 million is allocated to all Containerboard CGUs;
| | - | ------------------------------------------------------------------------------------------------



| | • | Specialty
Products Group goodwill is allocated to all Cascades Recovery CGUs, $13 million, and the Partitioning activities CGU, $3 million;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | • | Tissue
Group goodwill of $36 million is allocated to all Tissue CGUs;
| | - | ---------------------------------------------------------------------



| | • | Water
rights of $6 million are allocated to RdM's CGU.
| | - | ------------------------------------------------------



Annually, the Corporation
must test all of its goodwill for impairment, except if the following three conditions are met:



| | • | the
assets and liabilities making up the unit have not changed significantly since the most recent recoverable amount calculation;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | • | the
most recent recoverable amount calculation resulted in an amount that exceeded the carrying amount of the unit by a substantial
margin; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | • | based
on an analysis of events that have occurred and circumstances that have changed since the most recent recoverable amount calculation,
the likelihood that a current recoverable amount determination would be less than the current carrying amount of the unit is remote.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Given all three conditions
were met for all goodwill, the Corporation did not perform impairment testing in 2016.



| | C. | RESTRUCTURING
COSTS (GAINS)
| | -- | ---------------------------



Restructuring costs
(gains) are detailed as follows:

|                                  |      |   |      |  
|--------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars) | 2016 |   | 2015 |  
|Containerboard Packaging Group    | (1   | ) | —    |  
|Boxboard Europe Group             | 2    |   | 1    |  
|Specialty Products Group          | 1    |   | (5   | )
|Tissue Group                      | 7    |   | —    |  
|Corporate activities              | —    |   | 1    |  
|                                  | 9    |   | (3   | )



2016

Third quarter

| | • | The
Tissue Group recorded a $3 million provision for an onerous lease as a consequence of the closure of its Toronto converting plant
in the second quarter.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



Second quarter

| | • | The
Containerboard Packaging Group recorded a $1 million gain on the reversal of a provision for an onerous lease contract in relation
to the restructuring of its Ontario converting activities in 2012.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The
Boxboard Europe Group recorded restructuring costs of $2 million in relation to the reorganization of its activities following
the transfer of the virgin fibre boxboard mill located in La Rochette, France, to our Reno de Medici subsidiary.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The
Specialty Products Group recorded restructuring costs of $1 million following the closure of its de-inked pulp mill located in
Auburn, Maine.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The
Tissue Group incurred $4 million of severance costs following the transfer of the converting operations of the Toronto plant to
other Tissue Group sites.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



51







2015

Third quarter

| | • | The
Specialty Products Group proceeded with the legal restructuring of its Norcan Flexible Packaging subsidiary, which was owned at
62.1%. As a result of the restructuring, the Corporation now owns 100% of the net assets of this business through its Cascades
Flexible Packaging subsidiary. The Corporation recorded a gain of $5 million on the extinguishment of some liabilities following
the transaction (including $2 million attributable to non-controlling interests).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Second quarter

| | • | The
Boxboard Europe Group recorded severance provision adjustments totalling $1 million related to plants closed over the past years.
| | - | -------------------------------------------------------------------------------------------------------------------------------------



The Corporate activities
segment incurred $1 million of severance costs in relation to the reorganization of its activities.



NOTE 26

ADDITIONAL INFORMATION



| | A. | CHANGES
IN NON-CASH WORKING CAPITAL COMPONENTS ARE DETAILED AS FOLLOWS:
| | -- | -----------------------------------------------------------------------



|                                  |      |   |      |  
|--------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars) | 2016 |   | 2015 |  
|Accounts receivable               | (6   | ) | (57  | )
|Current income tax assets         | (1   | ) | (3   | )
|Inventories                       | (2   | ) | (9   | )
|Trade and other payables          | 66   |   | 33   |  
|Current income tax liabilities    | (1   | ) | (2   | )
|                                  | 56   |   | (38  | )



| | B. | FINANCING
EXPENSE AND INTEREST EXPENSE ON EMPLOYEE FUTURE BENEFITS
| | -- | ------------------------------------------------------------------



|                                     |      |   |      |  
|------------------------------------ | ---- | - | ---- | -
|(in millions of Canadian dollars)    | 2016 |   | 2015 |  
|Interest on long-term debt           | 83   |   | 88   |  
|Interest income                      | (1   | ) | (4   | )
|Amortization of financing costs      | 3    |   | 4    |  
|Other interest and banking fees      | 3    |   | 3    |  
|Interest on employee future benefits | 5    |   | 6    |  
|                                     | 93   |   | 97   |  



52







NOTE 27

FINANCIAL INSTRUMENTS



27.1 FAIR VALUE
OF FINANCIAL INSTRUMENTS

The classification
of financial instruments as at December 31, 2016 and 2015, along with the respective carrying amounts and fair values, is as follows:

|                                                           |      |        |                 |        |            |        |                 |        |            |  
|---------------------------------------------------------- | ---- | ------ | --------------- | ------ | ---------- | ------ | --------------- | ------ | ---------- | -
|                                                           |      | 2016   |                 | 2015   |           
|(in millions of Canadian dollars)                          | NOTE |        | CARRYING AMOUNT |        | FAIR VALUE |        | CARRYING AMOUNT |        | FAIR VALUE |  
|Financial assets at fair value through profit or loss      |      |        |                 |        |           
|Derivatives                                                | 27.4 |        | 10              |        | 10         |        | 13              |        | 13         |  
|Financial assets available for sale                        |      |        |                 |        |           
|Other investments                                          |      | 1      |                 | 1      |            | 2      |                 | 2      |           
|Investments in shares held for trading                     |      | 1      |                 | 1      |            | 1      |                 | 1      |           
|Financial liabilities at fair value through profit or loss |      |        |                 |        |           
|Derivatives                                                | 27.4 |        | (31             | )      | (31        | )      | (63             | )      | (63        | )
|Financial liabilities at amortized cost                    |      |        |                 |        |           
|Long-term debt                                             |      | (1,566 | )               | (1,612 | )          | (1,744 | )               | (1,729 | )         
|Derivatives designated as hedge                            |      |        |                 |        |           
|Asset derivatives                                          |      | 2      |                 | 2      |            | —      |                 | —      |           
|Liability derivatives                                      |      | (8     | )               | (8     | )          | (16    | )               | (16    | )         



53







27.2 DETERMINING
THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of
a financial instrument is the amount of consideration that would be received upon the sale of an asset or paid to transfer a liability
in an orderly transaction between market participants as at the measurement date.



| | (i) | The
fair values of cash and cash equivalents, accounts receivable, notes receivable, bank loans and advances, trade and other payables
and provisions approximate their carrying amounts due to their relatively short maturities.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | The
fair value of investments in shares held for trading is based on observable market data and mainly represents the Corporation's
investment in Junex Inc., which is quoted on the Toronto Stock Exchange.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) | The
fair value of long-term debt is based on observable market data and on the calculation of discounted cash flows. Discount rates
were determined based on local government bond yields adjusted for the risks specific to each of the borrowings and the credit
market liquidity conditions.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27.3 HIERARCHY
OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

The following table
presents information about the Corporation's financial assets and financial liabilities measured at fair value on a recurring basis
as at December 31, 2016 and 2015 and indicates the fair value hierarchy of the Corporation's valuation techniques to determine
such fair value. Three levels of inputs that may be used to measure fair value are:



Level 1 - Quoted
prices in active markets for identical assets or liabilities.

Level 2 - Observable
inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar

assets or liabilities
in inactive markets, or other inputs that are observable or can be corroborated by observable market data for

substantially the
full term of the assets or liabilities.

Level 3 - Inputs
that are generally unobservable and typically reflect Management's estimates of assumptions that market participants would

use in pricing the
asset or liability.

|                                       |                 |   |                                                                 |  |                                          |   |                                             | 
|-------------------------------------- | --------------- | - | --------------------------------------------------------------- |  | ---------------------------------------- | - | ------------------------------------------- | 
|                                       |                 |   | 2016                                                            | 
|(in millions of Canadian dollars)      | CARRYING AMOUNT |   | QUOTED PRICES IN ACTIVE 
MARKETS FOR IDENTICAL 
ASSETS (LEVEL1) |  | SIGNIFICANT OBSERVABLE 
INPUTS (LEVEL 2) |   | SIGNIFICANT 
UNOBSERVABLE INPUTS 
(LEVEL 3) | 
|Financial assets                       |                 |   |                                                                 | 
|Other investments                      | 1               |   | —                                                               |  | 1                                        |   | —                                           | 
|Investments in shares held for trading | 1               |   | 1                                                               |  | —                                        |   | —                                           | 
|Derivative financial assets            | 12              |   | —                                                               |  | 12                                       |   | —                                           | 
|                                       | 14              |   | 1                                                               |  | 13                                       |   | —                                           | 
|Financial liabilities                  |                 |   |                                                                 | 
|Derivative financial liabilities       | (39             | ) | —                                                               |  | (39                                      | ) | —                                           | 
|                                       | (39             | ) | —                                                               |  | (39                                      | ) | —                                           | 



|                                       |                 |   |                                                                 |  |                                          |   |                                             | 
|-------------------------------------- | --------------- | - | --------------------------------------------------------------- |  | ---------------------------------------- | - | ------------------------------------------- | 
|                                       |                 |   | 2015                                                            | 
|(in millions of Canadian dollars)      | CARRYING AMOUNT |   | QUOTED PRICES IN ACTIVE 
MARKETS FOR IDENTICAL 
ASSETS (LEVEL1) |  | SIGNIFICANT OBSERVABLE 
INPUTS (LEVEL 2) |   | SIGNIFICANT 
UNOBSERVABLE INPUTS 
(LEVEL 3) | 
|Financial assets                       |                 |   |                                                                 | 
|Other investments                      | 2               |   | —                                                               |  | 2                                        |   | —                                           | 
|Investments in shares held for trading | 1               |   | 1                                                               |  | —                                        |   | —                                           | 
|Derivative financial assets            | 13              |   | —                                                               |  | 13                                       |   | —                                           | 
|                                       | 16              |   | 1                                                               |  | 15                                       |   | —                                           | 
|Financial liabilities                  |                 |   |                                                                 | 
|Derivative financial liabilities       | (79             | ) | —                                                               |  | (79                                      | ) | —                                           | 
|                                       | (79             | ) | —                                                               |  | (79                                      | ) | —                                           | 



54







27.4 FINANCIAL
RISK MANAGEMENT

The Corporation's
activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash
flow interest rate risk and price risk), credit risk and liquidity risk. The Corporation's overall risk management program focuses
on the unpredictability of the financial market and seeks to minimize potential adverse effects on the Corporation's financial
performance. The Corporation uses derivative financial instruments to hedge certain risk exposures.



Risk management is
carried out by a central treasury department and a management committee acting under policies approved by the Board of Directors.
They identify, evaluate and hedge financial risks in close cooperation with the business units. The Board provides guidance for
overall risk management, covering specific areas, such as foreign exchange risk, interest rate risk and credit risk, use of derivative
financial instruments and non-derivative financial instruments, and investment of excess liquidity.



Summary

|                                  |               |            |             |           |  |       |  |            |   |           |   |       |  
|--------------------------------- | ------------- | ---------- | ----------- | --------- |  | ----- |  | ---------- | - | --------- | - | ----- | -
|                                  |               | 2016       |            
|(in millions of Canadian dollars) |               | ASSETS     | LIABILITIES
|RISK                              | NOTE          | SHORT-TERM |             | LONG-TERM |  | TOTAL |  | SHORT-TERM |   | LONG-TERM |   | TOTAL |  
|Currency risk                     | 27.4 A) (i)   | 2          |             | —         |  | 2     |  | (20        | ) | (13       | ) | (33   | )
|Price risk                        | 27.4 A) (ii)  | 1          |             | 9         |  | 10    |  | (3         | ) | (3        | ) | (6    | )
|                                  |               | 3          |             | 9         |  | 12    |  | (23        | ) | (16       | ) | (39   | )
|                                  |               |            |             |           |  |       |  |            |   |           |   |       |  
|                                  |               | 2015       |            
|(in millions of Canadian dollars) |               | ASSETS     | LIABILITIES
|RISK                              | NOTE          | SHORT-TERM |             | LONG-TERM |  | TOTAL |  | SHORT-TERM |   | LONG-TERM |   | TOTAL |  
|Currency risk                     | 27.4 A) (i)   | —          |             | 1         |  | 1     |  | (23        | ) | (38       | ) | (61   | )
|Price risk                        | 27.4 A) (ii)  | 1          |             | 11        |  | 12    |  | (9         | ) | (8        | ) | (17   | )
|Interest risk                     | 27.4 A) (iii) | —          |             | —         |  | —     |  | —          |   | (1        | ) | (1    | )
|                                  |               | 1          |             | 12        |  | 13    |  | (32        | ) | (47       | ) | (79   | )



| | A. | MARKET
RISK
| | -- | -----------



| | (i) | Currency
risk
| | --- | -------------

The Corporation operates
internationally and is exposed to foreign exchange risks arising from various currencies as a result of its export of goods produced
in Canada, the United States, France, Italy and Germany. Foreign exchange risk arises from future commercial transactions, recognized
assets and liabilities, and net investments in foreign operations. These risks are partially covered by purchases and debt.



The Corporation manages
the foreign exchange exposure by entering into various foreign exchange forward contracts and currency option instruments related
to anticipated sales, purchases, interest expense and repayment of long-term debt. Management has implemented a policy for managing
foreign exchange risk against its functional currency. The Corporation's risk management policy is to hedge 25% to 90% of anticipated
cash flows in each major foreign currency for the next 12 months and to hedge 0% to 75% for the subsequent 24 months. The Corporation
may designate these foreign exchange forward contracts as a cash flow hedge of future anticipated sales, purchases, interest expense
and repayment of long-term debt denominated in foreign currencies. Gains or losses from these derivative financial instruments
designated as hedges are recorded in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified
to earnings as adjustments to sales, cost of sales, interest expense or foreign exchange loss (gain) on long-term debt in the period
in which the respective hedged item affected earnings.



In 2016, approximately
25% of sales from Canadian operations were made to the United States and 15% of sales from European operations were made in countries
whose currencies were other than the euro.



55







The following table
summarizes the Corporation's commitments to buy and sell foreign currencies as at December 31, 2016 and 2015:

|                                                                                                                   |                  |  |                 |                               |     |                                              |     |  
|------------------------------------------------------------------------------------------------------------------ | ---------------- |  | --------------- | ----------------------------- | --- | -------------------------------------------- | --- | -
|                                                                                                                   | 2016             | 
|                                                                                                                   | EXCHANGE RATE    |  | MATURITY        | NOTIONAL AMOUNT (IN MILLIONS) |     | FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS) |    
|Repayment of long-term debt                                                                                        |                  |  |                 |                              
|Derivatives at fair value through profit or loss and classified in Foreign exchange loss (gain) on long-term debt: |                  |  |                 |                              
|Foreign exchange forward contracts to buy (US$ for CAN$)                                                           | 1.06             |  | January 2020    | US$                           | 50  |                                              | 13  |  
|Currency option sold to sell US$ (US$ for CAN$)                                                                    | 1.15             |  | December 2017   | US$                           | 75  |                                              | (14 | )
|Currency option sold to sell US$ (US$ for CAN$)                                                                    | 1.15             |  | January 2020    | US$                           | 100 |                                              | (19 | )
|Currency option sold to buy US$ (US$ for CAN$)                                                                     | 1.0225           |  | January 2020    | US$                           | 200 |                                              | (2  | )
|Cross currency swap (US$ for CAN$)                                                                                 | 1.329            |  | July 2023       | US$                           | 102 |                                              | (2  | )
|                                                                                                                   |                  |  |                 | (24                           | )  
|Net investment hedge                                                                                               |                  |  |                 |                               |    
|Cross currency swap (CAN$ for €)                                                                                   | 1.4263           |  | December 2018   | €                             | 95  |                                              | 1   |  
|                                                                                                                   |                  |  |                 |                              
|Forecasted sales                                                                                                   |                  |  |                 |                              
|Derivatives at fair value through profit or loss and classified in Loss on derivative financial instruments:       |                  |  |                 |                              
|Foreign exchange forward contracts to buy (US$ for CAN$)                                                           | 1.3543           |  | 0 to 12 months  | US$                           | 20  |                                              | —   |  
|Currency option instruments to sell (US$ for CAN$)                                                                 | 1.2709 to 1.2962 |  | 0 to 12 months  | US$ 48 to 92                  |     | (6                                           | )  
|Currency option instruments to sell (US$ for CAN$)                                                                 | 1.3042 to 1.3461 |  | 13 to 24 months | US$ 15 to 40                  |     | (2                                           | )  
|                                                                                                                   |                  |  |                 | (8                            | )  
|                                                                                                                   |                  |  |                 | (31                           | )  



In 2016, the Corporation
offset $12 million in derivative assets against $19 million in derivative liabilities as we intend to settle the derivatives on
a net basis with one counterparty. During the year, the Corporation also received $3 million related to the settlement of
a portion of its 2017 derivatives related to repayment of long-term debt.

|                                                                                                                   |                  |  |                 |                               |     |                                              |     |  
|------------------------------------------------------------------------------------------------------------------ | ---------------- |  | --------------- | ----------------------------- | --- | -------------------------------------------- | --- | -
|                                                                                                                   | 2015             | 
|                                                                                                                   | EXCHANGE RATE    |  | MATURITY        | NOTIONAL AMOUNT (IN MILLIONS) |     | FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS) |    
|Repayment of long-term debt                                                                                        |                  |  |                 |                              
|Derivatives at fair value through profit or loss and classified in Foreign exchange loss (gain) on long-term debt: |                  |  |                 |                              
|Foreign exchange forward contracts to buy (US$ for CAN$)                                                           | 0.9997           |  | December 2017   | US$                           | 150 |                                              | 54  |  
|Foreign exchange forward contracts to buy (US$ for CAN$)                                                           | 1.06             |  | January 2020    | US$                           | 50  |                                              | 14  |  
|Currency option sold to sell US$ (US$ for CAN$)                                                                    | 1.1167           |  | December 2017   | US$                           | 300 |                                              | (75 | )
|Currency option sold to sell US$ (US$ for CAN$)                                                                    | 1.15             |  | January 2020    | US$                           | 100 |                                              | (21 | )
|Currency option sold to buy US$ (US$ for CAN$)                                                                     | 1.0225           |  | January 2020    | US$                           | 200 |                                              | (2  | )
|Cross currency swap (€ for US$)                                                                                    | 1.05             |  | February 2016   | €                             | 80  |                                              | (4  | )
|                                                                                                                   |                  |  |                 | (34                           | )  
|Forecasted sales                                                                                                   |                  |  |                 |                              
|Derivatives designated as cash flow hedges and reclassified in Sales (effective portion):                          |                  |  |                 |                               |     |                                              |    
|Foreign exchange forward contracts to sell (GBP for €)                                                             | 1.3141           |  | 0 to 12 months  | €                             | 1   |                                              | —   |  
|Foreign exchange forward contracts to sell (€ for US$)                                                             | 1.0892           |  | 0 to 12 months  | €                             | 1   |                                              | —   |  
|                                                                                                                   |                  |  |                 | —                             |    
|Derivatives at fair value through profit or loss and classified in Loss on derivative financial instruments:       |                  |  |                 |                              
|Foreign exchange forward contracts to sell (US$ for CAN$)                                                          | 1.3882           |  | 0 to 12 months  | US$                           | 20  |                                              | —   |  
|Currency option instruments to sell (US$ for CAN$)                                                                 | 1.1434 to 1.1701 |  | 0 to 12 months  | US$ 45 to 90                  |     | (19                                          | )  
|Currency option instruments to sell (US$ for CAN$)                                                                 | 1.2675 to 1.2839 |  | 13 to 24 months | US$ 35 to 60                  |     | (6                                           | )  
|Currency option instruments to sell (US$ for CAN$)                                                                 | 1.3705 to 1.4213 |  | 25 to 36 months | US$ 5 to 20                   |     | (1                                           | )  
|                                                                                                                   |                  |  |                 | (26                           | )  
|                                                                                                                   |                  |  |                 | (60                           | )  



56







In 2015, the Corporation
offset $14 million in derivative assets against $22 million in derivative liabilities as we intend to settle the derivatives
on a net basis with one counterparty. For the same reason, the Corporation also offset $53 million of derivative liabilities against
$54 million in derivative assets with another counterparty



The fair values of
foreign exchange forward contracts and currency options are determined using the discounted value of the difference between the
value of the contract at expiry calculated using the contracted exchange rate and the exchange rate the financial institution would
use if it renegotiated the same contract under the same conditions as at the consolidated balance sheet date. The discount rates
are adjusted for the credit risk of the Corporation or of the counterparty, as applicable. When determining credit risk adjustments,
the Corporation considers master netting agreements, if applicable.



In 2016, if the Canadian
dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held constant, operating
income before depreciation for the year would have been approximately $3 million lower. This is based on the net exposure of total
US sales less US purchases of the Corporation's Canadian operations, and operating income before depreciation of the Corporation's
US operations, but excludes the effect of this change on the denominated working capital components. The interest expense would
have remained relatively stable.



In 2016, if the Canadian
dollar had strengthened by $0.02 against the euro with all other variables held constant, operating income before depreciation
for the year would have been approximately $1 million lower following the translation of operating income of the Corporation's
European operations.



CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING
FOREIGN SUBSIDIARIES

The Corporation has
certain investments in foreign operations whose net assets are exposed to foreign currency translation risk. The Corporation may
designate part of its long-term debt denominated in foreign currencies as a hedge of the net investment in self-sustaining foreign
subsidiaries. Gains or losses resulting from the translation to Canadian dollars of long-term debt denominated in foreign currencies
and designated as net investment hedges are recorded in Accumulated other comprehensive income (loss), net of related income taxes.



The table below shows
the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the euro as at
December 31, 2016 and 2015. The calculation includes the effect of currency hedges of net investment in US foreign entities and
assumes that no changes occurred other than a single currency exchange rate movement.



The exposures used
in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2016 and 2015, with the
hedging instruments being the long-term debt denominated in US dollars.



Consolidated Shareholders'
equity: Currency effect before tax of a 10% change:

|                                  |               |  |        |  |            |  |               |  |        |  |            | 
|--------------------------------- | ------------- |  | ------ |  | ---------- |  | ------------- |  | ------ |  | ---------- | 
|                                  | 2016          |  | 2015   | 
|(in millions of Canadian dollars) | BEFORE HEDGES |  | HEDGES |  | NET IMPACT |  | BEFORE HEDGES |  | HEDGES |  | NET IMPACT | 
|10% change in the CAN$/US$ rate   | 107           |  | 73     |  | 34         |  | 111           |  | 64     |  | 47         | 
|10% change in the CAN$/euro rate  | 13            |  | 13     |  | —          |  | 1             |  | —      |  | 1          | 



(ii) Price risk

The Corporation is
exposed to commodity price risk on old corrugated containers, electricity and natural gas. The Corporation uses derivative commodity
contracts to help manage its production costs. The Corporation may designate these derivatives as cash flow hedges of anticipated
purchases of raw material, natural gas and electricity. Gains or losses from these derivative financial instruments designated
as hedges are recorded in Accumulated other comprehensive income (loss) net of related income taxes, and are reclassified to earnings
as adjustments to Cost of sales in the same period, as the respective hedged item affects earnings.



57







The fair value of
these contracts is as follows:

|                                                                                                 |                 |              |                                                   |  
|------------------------------------------------------------------------------------------------ | --------------- | ------------ | ------------------------------------------------- | -
|                                                                                                 | 2016            |             
|                                                                                                 | QUANTITY        | MATURITY     | FAIR
    VALUE (IN MILLIONS OF  CANADIAN DOLLARS) |  
|Forecasted purchases                                                                             |                 |              |                                                  
|Derivatives designated as held for trading and reclassified in Cost of sales                     |                 |              |                                                  
|Electricity                                                                                      | 109,500 MWh     | 2017 to 2018 | (1                                                | )
|Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion) |                 |              |                                                  
|Natural gas:                                                                                     |                 |              |                                                  
|Canadian portfolio                                                                               | 4,658,660 GJ    | 2017 to 2021 | (4                                                | )
|US portfolio                                                                                     | 4,722,800 mmBtu | 2017 to 2021 | (1                                                | )
|                                                                                                 |                 |              | (6                                                | )



|                                                                                                 |                 |              |                                                   |  
|------------------------------------------------------------------------------------------------ | --------------- | ------------ | ------------------------------------------------- | -
|                                                                                                 | 2015            |             
|                                                                                                 | QUANTITY        | MATURITY     | FAIR
    VALUE (IN MILLIONS OF  CANADIAN DOLLARS) |  
|Forecasted purchases                                                                             |                 |              |                                                  
|Derivatives designated as held for trading and reclassified in Cost of sales                     |                 |              |                                                  
|Electricity                                                                                      | 127,284 MWh     | 2016 to 2017 | (1                                                | )
|Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion) |                 |              |                                                  
|Natural gas:                                                                                     |                 |              |                                                  
|Canadian portfolio                                                                               | 7,735,000 GJ    | 2016 to 2019 | (9                                                | )
|US portfolio                                                                                     | 4,004,100 mmBtu | 2016 to 2020 | (7                                                | )
|                                                                                                 |                 |              | (17                                               | )



In 2013, the Corporation
entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair value as at December 31,
2016 was $10 million (2015 - $11 million).



The fair value of
derivative financial instruments other than options is established utilizing a discounted future expected cash flows method. Future
expected cash flows are determined by reference to the forward price or rate prevailing on the assessment date of the underlying
financial index (exchange or interest rate or commodity price) according to the contractual terms of the instrument. Future expected
cash flows are discounted at an interest rate reflecting both the maturity of each flow and the credit risk of the party to the
contract for which it represents a liability (subject to the application of relevant credit support enhancements). The fair value
of derivative financial instruments that represent options is established utilizing similar methods that reflect the impact of
the potential volatility of the financial index underlying the option on future expected cash flows.



The table below shows
the effect of changes in the price of old corrugated containers, natural gas and electricity as at December 31, 2016 and 2015.
The calculation includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single
change in price.



The exposures used
in the calculations are the commodity consumption and the hedging level as at December 31, 2016 and 2015, with the hedging instruments
being derivative commodity contracts.



Consolidated commodity
consumption: Price change effect before tax:

|                                           |               |  |        |  |            |  |               |  |        |  |            | 
|------------------------------------------ | ------------- |  | ------ |  | ---------- |  | ------------- |  | ------ |  | ---------- | 
|                                           | 2016          |  | 2015   | 
|(in millions of Canadian dollars1)         | BEFORE HEDGES |  | HEDGES |  | NET IMPACT |  | BEFORE HEDGES |  | HEDGES |  | NET IMPACT | 
|US$15/s.t. change in recycled paper price  | 32            |  | —      |  | 32         |  | 33            |  | —      |  | 33         | 
|US$30/s.t. change in commercial pulp price | 6             |  | —      |  | 6          |  | 7             |  | —      |  | 7          | 
|US$1/mmBTU. change in natural gas price    | 12            |  | 6      |  | 6          |  | 12            |  | 6      |  | 6          | 
|US$1/MWh change in electricity price       | 2             |  | —      |  | 2          |  | 2             |  | —      |  | 2          | 



| | 1 | Sensitivity
calculated with an exchange rate of 1.33 CAN$/US$ for 2016 and 1.38 CAN$/US$ for 2015.
| | - | --------------------------------------------------------------------------------------------------



58







(iii) Interest
rate risk

The Corporation has
no significant interest-bearing assets.



The Corporation's
interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Corporation to cash flow interest
rate risk. Borrowings issued at fixed rates expose the Corporation to fair value interest rate risk.



When appropriate,
the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration refinancing,
renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the impact
on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The
scenarios are run only for liabilities that represent the major interest-bearing positions. As at December 31, 2016, approximately
9% (2015 - 16%) of the Corporation's long-term debt was at variable rates.



Based on the outstanding
long-term debt as at December 31, 2016 the impact on interest expense of a 1% change in rate would be approximately $1 million
(impact on net earnings is approximately $1 million).



The Corporation holds
interest rate swaps through RdM. These swaps are contracted to fix the interest rate on a notional amount of €38 million
and are maturing from 2020 to 2023. Fair value of these agreements is nil as at December 31, 2016 (December 31, 2015 - nil). In
2015, the Corporation also had swaps for its North American operations (liability of $1 million).



| | (iv) | Loss
(gain) on derivative financial instruments is as follows:
| | ---- | --------------------------------------------------------------



|                                                           |      |   |      | 
|---------------------------------------------------------- | ---- | - | ---- | 
|(in millions of Canadian dollars)                          | 2016 |   | 2015 | 
|Unrealized loss (gain) on derivative financial instruments | (18  | ) | 18   | 
|Realized loss on derivative financial instruments          | 12   |   | 10   | 
|                                                           | (6   | ) | 28   | 



| | B. | CREDIT
RISK
| | -- | -----------



Credit risk arises
from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions. The Corporation
reduces this risk by dealing with credit worthy financial institutions.



The Corporation is
exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Corporation's credit policies
include the analysis of the financial position of its customers and the regular review of their credit limits. In addition, the
Corporation believes there is no particular concentration of credit risk due to the geographic diversity of customers and the procedures
for the management of commercial risks. Derivative financial instruments include an element of credit risk should the counterparty
be unable to meet its obligations.



59







Trade receivables
are recognized initially at fair value and are subsequently measured at amortized cost using the effective interest method, less
provision for doubtful accounts. An allowance for doubtful accounts of trade receivables is established when there is objective
evidence that the Corporation will not be able to collect all amounts due according to the original terms of the receivables. Significant
financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default
or delinquency in payments are considered indicators that the trade receivable is impaired. Each trade receivable balance is evaluated
separately to identify impairment. The amount of the allowance for doubtful accounts is the difference between the asset's carrying
amount and the present value of estimated cash flows. The carrying amount of the asset is reduced through the use of an allowance
account, and the amount of the loss is recorded in the consolidated statement of earnings in Selling and administrative expenses.
When a trade receivable is not collectable, it is written off against the Provision for doubtful accounts. Subsequent recoveries
of amounts previously written off are credited against Selling and administrative expenses in the consolidated statement of earnings.



Loans and notes receivables
from business disposals are recognized at fair value. There is no past due amount as at December 31, 2016.



| | C. | LIQUIDITY
RISK
| | -- | --------------



Liquidity risk is
the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual maturities
of financial liabilities as at December 31, 2016 and 2015:

|                                                |                  |  |                         |  |                     |  |                            |  |                             |  |                       | 
|----------------------------------------------- | ---------------- |  | ----------------------- |  | ------------------- |  | -------------------------- |  | --------------------------- |  | --------------------- | 
|                                                | 2016             | 
|(in millions of Canadian dollars)               | CARRYING 
AMOUNT |  | CONTRACTUAL 
CASH FLOWS |  | LESS THAN ONE 
YEAR |  | BETWEEN ONE 
AND TWO YEARS |  | BETWEEN TWO 
AND FIVE YEARS |  | MORE THAN FIVE 
YEARS | 
|Non-derivative financial liabilities:           |                  |  |                         |  |                     | 
|Bank loans and advances                         | 28               |  | 28                      |  | 28                  |  | —                          |  | —                           |  | —                     | 
|Trade and other payables                        | 661              |  | 661                     |  | 661                 |  | —                          |  | —                           |  | —                     | 
|Revolving credit facility                       | 90               |  | 95                      |  | 2                   |  | 2                          |  | 91                          |  | —                     | 
|Unsecured senior notes                          | 1,324            |  | 1,735                   |  | 74                  |  | 74                         |  | 464                         |  | 1,123                 | 
|Other debts of subsidiaries                     | 62               |  | 71                      |  | 14                  |  | 13                         |  | 25                          |  | 19                    | 
|Other debts without recourse to the Corporation | 105              |  | 110                     |  | 28                  |  | 24                         |  | 44                          |  | 14                    | 
|Derivative financial liabilities                | 39               |  | 39                      |  | 23                  |  | 5                          |  | 9                           |  | 2                     | 
|                                                | 2,309            |  | 2,739                   |  | 830                 |  | 118                        |  | 633                         |  | 1,158                 | 
|                                                |                  |  |                         |  |                     |  |                            |  |                             |  |                       | 
|                                                | 2015             | 
|(in millions of Canadian dollars)               | CARRYING 
AMOUNT |  | CONTRACTUAL 
CASH FLOWS |  | LESS THAN ONE 
YEAR |  | BETWEEN ONE 
AND TWO YEARS |  | BETWEEN TWO 
AND FIVE YEARS |  | MORE THAN FIVE 
YEARS | 
|Non-derivative financial liabilities:           |                  |  |                         |  |                     | 
|Bank loans and advances                         | 37               |  | 37                      |  | 37                  |  | —                          |  | —                           |  | —                     | 
|Trade and other payables                        | 613              |  | 613                     |  | 613                 |  | —                          |  | —                           |  | —                     | 
|Revolving credit facility                       | 238              |  | 271                     |  | 10                  |  | 10                         |  | 251                         |  | —                     | 
|Unsecured senior notes                          | 1,357            |  | 1,854                   |  | 76                  |  | 76                         |  | 226                         |  | 1,476                 | 
|Other debts of subsidiaries                     | 61               |  | 67                      |  | 12                  |  | 10                         |  | 22                          |  | 23                    | 
|Other debts without recourse to the Corporation | 106              |  | 106                     |  | 25                  |  | 24                         |  | 46                          |  | 11                    | 
|Derivative financial liabilities                | 79               |  | 79                      |  | 32                  |  | 35                         |  | 12                          |  | —                     | 
|                                                | 2,491            |  | 3,027                   |  | 805                 |  | 155                        |  | 557                         |  | 1,510                 | 



As at December 31,
2016, the Corporation had unused credit facilities of $768 million (December 31, 2015 - $621 million), net of outstanding letters
of credit of $26 million (December 31, 2015 - $26 million).



60







| | D. | OTHER
RISK
| | -- | ----------



FACTORING OF ACCOUNTS
RECEIVABLE

The Corporation sells
its accounts receivable from one of its European subsidiaries through a factoring contract with a financial institution. The Corporation
uses factoring of receivables as a source of financing by reducing its working capital requirements. When the receivables are sold,
the Corporation removes them from the balance sheet, recognizes the amount received as the consideration for the transfer and records
a loss on factoring which is included in Financing expense. As at December 31, 2016, the off-balance sheet impact of the factoring
of receivables amounted to $31 million (€22 million). The Corporation expects to continue to sell receivables on an ongoing
basis. Should it decide to discontinue this contract, its working capital and bank debt requirements would increase.



NOTE 28

COMMITMENTS



| | a. | The
Corporation leases various properties, vehicles, equipment and others under non-cancellable operating lease agreements.
| | -- | ---------------------------------------------------------------------------------------------------------------------------



Future minimum payments
under operating leases are as follows:

|                                                 |      |  |      | 
|------------------------------------------------ | ---- |  | ---- | 
|(in millions of Canadian dollars)                | 2016 |  | 2015 | 
|No later than one year                           | 23   |  | 24   | 
|Later than one year but no later than five years | 33   |  | 39   | 
|More than five years                             | 9    |  | 11   | 



| | b. | Capital
and raw material commitments
| | -- | ------------------------------------



Capital expenditures
and raw material contracted at the end of the reporting date but not yet incurred are as follows:

|                                                 |      |                                |  |                    |  |              |  |                                 |  |                    |  |              | 
|------------------------------------------------ | ---- | ------------------------------ |  | ------------------ |  | ------------ |  | ------------------------------- |  | ------------------ |  | ------------ | 
|                                                 |      | 2016                           |  | 2015               | 
|(in millions of Canadian dollars)                | NOTE | PROPERTY, PLANT 
AND EQUIPMENT |  | INTANGIBLE 
ASSETS |  | RAW MATERIAL |  | PROPERTY, 
PLANT AND 
EQUIPMENT |  | INTANGIBLE 
ASSETS |  | RAW MATERIAL | 
|No later than one year                           | 29   | 36                             |  | 2                  |  | 73           |  | 24                              |  | 2                  |  | 75           | 
|Later than one year but no later than five years | 29   | —                              |  | 3                  |  | 258          |  | 1                               |  | 4                  |  | 301          | 
|More than five years                             | 29   | —                              |  | 1                  |  | —            |  | —                               |  | 1                  |  | 38           | 
|                                                 |      | 36                             |  | 6                  |  | 331          |  | 25                              |  | 7                  |  | 414          | 



61







NOTE 29

RELATED PARTY TRANSACTIONS



The Corporation entered
into the following transactions with related parties:

|                                  |                |  |            | 
|--------------------------------- | -------------- |  | ---------- | 
|(in millions of Canadian dollars) | JOINT VENTURES |  | ASSOCIATES | 
|2016                              |                | 
|Sales to related parties          | 151            |  | 89         | 
|Purchases from related parties    | 14             |  | 168        | 
|2015                              |                | 
|Sales to related parties          | 112            |  | 77         | 
|Purchases from related parties    | 21             |  | 175        | 



These transactions
occurred in the normal course of operations and are measured at fair value.



In addition to related
party balance presented in note 12, the following balances were outstanding at the end of the reporting period:

|                                  |                   |  |                   | 
|--------------------------------- | ----------------- |  | ----------------- | 
|(in millions of Canadian dollars) | December 31, 2016 |  | December 31, 2015 | 
|Receivables from related parties  |                   | 
|Joint ventures                    | 18                |  | 17                | 
|Associates                        | 21                |  | 13                | 
|Payables to related parties       |                   | 
|Joint ventures                    | 2                 |  | 9                 | 
|Associates                        | 42                |  | 22                | 



The receivables from
related parties arise mainly from sale transactions. The receivables are unsecured in nature and bear no interest. There are no
provision held against receivables from related parties. The payables to related parties arise mainly from purchase transactions.
The payables bear no interest.



Starting in June
2013, the Corporation entered into a take-or-pay agreement with its associate Greenpac. For a period of eight years, the Corporation
has the obligation to purchase a minimum quantity of 340,000 short tons per year from Greenpac. If the Corporation fails to purchase
the minimum quantity, it must compensate Greenpac for the lost gross margin on those short tons. Included in commitments in Note 28
is the minimum amount to be paid to Greenpac, which corresponds to the potential lost gross margin on 340,000 tons.



62