EXHIBIT
13.2


MANAGEMENT’s
REPORT


TO
THE SHAREHOLDERS OF CASCADES INC


March 10,
2016


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, 2015 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, 2015.








/s/
      Mario Plourde
      MARIO
      PLOURDE
    
    /s/
      Allan Hogg
      ALLAN
      HOGGPRESIDENT
      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
10, 2016





We
have audited the accompanying consolidated financial statements of Cascades Inc.
and its subsidiaries, which comprise the consolidated balance sheets as at
December 31, 2015 and 2014 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, 2015 and 2014 and their financial performance and their cash
flows for the years then ended in accordance with International Financial
Reporting Standards.











/s/
PricewaterhouseCoopers LLP 1 Chartered
Professional Accountants - Montréal, Canada


|  |                                                               
|- | --------------------------------------------------------------
|1 | FCPA
      auditor, FCA, public accountancy permit No. A108517




2


---




CONSOLIDATED
BALANCE SHEETS





(in
      millions of Canadian dollars)
    NOTE
    December
      31, 2015
    
    December
      31, 2014AssetsCurrent
      assetsCash
      and cash equivalents
    
    60
    
    29Accounts
      receivable
    6
      and 14
    540
    
    453Current
      income tax assets
    
    30
    
    13Inventories
    7
      and 14
    494
    
    462Financial
      assets
    26
    1
    
    1Assets
      of disposal group classified as held for sale
    5
    —
    
    721,125
    
    1,030Long-term
      assetsInvestments
      in associates and joint ventures
    8
    322
    
    259Property,
      plant and equipment
    9
      and 14
    1,608
    
    1,573Intangible
      assets with finite useful life
    10
    174
    
    183Financial
      assets
    26
    12
    
    25Other
      assets
    11
    80
    
    83Deferred
      income tax assets
    17
    181
    
    185Goodwill
      and other intangible assets with indefinite useful life
    10
    346
    
    3353,848
    
    3,673Liabilities
      and EquityCurrent
      liabilitiesBank
      loans and advances
    
    37
    
    46Trade
      and other payables
    12
    613
    
    557Current
      income tax liabilities
    
    1
    
    5Current
      portion of long-term debt
    14
    34
    
    40Current
      portion of provisions for contingencies and charges
    13
    5
    
    11Current
      portion of financial liabilities and other liabilities
    15
      and 26
    37
    
    16Liabilities
      of disposal group classified as held for sale
    5
    —
    
    32727
    
    707Long-term
      liabilitiesLong-term
      debt
    14
    1,710
    
    1,556Provisions
      for contingencies and charges
    13
    34
    
    33Financial
      liabilities
    26
    47
    
    45Other
      liabilities
    15
    178
    
    191Deferred
      income tax liabilities
    17
    189
    
    1382,885
    
    2,670Equity
      attributable to ShareholdersCapital
      stock
    18
    490
    
    483Contributed
      surplus
    19
    17
    
    18Retained
      earnings
    
    387
    
    454Accumulated
      other comprehensive loss
    20
    (27
    )
    (62
    )867
    
    893Non-controlling
      interest
    
    96
    
    110Total
      equity
    
    963
    
    1,0033,848
    
    3,673


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


Approved
by the Board of Directors


/s/
      Alain Lemaire
    /s/
      Georges KobrynskyAlain
      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
    2015
    
    2014Sales
    
    3,861
    
    3,561Cost
      of sales and expensesCost
      of sales (including depreciation and amortization of $190 million; 2014 —
      $174 million)
    21
    3,261
    
    3,063Selling
      and administrative expenses
    21
    360
    
    334Gain
      on acquisitions, disposals and others
    23
    (1
    )
    —Impairment
      charges and restructuring costs
    24
    66
    
    23Foreign
      exchange gain
    
    (6
    )
    (2
    )Loss
      on derivative financial instruments
    26
    28
    
    63,708
    
    3,424Operating
      income
    
    153
    
    137Financing
      expense
    25
    91
    
    101Interest
      expense on employee future benefits
    25
    6
    
    6Loss
      on refinancing of long-term debt
    14
    19
    
    44Foreign
      exchange loss on long-term debt and financial instruments
    
    91
    
    30Share
      of results of associates and joint ventures
    8
    (37
    )
    —Loss
      before income taxes
    
    (17
    )
    (44
    )Provision
      for income taxes
    17
    40
    
    16Net
      loss from continuing operations including non-controlling interest for the
      year
    
    (57
    )
    (60
    )Net
      earnings (loss) from discontinued operations
    5
    1
    
    (83
    )Net
      loss including non-controlling interest for the year
    
    (56
    )
    (143
    )Net
      earnings attributable to non-controlling interest
    
    9
    
    4Net
      loss attributable to Shareholders for the year
    
    (65
    )
    (147
    )Net
      loss from continuing operations per common shareBasic
      and diluted
    
    $
    (0.70
    )
    $
    (0.68
    )Net
      loss per common shareBasic
      and diluted
    
    $
    (0.69
    )
    $
    (1.57
    )Weighted
      average basic and diluted number of common shares
    outstanding
    
    94,384,308
    
    94,025,600Net
      loss attributable to Shareholders:Continuing
      operations
    
    (66
    )
    (64
    )Discontinued
      operations
    5
    1
    
    (83
    )Net
      loss
    
    (65
    )
    (147
    )


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
    2015
    
    2014Net
      loss including non-controlling interest for the year
    
    (56
    )
    (143
    )Other
      comprehensive income (loss)Items
      that may be reclassified subsequently to earningsTranslation
      adjustments
    20Change
      in foreign currency translation of foreign subsidiaries
    
    118
    
    37Change
      in foreign currency translation related to net investment hedging
      activities
    
    (101
    )
    (44
    )Income
      taxes
    
    13
    
    6Cash
      flow hedges
    20Change
      in fair value of foreign exchange forward contracts
    
    2
    
    3Change
      in fair value of interest rate swaps
    
    12
    
    (13
    )Change
      in fair value of commodity derivative financial
instruments
    
    1
    
    (1
    )Income
      taxes
    
    (5
    )
    5Available-for-sale
      financial assets
    
    2
    
    —42
    
    (7
    )Items
      that are reclassified to retained earningsActuarial
      gain (loss) on post-employment benefit obligations
    16
    25
    
    (39
    )Income
      taxes
    17
    (7
    )
    1118
    
    (28
    )Other
      comprehensive income (loss)
    
    60
    
    (35
    )Comprehensive
      loss including non-controlling interest for the year
    
    4
    
    (178
    )Comprehensive
      income (loss) attributable to non-controlling interest for the
      year
    
    16
    
    (3
    )Comprehensive
      loss attributable to Shareholders for the year
    
    (12
    )
    (175
    )Comprehensive
      income (loss) attributable to Shareholders:Continuing
      operations
    
    (13
    )
    (84
    )Discontinued
      operations
    
    1
    
    (91
    )Comprehensive
      loss
    
    (12
    )
    (175
    )


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





5


---




CONSOLIDATED
STATEMENTS OF EQUITY





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
      INTEREST
    
    TOTAL
      EQUITYBalance
      - Beginning of year
    483
    
    18
    
    454
    
    (62
    )
    893
    
    110
    
    1,003Comprehensive
      income (loss)Net
      earnings (loss)
    —
    
    —
    
    (65
    )
    —
    
    (65
    )
    9
    
    (56
    )Other
      comprehensive income
    —
    
    —
    
    18
    
    35
    
    53
    
    7
    
    60—
    
    —
    
    (47
    )
    35
    
    (12
    )
    16
    
    4Dividends
    —
    
    —
    
    (15
    )
    —
    
    (15
    )
    —
    
    (15
    )Stock
      options
    2
    
    (1
    )
    —
    
    —
    
    1
    
    —
    
    1Issuance
      of common shares
    5
    
    —
    
    —
    
    —
    
    5
    
    —
    
    5Acquisition
      of non-controlling interest
    —
    
    —
    
    (5
    )
    —
    
    (5
    )
    (30
    )
    (35
    )Balance
      - End of year
    490
    
    17
    
    387
    
    (27
    )
    867
    
    96
    
    963For
      the year ended December 31, 2014(in
      millions of Canadian dollars)
    CAPITAL
      STOCK
    
    CONTRIBUTED
      SURPLUS
    
    RETAINED
      EARNINGS
    
    ACCUMULATED
      OTHER COMPREHENSIVE LOSS
    
    TOTAL
      EQUITY ATTRIBUTABLE TO SHAREHOLDERS
    
    NON-CONTROLLING
      INTEREST
    
    TOTAL
      EQUITYBalance
      - Beginning of year
    482
    
    17
    
    642
    
    (60
    )
    1,081
    
    113
    
    1,194Comprehensive
      lossNet
      earnings (loss)
    —
    
    —
    
    (147
    )
    —
    
    (147
    )
    4
    
    (143
    )Other
      comprehensive loss
    —
    
    —
    
    (26
    )
    (2
    )
    (28
    )
    (7
    )
    (35
    )—
    
    —
    
    (173
    )
    (2
    )
    (175
    )
    (3
    )
    (178
    )Dividends
    —
    
    —
    
    (15
    )
    —
    
    (15
    )
    —
    
    (15
    )Stock
      options
    —
    
    1
    
    —
    
    —
    
    1
    
    —
    
    1Issuance
      of common shares
    1
    
    —
    
    —
    
    —
    
    1
    
    —
    
    1Balance
      - End of year
    483
    
    18
    
    454
    
    (62
    )
    893
    
    110
    
    1,003


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
    
    2015
    
    2014Operating
      activities from continuing operationsNet
      loss attributable to Shareholders for the year
    
    
    (65
    )
    (147
    )Net
      loss (earnings) from discontinued operations
    
    
    (1
    )
    83Net
      loss from continuing operations
    
    
    (66
    )
    (64
    )Adjustments
      for:Financing
      expense and interest expense on employee future benefits
    25
    
    97
    
    107Loss
      on refinancing of long-term debt
    
    
    19
    
    44Depreciation
      and amortization
    
    
    190
    
    174Gain
      on acquisitions, disposals and others
    23
    
    (1
    )
    —Impairment
      charges and restructuring costs
    24
    
    64
    
    21Unrealized
      loss on derivative financial instruments
    
    
    18
    
    6Foreign
      exchange loss on long-term debt and financial instruments
    
    
    91
    
    30Provision
      for income taxes
    17
    
    40
    
    16Share
      of results of associates and joint ventures
    8
    
    (37
    )
    —Net
      earnings attributable to non-controlling interest
    
    
    9
    
    4Net
      financing expense paid
    
    
    (89
    )
    (73
    )Premium
      paid on long-term debt refinancing
    14
    
    (13
    )
    (31
    )Net
      income taxes received (paid)
    
    
    (14
    )
    14Dividend
      received
    8
    
    17
    
    15Employee
      future benefits and others
    
    
    (3
    )
    (19
    )322
    
    244Changes
      in non-cash working capital components
    25
    
    (38
    )
    (13
    )284
    
    231Investing
      activities from continuing operationsInvestments
      in associates and joint ventures
    
    
    (2
    )
    —Payments
      for property, plant and equipment
    
    
    (163
    )
    (178
    )Proceeds
      on disposals of property, plant and equipment
    
    
    4
    
    7Change
      in intangible and other assets
    
    
    8
    
    (2
    )(153
    )
    (173
    )Financing
      activities from continuing operationsBank
      loans and advances
    
    
    (14
    )
    (3
    )Change
      in revolving credit facilities
    
    
    (120
    )
    (154
    )Issuance
      of senior notes, net of related expenses
    14
    
    300
    
    833Repayment
      of senior notes
    14
    
    (305
    )
    (740
    )Increase
      in other long-term debt
    
    
    73
    
    23Payments
      of other long-term debt
    
    
    (48
    )
    (50
    )Issuance
      of common shares
    18
    
    5
    
    1Acquisition
      of non-controlling interest
    
    
    (5
    )
    —Dividends
      paid to the Corporation's Shareholders
    18
    
    (15
    )
    (15
    )(129
    )
    (105
    )Change
      in cash and cash equivalents during the year from continuing
      operations
    
    
    2
    
    (47
    )Change
      in cash and cash equivalents during the year from discontinued
      operations
    5
    
    30
    
    54Net
      change in cash and cash equivalents during the year
    
    
    32
    
    7Currency
      translation on cash and cash equivalents
    
    
    (1
    )
    (1
    )Cash
      and cash equivalents - Beginning of year
    
    
    29
    
    23Cash
      and cash equivalents - End of year
    
    
    60
    
    29


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.





SALESFor
      the years ended December 31 (in millions of Canadian
    dollars)
    2015
    
    2014Packaging
      ProductsContainerboard
    1,301
    
    1,181Boxboard
      Europe
    825
    
    841Specialty
      Products
    579
    
    568Intersegment
      sales
    (55
    )
    (49
    )2,650
    
    2,541Tissue
      Papers
    1,236
    
    1,054Intersegment
      sales and others
    (25
    )
    (34
    )3,861
    
    3,561





OPERATING
      INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION
    (OIBD)For
      the years ended December 31 (in millions of Canadian
    dollars)
    2015
    
    2014Packaging
      ProductsContainerboard
    233
    
    164Boxboard
      Europe
    6
    
    64Specialty
      Products
    52
    
    26291
    
    254Tissue
      Papers
    119
    
    95Corporate
    (67
    )
    (38
    )Operating
      income before depreciation and amortization
    343
    
    311Depreciation
      and amortization
    (190
    )
    (174
    )Financing
      expense and interest expense on employee future benefits
    (97
    )
    (107
    )Loss
      on refinancing of long-term debt
    (19
    )
    (44
    )Foreign
      exchange loss on long-term debt and financial instruments
    (91
    )
    (30
    )Share
      of results of associates and joint ventures
    37
    
    —Loss
      before income taxes
    (17
    )
    (44
    )





8


---




PAYMENTS
      FOR PROPERTY, PLANT AND EQUIPMENTFor
      the years ended December 31 (in millions of Canadian
    dollars)
    2015
    
    2014Packaging
      ProductsContainerboard
    64
    
    32Boxboard
      Europe
    23
    
    33Specialty
      Products
    14
    
    18101
    
    83Tissue
      Papers
    57
    
    88Corporate
    7
    
    8Total
      acquisitions
    165
    
    179Proceeds
      on disposals of property, plant and equipment
    (4
    )
    (7
    )Capital-lease
      acquisitions and included in other debts
    (3
    )
    (14
    )158
    
    158Acquisitions
      of property, plant and equipment included in ''Trade and other
      payables''Beginning
      of year
    20
    
    33End
      of year
    (19
    )
    (20
    )Payments
      for property, plant and equipment net of proceeds on
    disposals
    159
    
    171





TOTAL
      ASSETS(in
      millions of Canadian dollars)
    December
      31, 2015
    
    December
      31, 2014Packaging
      ProductsContainerboard
    1,277
    
    1,250Boxboard
      Europe
    620
    
    637Specialty
      Products
    330
    
    3552,227
    
    2,242Tissue
      Papers
    940
    
    834Corporate
    381
    
    414Intersegment
      eliminations
    (29
    )
    (83
    )3,519
    
    3,407Investments
      in associates and joint ventures
    322
    
    259Other
      investments
    7
    
    73,848
    
    3,673


9


---




Information
by geographic segment is as follows:


For
      the years ended December 31 (in millions of Canadian
    dollars)
    2015
    
    2014SalesOperations
      located in CanadaWithin
      Canada
    1,376
    
    1,249To
      the United States
    542
    
    509Offshore
    21
    
    241,939
    
    1,782Operations
      located in the United StatesWithin
      the United States
    976
    
    839To
      Canada
    62
    
    50Offshore
    6
    
    11,044
    
    890Operations
      located in ItalyWithin
      Italy
    232
    
    240Other
      countries
    151
    
    146383
    
    386Operations
      located in other countriesWithin
      Europe
    376
    
    378Other
      countries
    119
    
    125495
    
    5033,861
    
    3,561





(in
      millions of Canadian dollars)
    December
      31, 2015
    
    December
      31, 2014Property,
      plant and equipmentCanada
    838
    
    845United
      States
    464
    
    387Italy
    284
    
    282Other
      countries
    22
    
    591,608
    
    1,573





(in
      millions of Canadian dollars)
    December
      31, 2015
    
    December
      31, 2014Goodwill,
      customer relationships and client lists, and other finite and indefinite
      useful life intangible assetsCanada
    447
    
    457United
      States
    64
    
    54Italy
    9
    
    7520
    
    518




















10


---




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
each of the years in the two-year period ended December 31, 2015


(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
10, 2016 .








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 International Financial Accounting Standards
(“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 power over 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 interest.
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 (%)
    JURISDICTIONCascades
      Canada ULC
    100
    CanadaCascades
      Recovery Inc.
    100
    CanadaCascades
      USA Inc.
    100
    DelawareCascades
      S.A.S. (France)
    100
    FranceCascades
      Europe  S.A.S.
    100
    FranceReno
      de Medici S.p.A.
    57.61
    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 interest 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 has no HTM financial assets as at December 31, 2015 and 2014 .





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, the Greenpac bridge loan 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. | 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.





|   |                           
|-- | --------------------------
|B. | 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.





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
materials 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
materials 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.





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 20 and 33 years


Machinery
and equipment        Between 7 and 20 years


Automotive
equipment        Between 5 and 10 years


Other
property, plant and equipment    Between 3 and 10 years

















14


---




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 30 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 determined using the fair value less cost of
disposal (FVLCD). 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 and other intangible assets with an indefinite
useful life are 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 the 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, 2015 , 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 the 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, 2015 , 17 % of
the plans were evaluated on December 31, 2014 ( 100 % in 2013 ).





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





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.





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.











18


---




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, and therefore the Corporation will apply these
amendments in the first quarter of 2016. The Corporation does not expect any
significant impact on its consolidated financial statements disclosures as a
result of adopting these amendments.





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 materials 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 24)





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 considered 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


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 the power over relevant activities of Greenpac and its
participation is accounted for as an associate.








NOTE
5


DISCONTINUED
OPERATIONS AND DISPOSALS





CONSOLIDATED
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS


(in
      millions of Canadian dollars)
    2015
    
    2014Condensed
      net earnings (loss) from discontinued operations
    1
    
    (83
    )Condensed
      net earnings (loss) from discontinued operations per common
      shareBasic
      and diluted
    $
    0.01
    
    $
    (0.89
    )





CONSOLIDATED
CASH FLOW FROM DISCONTINUED OPERATIONS (in
      millions of Canadian dollars)
    2015
    
    2014Consolidated
      cash flow from discontinued operationsCash
      flow from (used for):Operating
      activities
    (14
    )
    19Investing
      activities
    45
    
    35Financing
      activities
    (1
    )
    —30
    
    54


20


---




Containerboard
Group


On
December 11, 2014, the Containerboard 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 before related income tax of $1
million in 2015.





The
Containerboard 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.





Following
the announcement, impairment charges of $ 2 million on intangible assets, $ 23 million on property, plant and equipment and $ 6 million
on spare parts were recorded in 2014.





In
the third quarter of 2014, the Containerboard Group sold a building in
connection with a closed plant and recorded a gain of $1 million. Also during
the third quarter, in connection with our boxboard plants sold in 2011, we
recorded a loss of $2 million related to an onerous lease contract following the
bankruptcy of Fusion Paperboard.





In
the second quarter of 2014, the Containerboard Group reviewed the recoverable
value of one boxboard mill and recorded impairment charges of $ 12 million on property, plant and equipment and $ 5 million on spare parts. In the same quarter, we also recorded impairment charges
of $ 16 million on notes receivable related to the 2011 disposal of our U.S. boxboard
activities.





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


BUSINESS
      SEGMENT
    CONTAINERBOARD
      GROUPNorth
      American Boxboard Activities(in
      millions of Canadian dollars)Accounts
      receivable
    27Inventories
    27Property,
      plant and equipment
    19Other
      assets
    3Total
      assets
    76Trade
      and other payables
    28Other
      liabilities
    6Total
      liabilities
    3442Loss
      on disposal before tax
    (4
    )Selling
      price adjustment liability as at December 31, 2015
    2Total
      consideration received
    40





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


(in
      millions of Canadian dollars)
    2015
    
    2014Results
      of the discontinued operations of North American boxboard
      activitiesSales,
      net of intercompany transactions
    24
    
    226Cost
      of sales and expenses (excluding depreciation and amortization), net of
      intercompany transactions
    22
    
    207Depreciation
      and amortization
    —
    
    6Selling
      and administrative expenses
    3
    
    11Loss
      on acquisitions, disposals and others
    4
    
    1Impairment
      charges and restructuring costs (gain)
    (4
    )
    64Foreign
      exchange gain
    (1
    )
    (1
    )Operating
      loss
    —
    
    (62
    )Recovery
      of income tax
    —
    
    (18
    )Net
      loss from discontinued operations
    —
    
    (44
    )





21


---




(in
      millions of Canadian dollars)
    2015
    
    2014Net
      cash flow of discontinued operations of North American boxboard
      activitiesCash
      flow from :Operating
      activities
    —
    
    9Investing
      activities
    40
    
    —40
    
    9





Boxboard
Europe Group


On
June 15, 2014, following the announcement made in 2013, we definitively ceased
the operation of our virgin boxboard mill located in Sweden. Following the
closure, we recorded an impairment charge of $ 4 million on spare parts and severances of $ 7 million. An environmental  provision of $ 1 million was recorded as well.





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


(in
      millions of Canadian dollars)
    2015
    
    2014Results
      of the discontinued operations of Swedish virgin boxboard
      activitiesSales,
      net of intercompany transactions
    —
    
    32Cost
      of sales and expenses (excluding depreciation and amortization), net of
      intercompany transactions
    —
    
    32Selling
      and administrative expenses
    —
    
    2Impairment
      charges and restructuring costs
    —
    
    12Net
      loss from discontinued operations
    —
    
    (14
    )





(in
      millions of Canadian dollars)
    2015
    
    2014Net
      cash flow of the discontinued operations of Swedish virgin boxboard
      activitiesCash
      flow from (used for):Operating
      activities
    (4
    )
    3Investing
      activities
    1
    
    —(3
    )
    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, for a cash
consideration of $39 million, before transaction fees of $1 million and working
capital selling price adjustment of $2 million. A loss on disposal of $43
million was recorded in 2014.





Assets
and liabilities of the fine papers activities at the time of disposal were as
follows:


BUSINESS
      SEGMENT
    SPECIALTY
      PRODUCTS GROUPFine
      Papers Activities(in
      millions of Canadian dollars)Accounts
      receivables
    26Inventories
    33Property,
      plant and equipment
    62Other
      assets
    9130Trade
      and other payables
    30Provisions
      for contingencies and charges
    1Other
      liabilities
    235476Loss
      on disposal before tax and transaction fees
    (42
    )Transaction
      fees
    (1
    )Non-cash
      provision for working capital adjustment
    3Total
      consideration received
    36


22


---




The
Corporation finalized the working capital selling price adjustment related to
this transaction and recorded a $1 million gain in the second quarter of 2015 by
reducing its final selling price adjustment provision to $2 million, which was
paid during the third quarter. 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. The
closure was announced on July 9, 2014, and an impairment charge of $2 million on
spare parts and restructuring costs of $4 million were recorded in the second
quarter. At the same time, a curtailment gain of $9 million was recorded on the
pension plan. In the fourth quarter, we recorded $1 million of closure costs for
the mill. 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)
    2015
    
    2014Results
      of the discontinued operations of specialty papers sectorSales,
      net of intercompany transactions
    —
    
    148Cost
      of sales and expenses (excluding depreciation and amortization), net of
      intercompany transactions
    —
    
    128Depreciation
      and amortization
    —
    
    3Selling
      and administrative expenses
    2
    
    9Loss
      (gain) on acquisitions, disposals and others
    (1
    )
    43Impairment
      charges (reversal) and restructuring costs (gain)
    (1
    )
    (2
    )Operating
      loss
    —
    
    (33
    )Interest
      expense on employee future benefits
    —
    
    1Recovery
      of income tax
    (1
    )
    (9
    )Net
      earnings (loss) from discontinued operations
    1
    
    (25
    )





(in
      millions of Canadian dollars)
    2015
    
    2014Net
      cash flow of discontinued operations of specialty papers
      sectorCash
      flow from (used for):Operating
      activities
    (10
    )
    7Investing
      activities
    4
    
    35Financing
      activities
    (1
    )
    —(7
    )
    42








23


---




NOTE
6


ACCOUNTS
RECEIVABLE


(in
      millions of Canadian dollars)
    NOTE
    2015
    
    2014Accounts
      receivable - Trade
    
    494
    
    415Receivables
      from related parties
    28
    30
    
    20Less:
      provision for doubtful accounts
    
    (12
    )
    (12
    )Trade
      receivables - net
    
    512
    
    423Provisions
      for volume rebates
    
    (35
    )
    (31
    )Other
    
    63
    
    61540
    
    453





As
of December 31, 2015 ,
trade receivables of $ 164 million
(December 31, 2014 -
$ 99 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)
    2015
    
    2014Past
      due 1-30 days
    114
    
    72Past
      due 31-60 days
    27
    
    14Past
      due 61-90 days
    13
    
    9Past
      due 91 days and over
    10
    
    4164
    
    99





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


(in
      millions of Canadian dollars)
    2015
    
    2014Balance
      at beginning of year
    12
    
    13Provision
      for doubtful accounts, net of unused beginning balance
    4
    
    4Receivables
      written off during the year as uncollectable
    (4
    )
    (4
    )Business
      disposals
    —
    
    (1
    )Balance
      at end of year
    12
    
    12





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





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








NOTE
7


INVENTORIES


(in
      millions of Canadian dollars)
    2015
    
    2014Finished
      goods
    230
    
    218Raw
      materials
    113
    
    99Supplies
      and spare parts
    151
    
    145494
    
    462





As
at December 31, 2015 ,
finished goods, raw materials and supplies and spare parts were adjusted to net
realizable value ("NRV") by $ 7 million, nil and nil ,
respectively (December 31, 2014 -
$ 7 million,
nil, $ 1 million).
As at December 31, 2015 ,
the carrying amount of inventory carried at net realizable value consisted of
$ 15 million
in finished goods inventory, nil in raw materials inventory and nil in supplies and spare parts (December 31, 2014 -
$ 19 million,
nil and nil).





The
Corporation has sold all the goods that were written down in 2014 . No
reversal of previously written-down inventory occurred in 2015 nor
in 2014 .
The cost of raw materials and supplies and spare parts included in Cost of sales
amounted to $ 1,532 million
( 2014 -
$ 1,405 million).








24


---




NOTE
8


INVESTMENTS
IN ASSOCIATES AND JOINT VENTURES





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

(in
      millions of Canadian dollars)
    2015
    
    2014Investments
      in associates
    275
    
    217Investments
      in joint ventures
    47
    
    42322
    
    259





Investments
in associates and joint ventures as at December 31, 2015 ,
include goodwill of $ 29 million
(December 31, 2014 -
$ 49 million).





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

The
following are the principal associates of the Corporation:


PERCENTAGE
      OF EQUITY OWNED (%)
    PRINCIPAL
      ESTABLISHMENTBoralex
      Inc.1
    20.29
    Kingsey
      Falls, Québec, CanadaGreenpac
      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.


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 Canadian dollars if required, is as follows:


2015
    
    2014(in
      millions of Canadian dollars)
    BORALEX
      INC.
    
    GREENPAC
      HOLDING LLC
    
    BORALEX
      INC.
    
    GREENPAC
      HOLDING LLCBalance
      sheetCash
      and cash equivalents
    100
    
    69
    
    75
    
    56Current
      assets
    100
    
    141
    
    158
    
    114Current
      financial assets
    1
    
    —
    
    1
    
    —Long-term
      assets
    2,241
    
    575
    
    1,756
    
    504Long-term
      financial assets
    —
    
    —
    
    3
    
    —Current
      liabilities
    94
    
    53
    
    59
    
    47Current
      financial liabilities
    187
    
    49
    
    206
    
    41Long-term
      liabilities
    163
    
    —
    
    61
    
    —Long-term
      financial liabilities
    1,446
    
    285
    
    1,256
    
    341Statements
      of earnings (loss)Sales
    266
    
    314
    
    193
    
    246Depreciation
      and amortization
    97
    
    30
    
    60
    
    24Financing
      expense
    74
    
    26
    
    58
    
    25Recovery
      of income taxes
    (1
    )
    —
    
    (1
    )
    —Net
      earnings (loss)
    (8
    )
    32
    
    (11
    )
    (4
    )Other
      comprehensive income (loss)Translation
      adjustment
    14
    
    (2
    )
    (2
    )
    (2
    )Cash
      flow hedges
    (2
    )
    (1
    )
    (28
    )
    (1
    )12
    
    (3
    )
    (30
    )
    (3
    )Total
      comprehensive income (loss)
    4
    
    29
    
    (41
    )
    (7
    )Cash
      flowDividend
      received from associates
    7
    
    —
    
    7
    
    —





Investment
in Boralex Inc. has a fair value of $ 190 million as at December 31, 2015 (December 31, 2014 -
$ 169 million).





I





25


---




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 interest in Boralex Europe
and became its sole shareholder. The excess of amount paid over carrying value
totalling $51 million 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, our associate Boralex proceeded with a public offering of common
shares to repay in full 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
      ESTABLISHMENTCascades
      Sonoco Inc.1
    50
    Birmingham,
      Alabama and Tacoma, Washington, United StatesCascades
      Conversion Inc.1
    50
    Kingsey
      Falls, Québec, CanadaConverdis
      Inc.1
    50
    Berthierville,
      Québec, CanadaMaritime
      Paper Products Limited Partnership (MPPLP)2
    40
    Dartmouth,
      Nova Scotia, Canada


1
The joint ventures all produce 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 Canadian dollar
if required, is as follows:


2015(in
      millions of Canadian dollars)
    CASCADES
      SONOCO INC.
    
    CASCADES
      CONVERSION INC.
    
    CONVERDIS
      INC.
    
    MARITIME
      PAPER PRODUCTS LIMITED PARTNERSHIPBalance
      sheetCash
      and cash equivalents
    2
    
    2
    
    1
    
    —Current
      assets
    28
    
    16
    
    8
    
    18Long-term
      assets
    15
    
    21
    
    5
    
    32Current
      liabilities
    5
    
    3
    
    2
    
    5Current
      financial liabilities
    1
    
    1
    
    2
    
    3Long-term
      liabilities
    4
    
    2
    
    1
    
    —Long-term
      financial liabilities
    1
    
    —
    
    —
    
    12Statement
      of earnings (loss)Sales
    120
    
    64
    
    25
    
    96Depreciation
      and amortization
    1
    
    1
    
    —
    
    2Provision
      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
      flowDividend
      received from joint ventures
    4
    
    3
    
    —
    
    —


26


---




2014(in
      millions of Canadian dollars)
    CASCADES
      SONOCO INC.
    
    CASCADES
      CONVERSION INC.
    
    CONVERDIS
      INC.
    
    MARITIME
      PAPER PRODUCTS LIMITED PARTNERSHIPBalance
      sheetCash
      and cash equivalents
    4
    
    1
    
    —
    
    —Current
      assets
    25
    
    14
    
    6
    
    24Long-term
      assets
    12
    
    26
    
    5
    
    34Current
      liabilities
    6
    
    3
    
    2
    
    —Current
      financial liabilities
    2
    
    1
    
    —
    
    19Long-term
      liabilities
    3
    
    2
    
    1
    
    6Long-term
      financial liabilities
    —
    
    —
    
    —
    
    4Statement
      of earnings (loss)Sales
    104
    
    62
    
    23
    
    86Depreciation
      and amortization
    2
    
    1
    
    —
    
    2Provision
      for income taxes
    3
    
    2
    
    —
    
    —Net
      earnings (loss)
    7
    
    6
    
    1
    
    (4
    )Other
      comprehensive income (loss)Translation
      adjustment
    2
    
    —
    
    —
    
    —Total
      comprehensive income (loss)
    9
    
    6
    
    1
    
    (4
    )Cash
      flowDividend
      received from joint ventures
    3
    
    3
    
    —
    
    —





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





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

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


As
      at December 31, 2015
    
    As
      at December 31, 2014(in
      millions of Canadian dollars, unless otherwise noted)
    RENO
      DE MEDICI S.p.A.
    
    NORCAN
      FLEXIBLE PACKAGING
    
    CASCADES
      RECOVERY INC.
    
    RENO
      DE MEDICI S.p.A.
    
    NORCAN
      FLEXIBLE PACKAGING
    
    CASCADES
      RECOVERY INC.Principal
      establishment
    Milan,
      Italy
    
    Mississauga,
      Ontario, Canada
    
    Toronto,
      Ontario, Canada
    
    Milan,
      Italy
    
    Mississauga,
      Ontario, Canada
    
    Toronto,
      Ontario, Canada%
      of shares held by non-controlling interest
    42.39
    %
    —
    %
    —
    %
    42.39
    %
    37.9
    %
    27
    %Net
      earnings (loss) attributable to non-controlling interest
    6
    
    1
    
    2
    
    5
    
    (3
    )
    2Non-controlling
      interest accumulated at the end of the year
    96
    
    N/A
    
    N/A
    
    83
    
    (1
    )
    28Subsidiaries
      financial informationAssets
    549
    
    N/A
    
    N/A
    
    508
    
    10
    
    132Liabilities
    324
    
    N/A
    
    N/A
    
    313
    
    12
    
    39Net
      earnings (loss)
    8
    
    4
    
    8
    
    6
    
    (4
    )
    6Cash
      flows from (used for) operating activities
    41
    
    1
    
    12
    
    37
    
    —
    
    16Cash
      flows from (used for) investing activities
    (24
    )
    —
    
    (6
    )
    (20
    )
    —
    
    (9
    )Cash
      flows from (used for) financing activities
    12
    
    —
    
    (7
    )
    (17
    )
    —
    
    (2
    )














27


---




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 interest). The Corporation paid $2 million for purchase of the
non-controlling interest 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 interest is attributed to retained earnings.This
transaction consolidates our leading position in the recovery and recycling
activities in Canada.





|   |                                                    
|-- | ---------------------------------------------------
|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)
    2015
    
    2014Non-significant
      associates
    14
    
    13Non-significant
      joint ventures
    10
    
    824
    
    21





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


(in
      millions of Canadian dollars)
    2015
    
    2014Non-significant
      associates
    1
    
    —Non-significant
      joint ventures
    4
    
    25
    
    2





The
Corporation received dividends of $ 3 million from these associates and joint ventures as at December 31, 2015 (December 31, 2014 -
$ 2 million).





I n
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 (loss).





|   |                                      
|-- | -------------------------------------
|F. | CONTRIBUTION
      TO A JOINT VENTURE

On
January 31, 2014, the Corporation concluded the creation of Maritime Paper
Products Limited Partnership (MPPLP), a new joint venture for converting
corrugated board activities in the Atlantic provinces with Maritime Paper
Products Limited (MPPL), announced on November 27, 2013. The creation
of this joint venture will position our Containerboard Group to achieve future
growth in the Atlantic provinces and to remain at the forefront in this market,
by offering an improved and more comprehensive range of products to its
customers. Furthermore, the creation of MPPLP aims to provide customers with
better service through the combined strengths of our Containerboard Group and
MPPL.





Our
containerboard operations located in St. John’s, Newfoundland, and Moncton, New
Brunswick, were integrated with those of MPPL on February 1, 2014, and the
Corporation received a 40% ownership in the joint venture. This transaction
resulted in a gain of $5 million and non interest-bearing notes receivable
totaling $4 million to be received over a 7-year period.





28


---




Net
asset contribution and investment in joint venture: BUSINESS
      SEGMENT
    CONTAINERBOARDJoint
      venture created
    Maritime
      Paper Products Limited Partnership (MPPLP)(in
      millions of Canadian dollars)Book
      value of identifiable assets and liabilities contributed:Accounts
      receivable and prepaid expenses
    (4
    )Inventories
    (3
    )Property,
      plant and equipment
    (5
    )Total
      assets
    (12
    )Accounts
      payable
    3Net
      assets contributed
    (9
    )Fair
      value of share in the joint venture
    14Notes
      receivable from MPPLP
    4Total
      consideration received
    18Total
      gain
    9Deferred
      gain on equity already owned
    (4
    )Net
      gain recorded on the transaction
    5Net
      investment on balance sheet:Fair
      value of share in the joint venture
    14Deferred
      gain on share already owned
    (4
    )10








29


---




NOTE
9


PROPERTY,
PLANT AND EQUIPMENT


(in
      millions of Canadian dollars)
    NOTE
    LAND
    
    BUILDINGS
    
    MACHINERY
      AND EQUIPMENT
    
    AUTOMOTIVE
      EQUIPMENT
    
    OTHER
    
    TOTALAs
      at January 1, 2014Cost
    
    111
    
    721
    
    2,831
    
    84
    
    215
    
    3,962Accumulated
      depreciation and impairment
    
    2
    
    322
    
    1,799
    
    59
    
    96
    
    2,278Net
      book amount
    
    109
    
    399
    
    1,032
    
    25
    
    119
    
    1,684Year
      ended December 31, 2014Opening
      net book amount
    
    109
    
    399
    
    1,032
    
    25
    
    119
    
    1,684Additions
    
    1
    
    7
    
    17
    
    16
    
    141
    
    182Disposals
    
    —
    
    (2
    )
    (1
    )
    —
    
    (7
    )
    (10
    )Depreciation
    
    —
    
    (26
    )
    (128
    )
    (7
    )
    (5
    )
    (166
    )Business
      disposal
    5
    (1
    )
    (17
    )
    (42
    )
    (1
    )
    (1
    )
    (62
    )Contribution
      to a joint venture
    8
    —
    
    (2
    )
    (3
    )
    —
    
    —
    
    (5
    )Assets
      of disposal group classified as held for sale
    5
    —
    
    (8
    )
    (9
    )
    (1
    )
    (1
    )
    (19
    )Impairment
      charges
    5
      and 24
    (2
    )
    (2
    )
    (46
    )
    —
    
    —
    
    (50
    )Other
    
    1
    
    16
    
    141
    
    1
    
    (156
    )
    3Exchange
      differences
    
    (1
    )
    3
    
    6
    
    —
    
    8
    
    16Closing
      net book amount
    
    107
    
    368
    
    967
    
    33
    
    98
    
    1,573As
      at December 31, 2014Cost
    
    110
    
    681
    
    2,554
    
    93
    
    195
    
    3,633Accumulated
      depreciation and impairment
    
    3
    
    313
    
    1,587
    
    60
    
    97
    
    2,060Net
      book amount
    
    107
    
    368
    
    967
    
    33
    
    98
    
    1,573Year
      ended December 31, 2015Opening
      net book amount
    
    107
    
    368
    
    967
    
    33
    
    98
    
    1,573Additions
    
    —
    
    4
    
    32
    
    11
    
    118
    
    165Disposals
    
    —
    
    (1
    )
    (2
    )
    —
    
    (2
    )
    (5
    )Depreciation
    
    —
    
    (25
    )
    (130
    )
    (9
    )
    (8
    )
    (172
    )Impairment
      charges
    24
    —
    
    (9
    )
    (43
    )
    —
    
    (3
    )
    (55
    )Other
    
    —
    
    11
    
    66
    
    1
    
    (74
    )
    4Exchange
      differences
    
    4
    
    18
    
    63
    
    1
    
    12
    
    98Closing
      net book amount
    
    111
    
    366
    
    953
    
    37
    
    141
    
    1,608As
      at December 31, 2015Cost
    
    113
    
    717
    
    2,675
    
    104
    
    272
    
    3,881Accumulated
      depreciation and impairment
    
    2
    
    351
    
    1,722
    
    67
    
    131
    
    2,273Net
      book amount
    
    111
    
    366
    
    953
    
    37
    
    141
    
    1,608





Other
property, plant and equipment includes buildings and machinery and equipment in
the process of construction or installation with a book value of $ 94 million
(December 31, 2014 -
$ 63 million)
and deposits on purchases of equipment amounting to $ 5 million
(December 31, 2014 -
$ 7 million).
The carrying value of finance-lease assets is $ 22 million.





In 2015 ,
$ 1 million
( 2014 -
$ 1 million) of interest incurred on qualifying assets was capitalized. The weighted
average capitalization rate on funds borrowed in 2015 was 5.84 %
( 2014 - 6.41 %).








30


---




NOTE
10


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 LIFEAs
      at January 1, 2014Cost
    
    97
    
    180
    
    41
    
    318
    
    330
    
    8
    
    338Accumulated
      amortization and impairment
    
    24
    
    66
    
    32
    
    122
    
    4
    
    1
    
    5Net
      book amount
    
    73
    
    114
    
    9
    
    196
    
    326
    
    7
    
    333Year
      ended December 31, 2014Opening
      net book amount
    
    73
    
    114
    
    9
    
    196
    
    326
    
    7
    
    333Additions
    
    6
    
    —
    
    —
    
    6
    
    —
    
    —
    
    —Impairment
      charges
    5
    —
    
    (2
    )
    —
    
    (2
    )
    —
    
    —
    
    —Amortization
    
    (5
    )
    (10
    )
    (2
    )
    (17
    )
    —
    
    —
    
    —Exchange
      differences
    
    —
    
    —
    
    —
    
    —
    
    2
    
    —
    
    2Closing
      net book amount
    
    74
    
    102
    
    7
    
    183
    
    328
    
    7
    
    335As
      at December 31, 2014Cost
    
    102
    
    170
    
    35
    
    307
    
    332
    
    8
    
    340Accumulated
      amortization and impairment
    
    28
    
    68
    
    28
    
    124
    
    4
    
    1
    
    5Net
      book amount
    
    74
    
    102
    
    7
    
    183
    
    328
    
    7
    
    335Year
      ended December 31, 2015Opening
      net book amount
    
    74
    
    102
    
    7
    
    183
    
    328
    
    7
    
    335Additions
    
    9
    
    —
    
    —
    
    9
    
    —
    
    —
    
    —Amortization
    
    (7
    )
    (10
    )
    (1
    )
    (18
    )
    —
    
    —
    
    —Exchange
      differences
    
    —
    
    —
    
    —
    
    —
    
    11
    
    —
    
    11Closing
      net book amount
    
    76
    
    92
    
    6
    
    174
    
    339
    
    7
    
    346As
      at December 31, 2015Cost
    
    110
    
    170
    
    35
    
    315
    
    343
    
    8
    
    351Accumulated
      amortization and impairment
    
    34
    
    78
    
    29
    
    141
    
    4
    
    1
    
    5Net
      book amount
    
    76
    
    92
    
    6
    
    174
    
    339
    
    7
    
    346








NOTE
11


OTHER
ASSETS


(in
      millions of Canadian dollars)
    NOTE
    
    2015
    
    2014Notes
      receivable from business disposals
    
    
    12
    
    13Other
      investments
    
    7
    
    7Other
      assets
    
    40
    
    48Deferred
      financing costs
    
    3
    
    2Employee
      future benefits
    16
    
    33
    
    2095
    
    90Less:
      Current portion, included in accounts receivables
    
    (15
    )
    (7
    )80
    
    83





In 2012 ,
the Corporation granted a US$ 15 million
($ 15 million)
bridge loan to Greenpac Holding LLC (Greenpac Project). The loan, which is
included in Other assets, will mature no later than 2021 and
bears interest ranging from 7.5 % to 9.5 %
depending on the mill debt/OIBD ratio. Including accrued interest, the bridge
loan stands at $ 8 million
as at December 31, 2015 (December 31, 2014 -
$ 22 million).
In 2014 ,
the Corporation recorded in Other assets $ 2 million worth of deferred revenue for the supervision of Greenpac. These costs
are repayable to the Corporation by Greenpac Mill over an eight-year period.
Deferred revenue from Greenpac stands at $ 17 million as at December 31, 2015 (December 31, 2014 -
$ 15 million).








31


---




NOTE
12


TRADE
AND OTHER PAYABLES


(in
      millions of Canadian dollars)
    NOTE
    2015
    
    2014Trade
      payables
    
    440
    
    390Payables
      to related parties
    28
    31
    
    27Accrued
      expenses
    
    142
    
    140613
    
    557








NOTE
13


PROVISIONS
FOR CONTINGENCIES AND CHARGES


(in
      millions of Canadian dollars)
    NOTE
    ENVIRONMENTAL
      RESTORATION OBLIGATIONS
    
    ENVIRONMENTAL
      COSTS
    
    LEGAL
      CLAIMS
    
    SEVERANCES
    
    ONEROUS
      CONTRACT
    
    OTHER
    
    TOTAL
      PROVISIONSAs
      at January 1, 2014
    
    8
    
    13
    
    6
    
    4
    
    4
    
    4
    
    39Additional
      provision
    
    —
    
    1
    
    1
    
    10
    
    4
    
    4
    
    20Payments
    
    —
    
    —
    
    —
    
    (12
    )
    (2
    )
    (1
    )
    (15
    )Revaluation
    
    1
    
    —
    
    —
    
    —
    
    —
    
    —
    
    1Business
      disposal
    5
    (1
    )
    —
    
    —
    
    —
    
    —
    
    —
    
    (1
    )Unwinding
      of discount
    
    —
    
    —
    
    —
    
    —
    
    1
    
    —
    
    1Other
    
    —
    
    —
    
    (4
    )
    4
    
    —
    
    —
    
    —Exchange
      differences
    
    —
    
    —
    
    —
    
    (1
    )
    —
    
    —
    
    (1
    )As
      at December 31, 2014
    
    8
    
    14
    
    3
    
    5
    
    7
    
    7
    
    44Additional
      provision
    
    —
    
    1
    
    —
    
    2
    
    —
    
    4
    
    7Reversal
      of provision
    
    —
    
    —
    
    —
    
    —
    
    (1
    )
    (1
    )
    (2
    )Payments
    
    (1
    )
    (1
    )
    (1
    )
    (6
    )
    (1
    )
    (4
    )
    (14
    )Revaluation
    
    2
    
    —
    
    —
    
    1
    
    —
    
    —
    
    3Exchange
      differences
    
    —
    
    —
    
    1
    
    —
    
    —
    
    —
    
    1As
      at December 31, 2015
    
    9
    
    14
    
    3
    
    2
    
    5
    
    6
    
    39





Analysis
of total provisions:


(in
      millions of Canadian dollars)
    2015
    
    2014Non-current
    34
    
    33Current
    5
    
    1139
    
    44





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 those
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, 2015 ,
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
14


LONG-TERM
DEBT


(in
      millions of Canadian dollars)
    MATURITY
    2015
    
    2014Revolving
      credit facility, weighted average interest rate of 1.97% as at December
      31, 2015, consists of $(11)million;
      US$151 million and €27 million (December 31, 2014 - $103 million; US$50
      million and €123million)
    2019
    238
    
    3327.875%
      Unsecured senior notes of US$250 million repurchased in
    2015
    2020
    —
    
    2875.50%
      Unsecured senior notes of $250 million
    2021
    250
    
    2505.50%
      Unsecured senior notes of US$550 million
    2022
    761
    
    6385.75%
      Unsecured senior notes of US$250 million
    2023
    346
    
    —Other
      debts of subsidiaries
    
    61
    
    31Other
      debts without recourse to the Corporation
    
    106
    
    731,762
    
    1,611Less:
      Unamortized financing costs
    
    18
    
    15Total
      long-term debt
    
    1,744
    
    1,596Less:Current
      portion of debts of subsidiaries
    
    10
    
    10Current
      portion of debts without recourse to the Corporation
    
    24
    
    3034
    
    401,710
    
    1,556





|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.


































33


---




Issuance proceeds and credit facility were used as follows:


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





|   |                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. | On
      June 19, 2014, the Corporation issued US$550 million aggregate principal
      amount of 5.50% senior notes due in 2022 and $250 million aggregate
      principal amount of 5.50% due in 2021. The Corporation used the proceeds
      from this offering of notes to fund the purchase of the Corporation's
      unsecured senior notes maturing in 2016 and 2017. The Corporation used
      part of the proceeds of the offering to pay fees and expenses in
      connection with the offering and the tender offer totaling $13 million. As
      well, the Corporation purchased for a total consideration of US$521
      million ($563 million) and $208 million, including premiums of US$21
      million ($23 million) and $8 million, a total of US$500 million aggregate
      principal amount of 7.75% senior notes due in 2017 and $200 million
      aggregate principal amount of 7.75 % senior notes due in
    2016.




Issuance
proceeds were used as follows:


(in
      millions of Canadian dollars)
    
    
    2014Debt
      issuance
    
    
    846Offering
      and tender offer fees
    
    
    (13
    )Refinanced
      debt repurchase
    
    
    (740
    )Premium
      paid on refinanced debt
    
    
    (31
    )Decrease
      of credit facility
    
    
    (62
    )





|   |                                                                                                                                                                                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|d. | As
      at December 31,2015,
      accounts receivable and inventories totaling approximately $672million
      (December 31,2014- $627million)
      as well as property, plant and equipment totaling approximately
      $265million
      (December 31,2014- $249million)
      were pledged as collateral for the Corporation's revolving credit
      facility.




|   |                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|e. | 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: 2015
    
    2014(in
      millions of Canadian dollars)
    MINIMUM
      PAYMENTS
    
    PRESENT
      VALUE OF PAYMENTS
    
    MINIMUM
      PAYMENTS
    
    PRESENT
      VALUE OF PAYMENTSWithin
      one year
    5
    
    4
    
    6
    
    5Later
      than 1 year but no later than 5 years
    16
    
    13
    
    12
    
    9More
      than 5 years
    8
    
    6
    
    8
    
    6Total
      minimum lease payments
    29
    
    23
    
    26
    
    20Less:
      amounts representing finance charges
    6
    
    —
    
    6
    
    —Present
      value of minimum lease payments
    23
    
    23
    
    20
    
    20








34


---




NOTE
15


OTHER
LIABILITIES


(in
      millions of Canadian dollars)
    NOTE
    
    2015
    
    2014Employee
      future benefits
    16
    
    174
    
    188Other
    
    9
    
    5183
    
    193Less:
      Current portion, included in Trade and other payables
    
    (5
    )
    (2
    )178
    
    191








NOTE
16


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
    2015
    
    2014Balance
      sheet obligations forDefined
      pension benefits
    16(a)
    36
    
    59Post-employment
      benefits other than defined benefit pension plans
    16(b)
    105
    
    109Net
      liabilities on balance sheet
    
    141
    
    168Allocated
      as follows:Long-term
    
    141
    
    168Net
      liabilities on balance sheet
    
    141
    
    168Income
      statement charge forDefined
      pension benefits
    
    9
    
    8Defined
      contribution benefits
    
    20
    
    19Post-employment
      benefits other than defined benefit pension plans
    
    8
    
    6Included
      in discontinued operations
    
    —
    
    (2
    )37
    
    31Remeasurements
      forDefined
      pension benefits
    16(a)
    (22
    )
    30Post-employment
      benefits other than defined benefit pension plans
    16(b)
    (3
    )
    9(25
    )
    39





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

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 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 practice 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)
    
    TOTALAs
      at January 1, 2014
    654
    
    (624
    )
    30
    
    14
    
    44Current
      service cost
    8
    
    —
    
    8
    
    —
    
    8Interest
      expense (income)
    27
    
    (24
    )
    3
    
    —
    
    3Plan
      changes
    1
    
    —
    
    1
    
    —
    
    1Business
      closures
    (7
    )
    —
    
    (7
    )
    —
    
    (7
    )Other
    7
    
    (7
    )
    —
    
    —
    
    —Impact
      on profit or loss
    36
    
    (31
    )
    5
    
    —
    
    5RemeasurementsReturn
      on plan assets, excluding amounts included in interest expense
      (income)
    —
    
    (37
    )
    (37
    )
    —
    
    (37
    )Loss
      from change in demographic assumptions
    2
    
    —
    
    2
    
    —
    
    2Loss
      from change in financial assumptions
    66
    
    —
    
    66
    
    —
    
    66Experience
      losses
    10
    
    —
    
    10
    
    —
    
    10Change
      in asset ceiling, excluding amounts included in interest
      expense
    —
    
    —
    
    —
    
    (11
    )
    (11
    )Impact
      of remeasurements on other comprehensive income
    78
    
    (37
    )
    41
    
    (11
    )
    30Exchange
      differences
    —
    
    (1
    )
    (1
    )
    —
    
    (1
    )Business
      disposal
    (134
    )
    131
    
    (3
    )
    (3
    )
    (6
    )Included
      in assets of disposal group classified as held for sale
    (51
    )
    47
    
    (4
    )
    —
    
    (4
    )ContributionsEmployers
    —
    
    (9
    )
    (9
    )
    —
    
    (9
    )Plan
      participants
    2
    
    (2
    )
    —
    
    —
    
    —Benefit
      payments
    (73
    )
    73
    
    —
    
    —
    
    —As
      at December 31, 2014
    512
    
    (453
    )
    59
    
    —
    
    59Current
      service cost
    6
    
    —
    
    6
    
    —
    
    6Interest
      expense (income)
    18
    
    (15
    )
    3
    
    —
    
    3Impact
      on profit or loss
    24
    
    (15
    )
    9
    
    —
    
    9RemeasurementsReturn
      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
    
    6Impact
      of remeasurements on other comprehensive income
    (12
    )
    (16
    )
    (28
    )
    6
    
    (22
    )Exchange
      differences
    3
    
    (1
    )
    2
    
    —
    
    2Business
      disposal
    —
    
    2
    
    2
    
    —
    
    2ContributionsEmployers
    —
    
    (14
    )
    (14
    )
    —
    
    (14
    )Plan
      participants
    2
    
    (2
    )
    —
    
    —
    
    —Benefit
      payments
    (45
    )
    45
    
    —
    
    —
    
    —As
      at December 31, 2015
    484
    
    (454
    )
    30
    
    6
    
    36





36


---




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


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





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





2014(in
      millions of Canadian dollars)
    CANADA
    
    UNITED
      STATES
    
    EUROPE
    
    TOTALPresent
      value of funded obligations
    443
    
    9
    
    —
    
    452Fair
      value of plan assets
    448
    
    5
    
    —
    
    453Deficit
      (surplus) of funded plans
    (5
    )
    4
    
    —
    
    (1
    )Present
      value of unfunded obligations
    36
    
    —
    
    24
    
    60Liabilities
      on balance sheet
    31
    
    4
    
    24
    
    59





2014(in
      millions of Canadian dollars)
    CONTAINERBOARD
    
    BOXBOARD
      EUROPE
    
    SPECIALTY
      PRODUCTS
    
    TISSUE
      PAPERS
    
    CORPORATE
    
    TOTALPresent
      value of funded obligations
    398
    
    —
    
    19
    
    34
    
    1
    
    452Fair
      value of plan assets
    409
    
    —
    
    13
    
    29
    
    2
    
    453Deficit
      (surplus) of funded plans
    (11
    )
    —
    
    6
    
    5
    
    (1
    )
    (1
    )Present
      value of unfunded obligations
    8
    
    24
    
    2
    
    2
    
    24
    
    60Liabilities
      on balance sheet
    (3
    )
    24
    
    8
    
    7
    
    23
    
    59





The
significant actuarial assumptions are as follows:


2015
    
    2014CANADA
    
    UNITED
      STATES
    
    EUROPE
    
    CANADA
    
    UNITED
      STATES
    
    EUROPEDiscount
      rate
    3.9
    %
    3.9
    %
    2.1
    %
    3.75
    %
    3.62
    %
    1.9
    %Salary
      growth rate
    Between
      1.75% and 3%
    
    N/A
    
    —
    
    Between
      2.5% and 3%
    
    N/A
    
    —Inflation
      rate
    Between
      2.25% and 2.5%
    
    N/A
    
    1.75
    %
    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:


2015
    
    2014Retiring
      at the end of the yearMale
    21.6
    
    21.5Female
    24
    
    24Retiring
      20 years after the end of the reporting yearMale
    22.7
    
    22.6Female
    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 OBLIGATIONCHANGE
      IN ASSUMPTION
    INCREASE
      IN ASSUMPTION
    DECREASE
      IN ASSUMPTIONDiscount
      rate
    0.25%
    (2.9)%
    3%Salary
      growth rate
    0.25%
    0.4%
    (0.4)%INCREASE
      BY 1 YEAR IN ASSUMPTIONLife
      expectancy
    
    2.8
    %





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


2015(in
      millions of Canadian dollars)
    LEVEL
      1
    
    LEVEL
      2
    
    LEVEL
      3
    
    TOTAL
    
    %Cash
      and short-term investments
    17
    
    —
    
    —
    
    17
    
    3.8
    %BondsCanadian
      bonds
    57
    
    72
    
    —
    
    129
    
    28.4
    %SharesCanadian
      shares
    65
    
    —
    
    —
    
    65Foreign
      shares
    15
    
    —
    
    —
    
    1580
    
    17.6
    %Mutual
      fundsForeign
      bond mutual funds
    —
    
    2
    
    —
    
    2Canadian
      equity mutual funds
    —
    
    18
    
    —
    
    18Foreign
      equity mutual funds
    —
    
    118
    
    —
    
    118Alternative
      investments funds
    —
    
    20
    
    —
    
    20158
    
    34.8
    %OtherInsured
      annuities
    —
    
    63
    
    —
    
    63Derivatives
      contract, net
    7
    
    —
    
    —
    
    770
    
    15.4
    %161
    
    293
    
    —
    
    454








38


---




2014(in
      millions of Canadian dollars)
    LEVEL
      1
    
    LEVEL
      2
    
    LEVEL
      3
    
    TOTAL
    
    %Cash
      and short-term investments
    10
    
    —
    
    —
    
    10
    
    2.3
    %BondsCanadian
      bonds
    62
    
    60
    
    —
    
    122
    
    26.9
    %SharesCanadian
      shares
    76
    
    —
    
    —
    
    76Foreign
      shares
    16
    
    —
    
    —
    
    1692
    
    20.3
    %Mutual
      fundsMoney
      market funds
    —
    
    13
    
    —
    
    13Foreign
      bond mutual funds
    —
    
    2
    
    —
    
    2Canadian
      equity mutual funds
    —
    
    25
    
    —
    
    25Foreign
      equity mutual funds
    —
    
    115
    
    —
    
    115155
    
    34.2
    %OtherInsured
      annuities
    —
    
    68
    
    —
    
    68Derivatives
      contract, net
    6
    
    —
    
    —
    
    674
    
    16.3
    %170
    
    283
    
    —
    
    453





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 $ 63 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 the 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:


2015(in
      millions of Canadian dollars)
    CANADA
    
    UNITED
      STATES
    
    EUROPE
    
    TOTALPresent
      value of unfunded obligations
    77
    
    4
    
    24
    
    105Liabilities
      on balance sheet
    77
    
    4
    
    24
    
    105


2015(in
      millions of Canadian dollars)
    CONTAINERBOARD
    
    BOXBOARD
      EUROPE
    
    SPECIALTY
      PRODUCTS
    
    TISSUE
      PAPERS
    
    CORPORATE
    
    TOTALPresent
      value of unfunded obligations
    42
    
    24
    
    6
    
    13
    
    20
    
    105Liabilities
      on balance sheet
    42
    
    24
    
    6
    
    13
    
    20
    
    105


2014(in
      millions of Canadian dollars)
    CANADA
    
    UNITED
      STATES
    
    EUROPE
    
    TOTALPresent
      value of unfunded obligations
    81
    
    4
    
    24
    
    109Liabilities
      on balance sheet
    81
    
    4
    
    24
    
    109
 2014(in
      millions of Canadian dollars)
    CONTAINERBOARD
    
    BOXBOARD
      EUROPE
    
    SPECIALTY
      PRODUCTS
    
    TISSUE
      PAPERS
    
    CORPORATE
    
    TOTALPresent
      value of unfunded obligations
    48
    
    24
    
    6
    
    13
    
    18
    
    109Liabilities
      on balance sheet
    48
    
    24
    
    6
    
    13
    
    18
    
    109
 .





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
    
    TOTALAs
      at January 1, 2014
    114
    
    —
    
    114Current
      service cost
    2
    
    —
    
    2Interest
      expense
    5
    
    —
    
    5Plan
      changes
    1
    
    —
    
    1Business
      acquisitions, disposals and closures
    (2
    )
    —
    
    (2
    )Impact
      on profit or loss
    6
    
    —
    
    6RemeasurementsLoss
      from change in financial assumptions
    9
    
    —
    
    9Impact
      of remeasurements on other comprehensive income
    9
    
    —
    
    9Business
      disposal
    (9
    )
    —
    
    (9
    )Contributions
      and premiums paid by the employer
    —
    
    (11
    )
    (11
    )Benefit
      payments
    (11
    )
    11
    
    —As
      at December 31, 2014
    109
    
    —
    
    109Current
      service cost
    2
    
    —
    
    2Interest
      expense
    4
    
    —
    
    4Plan
      changes
    3
    
    —
    
    3Impact
      on profit or loss
    9
    
    —
    
    9RemeasurementsGain
      from change in financial assumptions
    (1
    )
    —
    
    (1
    )Experience
      gains
    (2
    )
    —
    
    (2
    )Impact
      of remeasurements on other comprehensive income
    (3
    )
    —
    
    (3
    )Exchange
      differences
    2
    
    —
    
    2Business
      disposal
    (4
    )
    —
    
    (4
    )Contributions
      and premiums paid by the employer
    —
    
    (8
    )
    (8
    )Benefit
      payments
    (8
    )
    8
    
    —As
      at December 31, 2015
    105
    
    —
    
    105





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 ( 2014 - 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 BENEFITSCHANGE
      IN ASSUMPTION
    INCREASE
      IN ASSUMPTION
    DECREASE
      IN ASSUMPTIONDiscount
      rate
    0.25
    %
    (2.3
    )%
    2.4
    %Salary
      growth rate
    0.25
    %
    0.6
    %
    (0.6
    )%Health
      care cost increase
    1.0
    %
    1.9
    %
    (2.2
    )%INCREASE
      BY 1 YEAR IN ASSUMPTIONLife
      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
the 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, it 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, 2015 , 62 % of
the plan's assets are invested in bonds, in kind or through futures. The second
step began in 2014 with the purchase of $ 66 million in annuities from a life insurance company for some
pensioners.





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 the 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, 2015 ,
the aggregate surplus of the Corporation’s funded pension plans (mostly in
Canada) amounted to $ 31 million
(a surplus of $ 1 million
as at December 31, 2014 ).
The Corporation will make special payments of $ 1 million
for past service to fund the Canadian pension plan deficit over ten years. As
well, in 2015 ,
the Corporation made one-time contributions totaling $ 7 million to pension plans of units closed or sold in 2014. Current agreed
expected service contributions amount to $ 6 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 2016 .





The
weighted average duration of the defined benefit obligation is 12 years ( 2014 - 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
    
    TOTALPension
      benefits
    27
    
    28
    
    86
    
    823
    
    964Post-employment
      benefits other than defined benefit pension plans
    9
    
    8
    
    27
    
    134
    
    178As
      at December 31, 2015
    36
    
    36
    
    113
    
    957
    
    1,142





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, 2015 .


41


---




NOTE
17


INCOME
TAXES





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

(in
      millions of Canadian dollars)
    2015
    
    2014Current
      taxes
    (1
    )
    16Deferred
      taxes
    41
    
    —40
    
    16





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

(in
      millions of Canadian dollars)
    2015
    
    2014Recovery
      of income taxes based on the combined basic Canadian and provincial income
      tax rate
    (4
    )
    (12
    )Adjustment
      of recovery of income taxes arising from the following:Difference
      in statutory income tax rate of foreign operations
    (4
    )
    1Reassessment
    5
    
    3Reversal
      of deferred tax assets on tax losses
    18
    
    —Permanent
      differences - others
    7
    
    22Change
      in temporary differences
    18
    
    244
    
    28Provision
      for income taxes
    40
    
    16





Weighted
average income tax rate for the year ended December 31, 2015 ,
was 26.8 %
( 2014 - 26.5 %).





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

(in
      millions of Canadian dollars)
    2015
    
    2014Foreign
      currency translation related to hedging activities
    (13
    )
    (6
    )Cash
      flow hedge
    1
    
    —Actuarial
      gain (loss) on post-employment benefit obligations
    7
    
    (11
    )(5
    )
    (17
    )





|   |                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)
    2015
    
    2014Deferred
      income tax assets:Deferred
      income tax assets to be recovered after more than 12
months
    297
    
    328Deferred
      income tax liabilities:Deferred
      income tax liabilities to be used after more than 12
months
    305
    
    281(8
    )
    47





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


(in
      millions of Canadian dollars)
    2015
    
    2014As
      at January 1
    47
    
    9Through
      statement of earnings (loss)
    (41
    )
    —Through
      statement of comprehensive income (loss)
    5
    
    17Included
      in discontinued operations
    1
    
    29Exchange
      differences
    (20
    )
    (8
    )As
      at December 31
    (8
    )
    47














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
    
    TOTALAs
      at January 1, 2014
    174
    
    32
    
    63
    
    54
    
    7
    
    —
    
    10
    
    340Through
      statement of earnings (loss)
    (17
    )
    (11
    )
    7
    
    (15
    )
    1
    
    —
    
    12
    
    (23
    )Through
      statement of comprehensive income (loss)
    —
    
    11
    
    —
    
    —
    
    —
    
    —
    
    —
    
    11Included
      in discontinued operations
    5
    
    2
    
    —
    
    —
    
    —
    
    —
    
    (8
    )
    (1
    )Exchange
      differences
    1
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    1As
      at December 31, 2014
    163
    
    34
    
    70
    
    39
    
    8
    
    —
    
    14
    
    328Through
      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
    
    —
    
    —
    
    5As
      at December 31, 2015
    141
    
    25
    
    38
    
    39
    
    16
    
    23
    
    15
    
    297





DEFERRED
INCOME TAX LIABILITIES (in
      millions of Canadian dollars)
    PROPERTY,
      PLANT AND EQUIPMENT
    
    FOREIGN
      EXCHANGE GAIN ON LONG-TERM DEBT
    
    INTANGIBLE
      ASSETS
    
    INVESTMENTS
    
    OTHERS
    
    TOTALAs
      at January 1, 2014
    166
    
    43
    
    52
    
    54
    
    16
    
    331Through
      statement of earnings (loss)
    (12
    )
    (20
    )
    —
    
    14
    
    (5
    )
    (23
    )Through
      statement of comprehensive loss
    —
    
    (6
    )
    —
    
    —
    
    —
    
    (6
    )Included
      in discontinued operations
    (25
    )
    —
    
    (1
    )
    (4
    )
    —
    
    (30
    )Exchange
      differences
    5
    
    —
    
    —
    
    4
    
    —
    
    9As
      at December 31, 2014
    134
    
    17
    
    51
    
    68
    
    11
    
    281Through
      statement of earnings (loss)
    22
    
    (5
    )
    (1
    )
    5
    
    (9
    )
    12Through
      statement of comprehensive loss
    —
    
    (12
    )
    —
    
    —
    
    —
    
    (12
    )Included
      in discontinued operations
    —
    
    —
    
    —
    
    —
    
    (1
    )
    (1
    )Exchange
      differences
    13
    
    —
    
    1
    
    11
    
    —
    
    25As
      at December 31, 2015
    169
    
    —
    
    51
    
    84
    
    1
    
    305





When
taking into consideration the offsetting of balances within the same tax
jurisdiction, the net deferred tax liability of $ 8 million is presented on the balance sheet as $ 181 million of deferred income tax asset amounts and $ 189 million of deferred income tax liabilities.


43


---




|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|e. | The
      Corporation has accumulated losses for income tax purposes amounting to
      approximately $836million,
      which may be carried forward to reduce taxable income in future years. The
      future tax benefit of $141million
      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 31,2015are detailed as follows:

(in
      millions of Canadian dollars)
    UNRECOGNIZED
      TAX LOSSES
    
    RECOGNIZED
      TAX LOSSES
    
    TOTAL
      TAX LOSSES
    
    MATURITYCanada
    —
    
    9
    
    9
    
    2026—
    
    14
    
    14
    
    2027—
    
    2
    
    2
    
    2029—
    
    9
    
    9
    
    2030—
    
    77
    
    77
    
    2031—
    
    128
    
    128
    
    2032—
    
    84
    
    84
    
    2033—
    
    126
    
    126
    
    2034—
    
    3
    
    3
    
    2035United
      States
    —
    
    5
    
    5
    
    2018—
    
    12
    
    12
    
    2019—
    
    7
    
    7
    
    20202
    
    —
    
    2
    
    20292
    
    —
    
    2
    
    20313
    
    —
    
    3
    
    20322
    
    —
    
    2
    
    20331
    
    —
    
    1
    
    20341
    
    —
    
    1
    
    2035Europe
    320
    
    29
    
    349
    
    Indefinitely331
    
    505
    
    836








NOTE
18


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)
    2015
    
    2014Cash
      and cash equivalents
    (60
    )
    (29
    )Bank
      loans and advances
    37
    
    46Long-term
      debt, including current portion
    1,744
    
    1,5961,721
    
    1,613Total
      equity
    963
    
    1,003Total
      capital
    2,684
    
    2,616





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 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 finance leases and other accrued obligations ( 2015 -
$ 1,711 million; 2014 -
$ 1,561 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 ( 2015 -
$ 364 million; 2014 -
$ 291 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, 2015 ,
the funded debt-to-capitalization ratio stood at 61.41 %
and the interest coverage ratio was 4.32 x.
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
yearly in 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:


2015
    
    2014NOTE
    NUMBER
      OF COMMON SHARES
    
    IN
      MILLIONS OF CANADIAN DOLLARS
    
    NUMBER
      OF COMMON SHARES
    
    IN
      MILLIONS OF CANADIAN DOLLARSBalance
      - beginning of year
    
    94,186,474
    
    483
    
    93,887,849
    
    482Common
      shares issued on exercise of stock options
    18(d)
    1,168,349
    
    5
    
    376,025
    
    1Reversal
      of contributed surplus on exercise of stock options
    
    —
    
    2
    
    —
    
    —Redemption
      of common shares
    18(c)
    (43,900
    )
    —
    
    (77,400
    )
    —Balance
      - end of year
    
    95,310,923
    
    490
    
    94,186,474
    
    483





45


---




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

In 2015 , in
the normal course of business, the Corporation renewed its redemption program of
a maximum of 942,194 common shares with the Toronto Stock Exchange, said shares representing
approximately 1.0 % of
issued and outstanding common shares. The redemption authorization is valid from
March 17, 2015 to
March 16, 2016 . In 2015 ,
the Corporation redeemed 43,900 common shares under this program for a non-significant consideration
( 2014 - 77,400 common shares for a non-significant consideration).





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

The
Corporation issued 1,168,349 common shares upon the exercise of options for an amount of $ 5 million ( 2014 -
$ 1 million for 376,025 common shares issued).





|   |                                
|-- | -------------------------------
|E. | NET
      LOSS PER COMMON SHARE

The
basic and diluted net loss per common share are calculated as
follows:


2015
    
    2014Net
      loss available to common shareholders (in millions of Canadian
      dollars)
    (65
    )
    (147
    )Weighted
      average basic number of basic and diluted common shares outstanding (in
      millions)
    94
    
    94Basic
      and diluted net loss per common share (in Canadian
dollars)
    $
    (0.69
    )
    $
    (1.57
    )





As
at December 31, 2015 and 2014 ,
stock options of nil and 1,197,170 ,
respectively, had an antidilutive effect. As of March
10, 2016 ,
the Corporation had not redeemed any common shares since the beginning of the
financial year.





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

2015
    
    2014Dividends
      declared per common share
    $
    0.16
    
    $
    0.16








NOTE
19


STOCK-BASED
COMPENSATION





|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | Under
      the terms of a share option plan adopted on December 15, 1998, and amended
      on March 15, 2013, and approved by Shareholders on May 8, 2013, for
      officers and key employees of the Corporation, a remaining balance of2,456,099common shares has been specifically reserved for issuance. 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 $1million
      (2014- $1million).




Changes
in the number of options outstanding as at December 31, 2015 and 2014 are
as follows:


2015
    
    2014NUMBER
      OF OPTIONS
    
    WEIGHTED
      AVERAGE EXERCISE PRICE $
    
    NUMBER
      OF OPTIONS
    
    WEIGHTED
      AVERAGE EXERCISE PRICE $Beginning
      of year
    6,432,328
    
    5.96
    
    6,656,423
    
    6.22Granted
    462,644
    
    7.66
    
    546,155
    
    6.10Exercised
    (1,168,349
    )
    4.44
    
    (376,025
    )
    4.56Expired
    (258,090
    )
    11.85
    
    (383,424
    )
    12.11Forfeited
    (205,737
    )
    5.92
    
    (10,801
    )
    5.42End
      of year
    5,262,796
    
    6.16
    
    6,432,328
    
    5.96Options
      exercisable - end of year
    4,027,950
    
    6.17
    
    4,728,990
    
    6.18





The
weighted-average share price at the time of exercise of the options was
$ 10.35 ( 2014 -
$ 6.35 ).





46


---




The
following options were outstanding as at December 31, 2015 :


OPTIONS
      OUTSTANDING
    OPTIONS
      EXERCISABLEYEAR
      GRANTED
    NUMBER
      OF OPTIONS
    
    WEIGHTED
      AVERAGE EXERCISE PRICE $
    
    NUMBER
      OF OPTIONS
    
    WEIGHTED
      AVERAGE EXERCISE PRICE $
    
    EXPIRATION
      DATE2006
    257,885
    
    11.49
    
    257,885
    
    11.49
    
    20162007
    282,383
    
    11.83
    
    282,383
    
    11.83
    
    20172008
    426,150
    
    7.81
    
    426,150
    
    7.81
    
    2017-20182009
    49,298
    
    2.28
    
    49,298
    
    2.28
    
    20192009
    968,333
    
    3.92
    
    968,333
    
    3.92
    
    20192010
    444,124
    
    6.43
    
    444,124
    
    6.43
    
    20202011
    526,517
    
    6.26
    
    526,517
    
    6.26
    
    2017-20212012
    933,598
    
    4.46
    
    693,744
    
    4.46
    
    2017-20222013
    491,611
    
    5.18
    
    255,978
    
    5.18
    
    2017-20232014
    472,991
    
    6.10
    
    123,538
    
    6.10
    
    2017-20242015
    409,906
    
    7.66
    
    —
    
    —
    
    20255,262,796
    
    
    
    4,027,950





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
$ 2.05 ( 2014 -
$ 2.52 ),
as at the date of grant, of each option issued to employees:


2015
    
    2014Grant
      date share price
    $
    7.76
    
    $
    6.65Exercise
      price
    $
    7.66
    
    $
    6.10Risk-free
      interest rate
    1.29
    %
    1.79
    %Expected
      dividend yield
    2.06
    %
    2.41
    %Expected
      life of options
    6
      years
    
    6
      yearsExpected
      volatility
    32
    %
    45
    %





|   |                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 to the plan for 25% of the employee's
    contribution.




The
shares are purchased on the market on a predetermined date each month. For the
year ended December 31, 2015 ,
the Corporation's contribution to the plan amounted to $ 1 million
( 2014 -
$ 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, 2015 ,
the Corporation had a total of 185,041 DSUs outstanding ( 2014 - 271,581 DSUs), representing a long-term liability of $ 3 million
( 2014 -
$ 2 million).
As at January 15, 2016 ,
the corporation issued 20,732 DSUs and had a total of 205,773 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, 2015 ,
the Corporation had a total of 931,786 PSUs outstanding ( 2014 - 1,098,149 PSUs),
representing a liability of $ 7 million ( 2014 -
$ 2 million). In 2015 ,
the Corporation made payments totaling $ 2 million in relation to PSUs (2014 - nil).








NOTE
20


ACCUMULATED
OTHER COMPREHENSIVE LOSS


(in
      millions of Canadian dollars)
    2015
    
    2014Foreign
      currency translation, net of hedging activities and related income tax of
      $19 million (December 31, 2014 - $6million)
    (2
    )
    (25
    )Unrealized
      loss arising from foreign exchange forward contracts designated as cash
      flow hedges, net of related income taxes of nil (December 31, 2014 -
      nil)
    —
    
    (2
    )Unrealized
      loss arising from interest rate swap agreements designated as cash flow
      hedges, net of related income taxes of $9 million (December 31, 2014 - $14
      million)
    (13
    )
    (20
    )Unrealized
      loss arising from commodity derivative financial instruments designated as
      cash flow hedges, net of related income taxes of $5 million (December 31,
      2014 - $5 million)
    (13
    )
    (14
    )Unrealized
      gain (loss) on available-for-sale financial assets, net of related income
      taxes of nil (December 31, 2014 - nil)
    1
    
    (1
    )(27
    )
    (62
    )








NOTE
21


COST
OF SALES BY NATURE


(in
      millions of Canadian dollars)
    2015
    
    2014Raw
      materials
    1,532
    
    1,405Wages
      and employee benefits expenses
    641
    
    600Energy
    266
    
    270Delivery
    259
    
    255Depreciation
      and amortization
    190
    
    174Other
    373
    
    3593,261
    
    3,063





SELLING
AND ADMINISTRATIVE EXPENSES BY NATURE


(in
      millions of Canadian dollars)
    2015
    
    2014Wages
      and employee benefits expenses
    244
    
    233Information
      technology
    28
    
    20Publicity
      and marketing
    16
    
    11Other
    72
    
    70360
    
    334








48


---




NOTE
22


EMPLOYEE
BENEFITS EXPENSES


(in
      millions of Canadian dollars)
    NOTE
    
    2015
    
    2014Wages
      and employee benefits expenses
    21
    
    885
    
    833Share
      options granted to directors and employees
    19(a)
    
    1
    
    1Pension
      costs - defined benefit plans
    16
    
    9
    
    8Pension
      costs - defined contribution benefits
    16
    
    20
    
    19Post-employment
      benefits other than defined benefit pension plans
    16
    
    8
    
    6923
    
    867





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)
    2015
    
    2014Salaries
      and other short-term benefits
    11
    
    9Post-employment
      benefits
    —
    
    1Share-based
      payments
    4
    
    415
    
    14








NOTE
23


LOSS
(GAIN) ON ACQUISITIONS, DISPOSALS AND OTHERS


(in
      millions of Canadian dollars)
    NOTE
    2015
    
    2014Gain
      on disposal of property, plant and equipment
    
    (1
    )
    —Class
      action settlement
    
    —
    
    5Gain
      on joint-venture contribution
    8(f)
    —
    
    (5
    )(1
    )
    —





2015


In
the third quarter, the Containerboard Group sold a warehouse in Québec City and
recorded a gain of $1 million .





2014


In
the fourth quarter, the Corporation settled a class action lawsuit that was
filed against it and other North American containerboard manufacturers. Under
the terms of the settlement agreement, the Corporation agreed to pay US $4.8
million into a settlement fund in return for the release of all claims of the
alleged class without any admission of wrong-doing on the part of the
Corporation.





On
January 31, the Corporation concluded the creation of a new joint venture for
converting corrugated board activities in the Atlantic provinces with Maritime
Paper Products Limited (MPPL).This transaction resulted in a gain of
$5 million.








49


---




NOTE
24


IMPAIRMENT
CHARGES AND RESTRUCTURING COSTS (GAIN)





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




The
Corporation recorded net impairment charges totaling $ 69 million
in 2015 and
net impairment charges of $ 21 million
in 2014 .
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:


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





2014PACKAGING
      PRODUCTS(in
      millions of Canadian dollars)
    CONTAINER-BOARD
    
    BOXBOARD
      EUROPE
    
    SPECIALTY
      PRODUCTS
    
    SUB-TOTAL
    
    TISSUE
      PAPERS
    
    CORPORATE
      ACTIVITIES
    
    TOTALProperty,
      plant & equipment
    —
    
    7
    
    8
    
    15
    
    —
    
    —
    
    15Spare
      parts
    —
    
    —
    
    3
    
    3
    
    —
    
    —
    
    3Intangible
      assets with finite useful life and other assets
    —
    
    —
    
    3
    
    3
    
    —
    
    —
    
    3—
    
    7
    
    14
    
    21
    
    —
    
    —
    
    21





2015


In
the fourth quarter, the Boxboard Europe Group reviewed the recoverable value of
its virgin boxboard mill located in France and impairment charges were allocated
to fixed assets for $42 million and to spare parts for $11 million.
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 closed over the past years. In
the second quarter, the Group also recorded impairment charges of $1 million
related to these closed plants. The
recoverable amount was based on the selling price of assets.





Also
in the fourth quarter, 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.





In
the 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.








2014


In
the fourth quarter, the Boxboard Europe Group reviewed the recoverable amount of
its Iberica, Spain, recycled boxboard manufacturing mills, and recorded
impairment charges on property, plant and equipment totaling $7 million.
The slow recovery of the European economic environment since the 2009 financial
crisis has negatively impacted profitability of this mill. Recoverable amount
was based on the selling price of assets as it was higher than the income
approach.





In
the fourth quarter, the Specialty Products Group reviewed the recoverable amount
of its flexible film activities CGU and recorded an impairment charge of
$6 million on property, plant and equipment. Sustained low shipments in
this sector did not generate enough profitability to support the carrying value
of property plant and equipment. The recoverable amount was based on the selling
price of assets, as it was higher than the income approach.











50


---




In
the second quarter, the Specialty Products Group recorded impairment charges of
$2 million on property, plant and equipment and $3 million on spare parts
due to sustained challenging business conditions for a plant manufacturing
consumer goods made from recovered plastics in its consumer products
sub-segment. On September 30, 2014, the plant was sold to Laurent Lemaire, a
director and major shareholder of the Corporation, at a value determined to be
fair by the independent members of the Board. The independent directors of the
Board reviewed all options for this business and determined that the sale to Mr.
Lemaire was in the best interest of the Corporation and the employees of the
consumer plastics business. The Group also recorded impairment charges of
$3 million on other assets.





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

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





|  |                                                                                                
|- | -----------------------------------------------------------------------------------------------
|• | Containerboard's
      goodwill of $287million
      is allocated to all Containerboard's
CGUs.

|  |                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|• | Specialty
      Products' goodwill is allocated to all Cascades Recovery CGUs,
      $13million,
      and the partitioning activities CGU, $3million.

|  |                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------
|• | Tissue
      Papers' goodwill of $36million
      and trademarks of $2million
      are allocated to all Tissue Papers' CGUs.

|  |                                                                  
|- | -----------------------------------------------------------------
|• | Water
      rights of $5million
      are allocated to RdM's CGU.




The
Corporation tested its Containerboard goodwill for impairment. As a result of
this impairment test, the Corporation concluded that the recoverable amount of
the CGUs was in excess of $ 880 million
over their carrying amount, thus no impairment charge was necessary. With all
other variables held constant, a rise in the discounting rate of 9 %, a
decrease in the terminal shipments of 225,000 s.t., or a decrease in the terminal exchange rate of $ 0.18 would reduce the excess of $ 880 million to nil.





The
Corporation applied the income approach in determining fair value less cost of
disposal and used the following key assumptions (level 2 inputs):


2015
    
    2014CONTAINERBOARD
    
    CONTAINERBOARDDiscounting
      rate
    9.5
    %
    9.5
    %Terminal
      exchange rate (CA$/US$)
    $
    1.25
    
    $
    1.15Terminal
      shipments (manufacturing only)
    930,000
      s.t.
    
    888,000
      s.t.





With
regards to other goodwill, all impairment testing resulted in a significant
excess of recoverable amount compared to the carrying amount of the respective
goodwill.





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




Restructuring
costs (gain) are detailed as follows:


(in
      millions of Canadian dollars)
    2015
    
    2014Boxboard
      Europe
    1
    
    1Specialty
      Products
    (5
    )
    —Tissue
      Papers
    —
    
    1Corporate
      activities
    1
    
    —(3
    )
    2





2015


In
the second quarter, the Boxboard Europe Group recorded severance provision
adjustment totalling $1 million related to plants closed over the past years.





In
the 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 interest).





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





2014


The
Boxboard Europe Group also recorded severances of $1 million in relation to
previous years' plant closures.





The
Tissue Papers Group recorded severances of $1 million as part of its consumer
products activities restructuring.


51


---




NOTE
25


ADDITIONAL
INFORMATION





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

(in
      millions of Canadian dollars)
    2015
    
    2014Accounts
      receivable
    (57
    )
    18Current
      income tax assets
    (3
    )
    (6
    )Inventories
    (9
    )
    (7
    )Trade
      and other payables
    33
    
    (19
    )Current
      income tax liabilities
    (2
    )
    1(38
    )
    (13
    )





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

(in
      millions of Canadian dollars)
    2015
    
    2014Interest
      on long-term debt
    88
    
    97Interest
      income
    (4
    )
    (5
    )Amortization
      of financing costs
    4
    
    5Other
      interest and banking fees
    3
    
    4Interest
      on employee future benefits
    6
    
    697
    
    107








NOTE
26


FINANCIAL
INSTRUMENTS





26.1
FAIR VALUE OF FINANCIAL INSTRUMENTS


The
classification of financial instruments as at December 31, 2015 and 2014 ,
along with the respective carrying amounts and fair values, is as
follows:


2015
    
    2014(in
      millions of Canadian dollars)
    NOTE
    
    CARRYING
      AMOUNT
    
    FAIR
      VALUE
    
    CARRYING
      AMOUNT
    
    FAIR
      VALUEFinancial
      assets at fair value through profit or lossDerivatives
    26.4
    
    13
    
    13
    
    25
    
    25Financial
      assets available for saleOther
      investments
    
    2
    
    2
    
    3
    
    3Investments
      in shares held for trading
    
    1
    
    1
    
    1
    
    1Financial
      liabilities at fair value through profit or lossDerivatives
    26.4
    
    (63
    )
    (63
    )
    (41
    )
    (41
    )Financial
      liabilities at amortized costLong-term
      debt
    
    (1,743
    )
    (1,729
    )
    (1,596
    )
    (1,608
    )Derivatives
      designated as hedgeAsset
      derivatives
    
    —
    
    —
    
    —
    
    —Liability
      derivatives
    
    (16
    )
    (16
    )
    (18
    )
    (18
    )





52


---




26.2
DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS


The
fair value of a financial instrument is the amount of consideration that would
be received to sell 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.




26.3
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, 2015 and 2014 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.


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
      assetsOther
      investments
    2
    
    —
    
    2
    
    —Investments
      in shares held for trading
    1
    
    1
    
    —
    
    —Derivative
      financial assets
    13
    
    —
    
    13
    
    —16
    
    1
    
    15
    
    —Financial
      liabilitiesDerivative
      financial liabilities
    (79
    )
    —
    
    (79
    )
    —(79
    )
    —
    
    (79
    )
    —





2014(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
      assetsOther
      investments
    3
    
    —
    
    3
    
    —Investments
      in shares held for trading
    1
    
    1
    
    —
    
    —Derivative
      financial assets
    25
    
    —
    
    25
    
    —29
    
    1
    
    28
    
    —Financial
      liabilitiesDerivative
      financial liabilities
    (59
    )
    —
    
    (59
    )
    —(59
    )
    —
    
    (59
    )
    —





53


---




26.4
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


2015(in
      millions of Canadian dollars)
    
    ASSETS
    LIABILITIESRISK
    NOTE
    SHORT-TERM
    
    LONG-TERM
    
    TOTAL
    
    SHORT-TERM
    
    LONG-TERM
    
    TOTALCurrency
      risk
    26.4
      A) (i)
    —
    
    1
    
    1
    
    (23
    )
    (38
    )
    (61
    )Price
      risk
    26.4
      A) (ii)
    1
    
    11
    
    12
    
    (9
    )
    (8
    )
    (17
    )Interest
      risk
    26.4
      A) (iii)
    —
    
    —
    
    —
    
    —
    
    (1
    )
    (1
    )1
    
    12
    
    13
    
    (32
    )
    (47
    )
    (79
    )


2014(in
      millions of Canadian dollars)
    
    ASSETS
    LIABILITIESRISK
    NOTE
    SHORT-TERM
    
    LONG-TERM
    
    TOTAL
    
    SHORT-TERM
    
    LONG-TERM
    
    TOTALCurrency
      risk
    26.4
      A) (i)
    —
    
    16
    
    16
    
    (3
    )
    (37
    )
    (40
    )Price
      risk
    26.4
      A) (ii)
    1
    
    8
    
    9
    
    (11
    )
    (8
    )
    (19
    )1
    
    24
    
    25
    
    (14
    )
    (45
    )
    (59
    )





|   |                  
|-- | -----------------
|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 2015 ,
approximately 28 % of
sales from Canadian operations were made to the United States and 15 % of
sales from French and Italian operations were made in countries whose currencies
were other than the euro.





54


---




The
following table summarizes the Corporation's commitments to buy and sell foreign
currencies as at December 31, 2015 and 2014 :


2015EXCHANGE
      RATE
    
    MATURITY
    NOTIONAL
      AMOUNT (IN MILLIONS)
    
    FAIR
      VALUE (IN MILLIONS OF CANADIAN DOLLARS)Repayment
      of long-term debtDerivatives
      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
    
    54Foreign
      exchange forward contracts to buy (US$ for CAN$)
    1.06
    
    January
      2020
    US$
    50
    
    14Currency
      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
      salesDerivatives
      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
    )





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.


2014EXCHANGE
      RATE
    
    MATURITY
    NOTIONAL
      AMOUNT (IN MILLIONS)
    
    FAIR
      VALUE (IN MILLIONS OF CANADIAN DOLLARS)Repayment
      of long-term debtDerivatives
      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$)
    0.9965
    
    December
      2017
    US$
    150
    
    25Foreign
      exchange forward contracts to buy (US$ for CAN$)
    1.06
    
    January
      2020
    US$
    50
    
    4Currency
      option sold to sell US$ (US$ for CAN$)
    1.1167
    
    December
      2017
    US$
    300
    
    (29
    )Currency
      option sold to sell US$ (US$ for CAN$)
    1.15
    
    January
      2020
    US$
    100
    
    (10
    )Currency
      option sold to buy US$ (US$ for CAN$)
    1.0225
    
    January
      2020
    US$
    200
    
    (8
    )(18
    )Forecasted
      salesDerivatives
      at fair value through profit or loss and classified in Loss on derivative
      financial instruments:Foreign
      exchange forward contracts to sell (US$ for CAN$)
    1.158
    
    0
      to 12 months
    US$
    23
    
    —Currency
      option instruments to sell (US$ for CAN$)
    1.0974
      to 1.1473
    
    0
      to 12 months
    US$
                      35 to 75
    
    (2
    )Currency
      option instruments to sell (US$ for CAN$)
    1.1286
      to 1.1578
    
    13
      to 24 months
    US$
                      45 to 90
    
    (4
    )(6
    )(24
    )





55


---




In 2014 ,
the Corporation offset $ 13 million
in derivative assets against $ 34 million
in derivative liabilities as we intend to settle the derivatives on a net basis
with one 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 2015 , 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, 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 excluding the effect of this change on
the denominated working capital components. The interest expense would have
remained relatively stable.





In 2015 , if
the Canadian dollar had strengthened by $0.01 against the euro with all other
variables held constant, operating income before depreciation for the year would
have been relatively stable 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, 2015 and 2014 .
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, 2015 and 2014 ,
with the hedging instruments being the long-term debt denominated in US
dollars.





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


2015
    
    2014(in
      millions of Canadian dollars)
    BEFORE
      HEDGES
    
    HEDGES
    
    NET
      IMPACT
    
    BEFORE
      HEDGES
    
    HEDGES
    
    NET
      IMPACT10%
      change in the CAN$/US$ rate
    111
    
    64
    
    47
    
    93
    
    52
    
    4110%
      change in the CAN$/euro rate
    1
    
    —
    
    1
    
    4
    
    —
    
    4





(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 materials,
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.





56


---




The
fair value of these contracts is as follows:


2015QUANTITY
    MATURITY
    FAIR
      VALUE (IN MILLIONS OF CANADIAN DOLLARS)Forecasted
      purchasesDerivatives
      designated as held for trading and reclassified in Cost of
      salesElectricity
    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
    )





2014QUANTITY
    MATURITY
    FAIR
      VALUE (IN MILLIONS OF CANADIAN DOLLARS)Forecasted
      purchasesDerivatives
      designated as held for trading and reclassified in Cost of
      salesElectricity
    284,904
      MWh
    2015
      to 2017
    —Derivatives
      designated as cash flow hedges and reclassified in Cost of sales
      (effective portion)Natural
      gas:Canadian
      portfolio
    9,336,800
      GJ
    2015
      to 2018
    (12
    )US
      portfolio
    3,636,000
      mmBtu
    2015
      to 2018
    (6
    )(18
    )





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, 2015 was
$ 11 million ( 2014 -
$ 8 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, 2015 and 2014 .
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, 2015 and 2014 ,
with the hedging instruments being derivative commodity contracts.



































57


---




Consolidated
commodity consumption: Price change effect before tax.


2015
    
    2014(in
      millions of Canadian dollars1)
    BEFORE
      HEDGES
    
    HEDGES
    
    NET
      IMPACT
    
    BEFORE
      HEDGES
    
    HEDGES
    
    NET
      IMPACTUS$15/s.t.
      change in recycled paper price
    33
    
    —
    
    33
    
    28
    
    —
    
    28US$30/s.t.
      change in commercial pulp price
    7
    
    —
    
    7
    
    5
    
    —
    
    5US$1/mmBTU.
      change in natural gas price
    12
    
    6
    
    6
    
    9
    
    5
    
    4US$1/MWh
      change in electricity price
    2
    
    —
    
    2
    
    2
    
    —
    
    2


|  |                                                                                                  
|- | -------------------------------------------------------------------------------------------------
|1 | Sensitivity
      calculated with an exchange rate of1.38CAN$/US$ for2015and1.16CAN$/US$ for2014.




(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, 2015 ,
approximately 16 %
( 2014 - 23 %)
of the Corporation's long-term debt was at variable rates.





Based
on the outstanding long-term debt as at December 31, 2015 the
impact on interest expense of a 100-basis point change in rate would be
approximately $ 3 million (impact on net earnings is approximately $ 2 million).





The
Corporation has swaps maturing in 2017 and
up to 2020 on
a notional amount up to $ 50 million. As at December 31, 2015 ,
these agreements are recorded as a liability at a fair value of $ 1 million ( 2014 -
nil). The Corporation also holds interest rate swaps through RdM. These swaps
are contracted to fix the interest rate on a notional amount of € 34 million and are maturing in 2016 to 2022 .
Fair value of these agreements is nil as at December 31, 2015 (December 31, 2014 -
nil).





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

(in
      millions of Canadian dollars)
    2015
    
    2014Unrealized
      loss on derivative financial instruments
    18
    
    6Realized
      loss on derivative financial instruments
    10
    
    —28
    
    6




































































58


---




|   |                  
|-- | -----------------
|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 creditworthy 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.





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 uncollectable, 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, 2015 .





59


---




|   |                     
|-- | --------------------
|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, 2015 and 2014 :


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 YEARSNon-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
    
    1,476Other
      debts of subsidiaries
    61
    
    67
    
    12
    
    10
    
    22
    
    23Other
      debts without recourse to the Corporation
    106
    
    106
    
    25
    
    24
    
    46
    
    11Derivative
      financial liabilities
    79
    
    79
    
    32
    
    35
    
    12
    
    —2,491
    
    3,027
    
    805
    
    155
    
    557
    
    1,510


2014(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 YEARSNon-derivative
      financial liabilities:Bank
      loans and advances
    46
    
    46
    
    46
    
    —
    
    —
    
    —Trade
      and other payables
    557
    
    557
    
    557
    
    —
    
    —
    
    —Revolving
      credit facility
    332
    
    347
    
    13
    
    334
    
    —
    
    —Unsecured
      senior notes
    1,175
    
    1,647
    
    72
    
    71
    
    215
    
    1,289Other
      debts of subsidiaries
    31
    
    37
    
    11
    
    6
    
    11
    
    9Other
      debts without recourse to the Corporation
    73
    
    77
    
    36
    
    17
    
    19
    
    5Derivative
      financial liabilities
    59
    
    59
    
    14
    
    8
    
    24
    
    132,273
    
    2,770
    
    749
    
    436
    
    269
    
    1,316





As
at December 31, 2015 ,
the Corporation had unused credit facilities of $ 621 million (December 31, 2014 -
$ 495 million), net of outstanding letters of credit of $ 26 million (December 31, 2014 -
$ 38 million).





|   |                 
|-- | ----------------
|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, 2015 ,
the off-balance sheet impact of the factoring of receivables amounted to
$ 28 million (€ 19 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.








60


---




NOTE
27


COMMITMENTS





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




Future
minimum payments under operating leases are as follows:


(in
      millions of Canadian dollars)
    2015
    
    2014No
      later than one year
    24
    
    22Later
      than one year but no later than five years
    39
    
    36More
      than five years
    11
    
    6








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




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


2015
    
    2014(in
      millions of Canadian dollars)
    NOTE
    PROPERTY,
      PLANT AND EQUIPMENT
    
    INTANGIBLE
      ASSETS
    
    RAW
      MATERIALS
    
    PROPERTY,
      PLANT AND EQUIPMENT
    
    INTANGIBLE
      ASSETS
    
    RAW
      MATERIALSNo
      later than one year
    28
    24
    
    2
    
    75
    
    6
    
    2
    
    71Later
      than one year but no later than five years
    28
    1
    
    4
    
    301
    
    —
    
    —
    
    287More
      than five years
    28
    —
    
    1
    
    38
    
    —
    
    —
    
    10725
    
    7
    
    414
    
    6
    
    2
    
    465








61


---




NOTE
28


RELATED
PARTY TRANSACTIONS





The
Corporation entered into the following transactions with related
parties:


(in
      millions of Canadian dollars)
    JOINT
      VENTURES
    
    ASSOCIATES2015Sales
      to related parties
    68
    
    77Purchases
      from related parties
    27
    
    1692014Sales
      to related parties
    67
    
    69Purchases
      from related parties
    28
    
    153





These
transactions occurred in the normal course of operations and are measured at the
fair value, which is the amount of consideration established and agreed to by
the related parties.





In
addition to related party balance presented in note 11 ,
the following balances were outstanding at the end of the reporting
period:


(in
      millions of Canadian dollars)
    December
      31, 2015
    
    December
      31, 2014Receivables
      from related partiesJoint
      ventures
    17
    
    10Associates
    13
    
    10Payables
      to related partiesJoint
      ventures
    9
    
    9Associates
    22
    
    18





The
receivables from related parties arise mainly from sale transactions. The
receivables are unsecured in nature and bear no interest. There are no
provisions 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 27 is the minimum amount to be paid to Greenpac, which
corresponds to the potential lost gross margin on 340,000 tons.





On
September 30, 2014, the Corporation sold a plant manufacturing consumer goods
made from recovered plastics in its Specialty Products Group to Laurent Lemaire,
a director and major shareholder of the Corporation, at a value determined to be
fair by the independent members of the Board. The independent directors of the
Board reviewed all options for this business and determined that the sale to Mr.
Lemaire was in the best interest of the Corporation and the employees of the
consumer plastics business.








62