EXHIBIT 13.3

OUR BUSINESS



Cascades
Inc. is a paper and packaging company that produces, converts and sells packaging and tissue products composed primarily of recycled
fibres. Established in 1964 in Kingsey Falls, Québec, the company was founded by the Lemaire brothers, who saw the economic
and social potential of building a company focused primarily on the sustainable development principles of reusing, recovering and
recycling. More than fifty years later, Cascades is a multinational business with close to 90 operating facilities1
and nearly 11,000 employees across Canada, the United States and Europe. The Corporation currently
operates four business segments:



|                    |                               |  |                                     |  |                                             |  |                                       |  
|------------------- | ----------------------------- |  | ----------------------------------- |  | ------------------------------------------- |  | ------------------------------------- | -
|(Business segments) | Number of
        Facilities1 |  | 2016
        Sales2
        (in M$) |  | 2016
        Adjusted OIBD2
        (in M$) |  | 2016 Adjusted OIBD
        Margin (%) |  
|PACKAGING PRODUCTS  |                               |  |                                     | 
|Containerboard      | 24                            |  | 1,370                               |  | 216                                         |  | 16                                    | %
|Boxboard Europe3    | 6                             |  | 796                                 |  | 53                                          |  | 7                                     | %
|Specialty Products  | 38                            |  | 620                                 |  | 65                                          |  | 10                                    | %
|TISSUE PAPERS       | 20                            |  | 1,305                               |  | 150                                         |  | 11                                    | %



BUSINESS DRIVERS

Cascades' results may be impacted by fluctuations
in the following:

|                                                                                                                                           |  |                                                                                                                                                                     
|------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|SALES                                                                                                                                      |  | COSTS                                                                                                                                                               
|- Selling prices                                                                                                                           |  | - Energy prices, mainly electricity and natural gas                                                                                                                 
|- Demand for packaging products and tissue papers, mainly made of recycled fibres                                                          |  | - Fibre prices and availability (recycled papers, virgin pulp and woodchips) and production recipes                                                                 
|- Foreign exchange rates                                                                                                                   |  | - Foreign exchange rates                                                                                                                                            
|- Population growth                                                                                                                        |  | - Labour                                                                                                                                                            
|- Industrial production                                                                                                                    |  | - Freight                                                                                                                                                           
|- Product mix, substitution and innovation                                                                                                 |  | - Chemical product prices                                                                                                                                           
|                                                                                                                                           |  | - Capacity utilization rates and production downtime                                                                                                                
|                                                                                                                                           |  |                                                                                                                                                                     
|EXCHANGE RATES                                                                                                                             |  | ENERGY COSTS                                                                                                                                                        
|                                                                                                                                           |  |                                                                                                                                                                     
|The average value of the Canadian dollar declined by 4% and 3% in 2016 against the US dollar and the euro, respectively, compared to 2015. |  | The average price of natural gas decreased 8% in 2016 compared to the previous year. In the case of crude oil, the average price was 15% lower in 2016 than in 2015.
|                                                                                                                                           |  |                                                                                                                                                                     

1 Including associates
and joint ventures.

2
Excluding associates and joint ventures not included in consolidated results. Refer to Note 9 of the 2016 audited consolidated
financial statements for more informations on associates and joint ventures.

3
Via our 57.7% equity ownership in Reno de Medici S.p.A., a public company traded on the Milan and Madrid stock exchanges.



1







HISTORICAL MARKET PRICES OF MAIN PRODUCTS
AND RAW MATERIAL





|                                                                                                                             |       |  |       |  |                       |  |       |  |       |  |       |  |       |  |       |  |       |  |       |  |        |   |    |   
|---------------------------------------------------------------------------------------------------------------------------- | ----- |  | ----- |  | --------------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ------ | - | -- | --
|                                                                                                                             | 2015  |  | 2016  |  | 2016 vs.
        2015
|These indices should only be used as trend indicators; they may differ from our actual selling 
prices and purchasing costs. | Q1    |  | Q2    |  | Q3                    |  | Q4    |  | Year  |  | Q1    |  | Q2    |  | Q3    |  | Q4    |  | Year  |  | Change |   | %  |   
|Selling prices (average)                                                                                                     |       |  |       |  |                       |  |       |  |       |  |       | 
|PACKAGING PRODUCTS                                                                                                           |       |  |       |  |                       |  |       |  |       |  |       | 
|Containerboard (US$/short ton)                                                                                               |       |  |       |  |                       |  |       |  |       |  |       | 
|Linerboard 42-lb. unbleached kraft, Eastern US (open market)                                                                 | 630   |  | 630   |  | 630                   |  | 630   |  | 630   |  | 615   |  | 615   |  | 615   |  | 655   |  | 625   |  | (5     | ) | (1 | )%
|Corrugating medium 26-lb. semichemical, Eastern US (open market)                                                             | 563   |  | 560   |  | 560                   |  | 545   |  | 557   |  | 518   |  | 515   |  | 505   |  | 540   |  | 520   |  | (37    | ) | (7 | )%
|Boxboard Europe (euro/metric ton)                                                                                            |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Recycled white-lined chipboard (WLC) index1                                                                                  | 656   |  | 658   |  | 679                   |  | 676   |  | 667   |  | 664   |  | 659   |  | 652   |  | 649   |  | 656   |  | (11    | ) | (2 | )%
|Virgin coated duplex boxboard (FBB) index2                                                                                   | 1,061 |  | 1,061 |  | 1,061                 |  | 1,061 |  | 1,061 |  | 1,049 |  | 1,044 |  | 1,043 |  | 1,043 |  | 1,045 |  | (16    | ) | (2 | )%
|Specialty Products (US$/short ton)                                                                                           |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Uncoated recycled boxboard - 20-pt. bending chip (transaction)                                                               | 700   |  | 700   |  | 700                   |  | 735   |  | 709   |  | 735   |  | 725   |  | 725   |  | 715   |  | 725   |  | 16     |   | 2  | % 
|TISSUE PAPERS (US$/short ton)                                                                                                |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Parent rolls, recycled fibres (transaction)                                                                                  | 955   |  | 979   |  | 994                   |  | 1,013 |  | 985   |  | 1,016 |  | 1,012 |  | 1,017 |  | 1,008 |  | 1,013 |  | 28     |   | 3  | % 
|Parent rolls, virgin fibres (transaction)                                                                                    | 1,228 |  | 1,244 |  | 1,259                 |  | 1,279 |  | 1,252 |  | 1,273 |  | 1,273 |  | 1,287 |  | 1,287 |  | 1,280 |  | 28     |   | 2  | % 
|                                                                                                                             |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Raw material prices (average)                                                                                                |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|RECYCLED PAPER                                                                                                               |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|North America (US$/short ton)                                                                                                |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Special news, No. 8 (ONP - Northeast average)                                                                                | 59    |  | 58    |  | 58                    |  | 58    |  | 58    |  | 58    |  | 63    |  | 76    |  | 78    |  | 69    |  | 11     |   | 19 | % 
|Old corrugated containers, No. 11 (OCC - Northeast average)                                                                  | 81    |  | 78    |  | 88                    |  | 86    |  | 83    |  | 83    |  | 88    |  | 101   |  | 102   |  | 93    |  | 10     |   | 12 | % 
|Sorted office papers, No. 37 (SOP - Northeast average)                                                                       | 158   |  | 155   |  | 150                   |  | 137   |  | 150   |  | 138   |  | 142   |  | 153   |  | 168   |  | 150   |  | —      |   | —  |   
|Europe (euro/metric ton)                                                                                                     |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Recovered paper index3                                                                                                       | 106   |  | 116   |  | 123                   |  | 117   |  | 115   |  | 115   |  | 124   |  | 135   |  | 134   |  | 127   |  | 12     |   | 10 | % 
|VIRGIN PULP (US$/metric ton)                                                                                                 |       |  |       |  |                       |  |       |  |       |  |       |  |       | 
|Northern bleached softwood kraft, Canada                                                                                     | 995   |  | 980   |  | 967                   |  | 945   |  | 972   |  | 943   |  | 980   |  | 998   |  | 992   |  | 978   |  | 6      |   | 1  | % 
|Bleached hardwood kraft, mixed, Canada/US                                                                                    | 843   |  | 873   |  | 880                   |  | 880   |  | 869   |  | 873   |  | 847   |  | 842   |  | 825   |  | 847   |  | (22    | ) | (3 | )%





Source: RISI and Cascades.

1
The Cascades Recycled White-Lined Chipboard Selling Price Index is based on published indices and represents an approximation of
Cascades' recycled-grade selling prices in Europe. It is weighted by country and has been rebalanced as at January 1, 2016.

2
The Cascades Virgin Coated Duplex Boxboard Selling Price Index is based on published indices and represents an approximation of
Cascades' virgin-grade selling prices in Europe. It is weighted by country and has been rebalanced as at January 1, 2016.

3
The Cascades Recovered Paper Index is based on published indices and represents an approximation of Cascades' recovered paper purchase
prices in Europe. It is weighted by country, based on the recycled fibre supply mix and has been rebalanced as at January 1, 2016.



2







MANAGEMENT'S DISCUSSION & ANALYSIS



FINANCIAL OVERVIEW - 2015

Led by prior year
efforts and initiatives, our 2015 operating results were the highest ever achieved on a comparable asset base, as operations benefited
from favourable exchange rates, higher volumes and lower fibre costs. The first two quarters were challenging for our Tissue Papers
Group activities given the ramp-up of two new sites in the U.S., destocking efforts and production downtimes for equipment maintenance
and upgrades. However, this sector showed solid results in the second half of the year as sales and operational improvement initiatives
led to better profit margins. Our Containerboard Packaging Group improved its results with higher average selling prices and lower
fibre costs, and a positive contribution from the Greenpac mill, which continued to improve its performance. Profitability from
our Boxboard Europe Group decreased, mainly due to higher raw material costs, while our Specialty Products Group achieved strong
results compared to the prior year as a result of lower fibre costs and a favourable currency impact.



FINANCIAL OVERVIEW - 2016

The Corporation's
2016 financial results reflect sales and operating results growth in the Tissue Group and the Specialty Products Group, in addition
to increased sales in the Containerboard Packaging Group. This was offset by higher corporate costs, related to the implementation
of our ERP system and other business process optimization initiatives, lower contribution from the Boxboard Europe division due
to the persistent challenging market environment, and reduced contribution from the Containerboard Packaging Group attributable
to higher production and raw material costs.



Sales increased by
4%, or $140 million, to $4,001 million in 2016, compared to $3,861 million in 2015. The 4% and 3% average depreciation of the Canadian
dollar against the U.S. dollar and the euro, respectively, largely explains this increase. Higher volumes in all of our North American
sectors also increased sales in 2016 compared to 2015. As well, the favourable impact of average selling prices in our containerboard
and tissue papers activities more than offset the decrease in other segments, which also contributed to the increase in sales.



The following graphics
show the breakdown of sales, before inter-segment eliminations, and adjusted operating income before depreciation and amortization
by business segment:

|                     |                                                                              
|-------------------- | -----------------------------------------------------------------------------
|SALES
    BREAKDOWN1 | ADJUSTED
    OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION BREAKDOWN2
|                     |                                                                              
|                     |                                                                              



1 Excluding inter-segment
sales and Corporate activities.

2 Excluding Corporate
activities. Please refer to ''Supplemental Information on Non-IFRS Measures'' for a complete reconciliation.



For the full year
2016, the Corporation posted net earnings of $135 million, or $1.42 per common share, compared to a net loss of $65 million, or
$0.69 per common share in 2015. On an adjusted basis, discussed in detail on pages 38 to 40, the Corporation generated net earnings
of $114 million during 2016, or $1.21 per common share, compared to net earnings of $112 million or $1.18 per common share in 2015.
The Corporation recorded an operating income of $221 million during the year, compared to $153 million in 2015. On an adjusted
basis, operating income stood at $211 million during the year, compared to $236 million in 2015 (see the “Supplemental Information
on Non-IFRS Measures” section for reconciliation of these amounts).



3







The $2.11 increase in our net earnings
per share in 2016 compared to 2015, can be explained by the following factors:

|                                                                                                                            |   |       |  
|--------------------------------------------------------------------------------------------------------------------------- | - | ----- | -
|(in Canadian dollars)                                                                                                       |  
|Change in specific items (see reconciliation in Supplemental information on non-IFRS measures on page 41)                   | $ | 2.08  |  
|Change in net earnings from continuing operations normalized at a 30% income tax rate                                       | $ | (0.16 | )
|Change in tax provision - Other items (see other items analysis on page 58)                                                 | $ | 0.05  |  
|Change in share of results of associates and joint ventures - net of income taxes - and change in non-controlling interests | $ | 0.13  |  
|Change in net earnings from discontinued operations - net of income taxes                                                   | $ | 0.01  |  
|Increase in net earnings per share                                                                                          | $ | 2.11  |  



FORWARD-LOOKING
STATEMENTS AND SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES



The following document
is the quarterly financial report and Management’s Discussion and Analysis (“MD&A”) of the operating results
and financial position of Cascades Inc. (“Cascades” or “the Corporation”), and should be read in conjunction
with the Corporation's consolidated financial statements and accompanying notes for the years ended December 31, 2016 and
2015. Information contained herein includes any significant developments as at March 1, 2017, the date on which the MD&A was
approved by the Corporation’s Board of Directors. For additional information, readers are referred to the Corporation’s
Annual Information Form (“AIF”), which is published separately. Additional information relating to the Corporation
is also available on SEDAR at www.sedar.com.



This MD&A is intended
to provide readers with information that Management believes is necessary for an understanding of Cascades' current results and
to assess the Corporation's future prospects. Consequently, certain statements herein, including statements regarding future results
and performance, are forward-looking statements within the meaning of securities legislation, based on current expectations. The
accuracy of such statements is subject to a number of risks, uncertainties and assumptions that may cause actual results to differ
materially from those projected, including, but not limited to, the effect of general economic conditions, decreases in demand
for the Corporation's products, prices and availability of raw material, changes in relative values of certain currencies, fluctuations
in selling prices and adverse changes in general market and industry conditions. Cascades disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except
as required under applicable securities regulations. This MD&A also includes price indices, as well as variance and sensitivity
analysis that are intended to provide the reader with a better understanding of the trends with respect to our business activities.
These items are based on the best estimates available to the Corporation.



The financial information
contained herein, including tabular amounts, is expressed in Canadian dollars unless otherwise specified, and is prepared in accordance
with International Financial Reporting Standards (IFRS), unless otherwise specified. Unless otherwise specified or if required
by context, the terms “we”, “our” and “us” refer to Cascades Inc. and all of its subsidiaries,
joint ventures and associates. The financial information included in this analysis also contains certain data that are not performance
measures under IFRS (“non-IFRS measures”). For example, the Corporation uses net debt, working capital and working
capital as a percentage of sales, return on capital employed, consolidated return on assets, operating income, operating income
before depreciation and amortization (OIBD) as these are the measures used by Management to assess the operating and financial
performance of the Corporation's operating segments. Moreover, we believe that OIBD is a measure often used by investors to assess
a corporation's operating performance and its ability to meet debt service requirements. OIBD has limitations as an analytical
tool, and should not be considered on its own or as a substitute for an analysis of our results as reported under IFRS. These limitations
include the following:



| | • | OIBD
excludes certain income tax payments that may represent a decline in available liquidity.
| | - | ----------------------------------------------------------------------------------------------



| | • | OIBD
does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments.
| | - | ------------------------------------------------------------------------------------------------------------------------



| | • | OIBD
does not reflect changes in, or cash requirements for, our working capital needs.
| | - | --------------------------------------------------------------------------------------



| | • | OIBD
does not reflect the interest expense, or the cash requirements needed to service interest and principal payments on our debt.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | • | Although
depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized will often have to be
replaced in the future, and OIBD does not reflect any cash requirements for such replacements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Due to these limitations,
OIBD should not be used as a substitute for net earnings or cash flow from operating activities from continuing operations as determined
in accordance with IFRS, nor is it necessarily indicative of whether or not cash flow will be sufficient to fund our cash requirements.
In addition, our definitions of OIBD may differ from those of other corporations. Any such modification or reformulation may be
significant. A reconciliation of OIBD to net earnings and a reconciliation of OIBD to net cash flow from operating activities from
continuing operations, which we believe to be the closest IFRS performance and liquidity measure to OIBD, is outlined in “Supplemental
Information on Non-IFRS Measures” section.



To provide more information
for evaluating the Corporation's performance, OIBD, operating income, net earnings, share of results of associates and joint ventures
and cash flow from operating activities from continuing operations are also calculated on an adjusted basis, which excludes specific
items such as charges for (reversals of) impairment of assets, restructuring gains or costs, loss on refinancing of long-term debt,
some deferred tax assets provisions or reversals, premiums paid on long-term debt refinancing, gains or losses on the acquisition
or sale of a business unit, gains or losses on the share of results of associates and joint ventures, unrealized gains or losses
on derivative financial instruments that do not qualify for hedge accounting, unrealized gains or losses on interest rate swaps,
foreign exchange gains or losses on long-term debt, specific items of discontinued operations and other significant items of an
unusual or non-recurring nature. Although we consider these items to be less relevant to evaluating our performance, some of them
may arise in the future and may reduce the cash available to us. Our definition of specific items may differ from those of other
corporations.



4







SENSITIVITY TABLE1



The following table
provides a quantitative estimate of the impact of potential changes in the prices of our main products, the costs of certain raw
material, energy and the exchange rates on Cascades’ annual OIBD assuming, for each price change, that all other variables
remain constant. Estimates are based on Cascades’ 2016 manufacturing and converting external shipments and consumption quantities.
It is important to note that this table does not consider the Corporations' use of hedging instruments for risk management. These
hedging policies and portfolios (see the “Risk Factors” section) should also be considered in order to fully analyze
the Corporation’s sensitivity to the highlighted factors.



Potential indirect
sensitivity to the CAN$/US$ exchange rate is not considered in this table. Some of Cascades’ selling prices and raw material
costs in Canada are based on U.S. dollar reference prices and costs that are then converted into Canadian dollars. Consequently,
fluctuations in the exchange rate may have a direct impact on the value of sales and purchases of Canadian facilities in Canada.
However, because it is difficult to measure the precise impact of this fluctuation, we do not take it into consideration in the
following table. The impact of the exchange rate on the working capital items and cash positions denominated in currencies other
than CAN$ at the Corporations' Canadian units is also excluded. Fluctuations in foreign exchange rates may also impact the translation
of the results of our non-Canadian units into CAN$.

|                                                     |                                                                       |                      |              |                                    |  
|---------------------------------------------------- | --------------------------------------------------------------------- | -------------------- | ------------ | ---------------------------------- | -
|                                                     | SHIPMENTS/CONSUMPTION 
('000 SHORT TONS, '000 
MMBTU FOR NATURAL GAS) |                      | INCREASE     | OIBD IMPACT (IN MILLIONS 
OF CAN$) |  
|SELLING
    PRICE (MANUFACTURING AND CONVERTING)2    |                                                                       |                      |             
|North America                                        |                                                                       |                      |             
|Containerboard                                       | 1,140                                                                 |                      | US$25/s.t.   | 38                                 |  
|Tissue Papers                                        | 610                                                                   |                      | US$25/s.t.   | 20                                 |  
|                                                     | 1,750                                                                 |                      |              | 58                                 |  
|Europe                                               |                                                                       |                      |             
|Boxboard                                             | 1,070                                                                 |                      | €25/s.t.     | 39                                 |  
|                                                     | 2,820                                                                 |                      |              | 97                                 |  
|RAW
    MATERIAL2                                    |                                                                       |                      |             
|Recycled Papers                                      |                                                                       |                      |             
|North America                                        |                                                                       |                      |             
|Brown grades (OCC and others)                        | 1,050                                                                 |                      | US$15/s.t.   | (21                                | )
|Groundwood grades (ONP and others)                   | 60                                                                    |                      | US$15/s.t.   | (1                                 | )
|White grades (SOP and others)                        | 550                                                                   |                      | US$15/s.t.   | (11                                | )
|                                                     | 1,660                                                                 |                      |              | (33                                | )
|Europe                                               |                                                                       |                      |             
|Brown grades (OCC and others)                        | 760                                                                   |                      | €15/s.t.     | (17                                | )
|Groundwood grades (ONP and others)                   | 160                                                                   |                      | €15/s.t.     | (4                                 | )
|White grades (SOP and others)                        | 60                                                                    |                      | €15/s.t.     | (1                                 | )
|                                                     | 980                                                                   |                      |              | (22                                | )
|                                                     | 2,640                                                                 |                      |              | (55                                | )
|Virgin pulp                                          |                                                                       |                      |             
|North America                                        | 150                                                                   |                      | US$30/s.t.   | (6                                 | )
|Europe                                               | 70                                                                    |                      | €30/s.t.     | (3                                 | )
|                                                     | 220                                                                   |                      |              | (9                                 | )
|Natural gas                                          |                                                                       |                      |             
|North America                                        | 8,600                                                                 |                      | US1.00/mmBtu | (11                                | )
|Europe                                               | 4,600                                                                 |                      | €1.00/mmBtu  | (7                                 | )
|                                                     | 13,200                                                                |                      |              | (18                                | )
|Exchange
    rate3                                   |                                                                       |                      |             
|Sales less purchases in US$ from Canadian operations |                                                                       | CAN$/US$ 0.01 change | 2            |                                   
|U.S. subsidiaries translation                        |                                                                       | CAN$/US$ 0.01 change | 1            |                                   
|European subsidiaries translation                    |                                                                       | CAN$/€ 0.02 change   | 1            |                                   



1 Sensitivity calculated according to
2016 volumes or consumption, excluding discontinued operations, with an exchange rate of CAN$/US$ 1.33 and CAN$/€ 1.47, excluding
hedging programs and

the impact of related expenses such
as discounts, commissions on sales and profit-sharing.

2 Based on 2016 external manufacturing
and converting shipments, as well as fibre and pulp consumption. Including purchases from our subsidiary Cascades Recovery.

3 As an example, from CAN$/US$ 1.33
to CAN$/US$ 1.34 and from CAN$/€ 1.47 to CAN$/€ 1.49.





5







KEY PERFORMANCE INDICATORS



We use several key performance indicators
to monitor our action plan and analyze the progress we are making toward achieving our long-term objectives. These include the
following:

|                                             |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |      |   |       |  
|-------------------------------------------- | ----- | - | ---- | - | ---- | - | ---- | - | ---- | - | ----- | - | ---- | - | ---- | - | ---- | - | ---- | - | ----- | -
|                                             | 2014  |   | 2015 |   | 2016 |  
|                                             | TOTAL |   | Q1   |   | Q2   |   | Q3   |   | Q4   |   | TOTAL |   | Q1   |   | Q2   |   | Q3   |   | Q4   |   | TOTAL |  
|OPERATIONAL                                  |       |   |      |   |      |   |      |   |      |   |      
|Total
    shipments (in '000 s.t.)1          |       |   |      |   |      |   |      |   |      |   |      
|Packaging Products                           |       |   |      |   |      |   |      |   |      |   |      
|Containerboard                               | 1,104 |   | 268  |   | 282  |   | 296  |   | 268  |   | 1,114 |   | 277  |   | 284  |   | 294  |   | 283  |   | 1,138 |  
|Boxboard Europe                              | 1,093 |   | 296  |   | 286  |   | 266  |   | 263  |   | 1,111 |   | 278  |   | 267  |   | 258  |   | 263  |   | 1,066 |  
|Specialty Products2                          | 160   |   | 41   |   | 44   |   | 45   |   | 40   |   | 170   |   | 45   |   | 48   |   | 48   |   | 46   |   | 187   |  
|                                             | 2,357 |   | 605  |   | 612  |   | 607  |   | 571  |   | 2,395 |   | 600  |   | 599  |   | 600  |   | 592  |   | 2,391 |  
|Tissue Papers                                | 567   |   | 136  |   | 154  |   | 162  |   | 146  |   | 598   |   | 143  |   | 158  |   | 163  |   | 144  |   | 608   |  
|Total                                        | 2,924 |   | 741  |   | 766  |   | 769  |   | 717  |   | 2,993 |   | 743  |   | 757  |   | 763  |   | 736  |   | 2,999 |  
|                                             |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |     
|Integration
    rate3                        |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |     
|Containerboard                               | 52    | % | 51   | % | 49   | % | 50   | % | 54   | % | 51    | % | 52   | % | 53   | % | 54   | % | 51   | % | 52    | %
|Tissue Papers                                | 70    | % | 68   | % | 64   | % | 64   | % | 70   | % | 67    | % | 70   | % | 65   | % | 65   | % | 72   | % | 68    | %
|                                             |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |     
|Manufacturing
    capacity utilization rate4 |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |     
|Packaging Products                           |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |     
|Containerboard                               | 91    | % | 91   | % | 91   | % | 95   | % | 89   | % | 92    | % | 93   | % | 93   | % | 96   | % | 91   | % | 93    | %
|Boxboard Europe                              | 95    | % | 101  | % | 97   | % | 91   | % | 89   | % | 94    | % | 97   | % | 92   | % | 89   | % | 91   | % | 92    | %
|Tissue Papers                                | 93    | % | 83   | % | 90   | % | 94   | % | 90   | % | 89    | % | 87   | % | 89   | % | 93   | % | 83   | % | 88    | %
|Consolidated total                           | 93    | % | 93   | % | 93   | % | 93   | % | 89   | % | 92    | % | 93   | % | 91   | % | 93   | % | 89   | % | 92    | %
|FINANCIAL                                    |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |      |  
|Return
    on assets5                        |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |      |  
|Packaging Products                           |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |      |  
|Containerboard                               | 13    | % | 15   | % | 16   | % | 18   | % | 19   | % | 19    | % | 19   | % | 19   | % | 18   | % | 17   | % | 17    | %
|Boxboard Europe                              | 10    | % | 10   | % | 10   | % | 10   | % | 10   | % | 10    | % | 10   | % | 10   | % | 9    | % | 9    | % | 9     | %
|Specialty Products                           | 13    | % | 14   | % | 14   | % | 15   | % | 17   | % | 17    | % | 18   | % | 19   | % | 19   | % | 20   | % | 20    | %
|Tissue Papers                                | 12    | % | 11   | % | 11   | % | 12   | % | 13   | % | 13    | % | 15   | % | 17   | % | 17   | % | 16   | % | 16    | %
|Consolidated return on assets                | 9.4   | % | 9.7  | % | 10.0 | % | 10.8 | % | 11.2 | % | 11.2  | % | 11.6 | % | 11.9 | % | 11.1 | % | 10.6 | % | 10.6  | %
|Return
    on capital employed6              | 4.1   | % | 4.4  | % | 4.8  | % | 5.5  | % | 5.6  | % | 5.6   | % | 5.9  | % | 6.1  | % | 5.4  | % | 5.2  | % | 5.2   | %
|                                             |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |      |  
|Working
    capital7                         |       |   |      |   |      |   |      |   |      |   |       |   |      |   |      |   |      |   |      |  
|In millions of $, at end of period           | 379   |   | 409  |   | 428  |   | 472  |   | 406  |   | 406   |   | 456  |   | 475  |   | 460  |   | 326  |   | 326   |  
|As a % of sales8                             | 12.3  | % | 11.9 | % | 11.6 | % | 11.3 | % | 11.3 | % | 11.3  | % | 11.3 | % | 11.4 | % | 11.3 | % | 11.0 | % | 11.0  | %



1 Shipments do
not take into account the elimination of business sector inter-segment shipments.

2 Industrial
Packaging shipments only.

3 Defined as:
Percentage of manufacturing shipments transferred to our converting operations.

4 Defined as:
Manufacturing internal and external shipments/practical capacity. Excluding discontinued operations and Specialty Products Group
manufacturing activities.

5
Return on assets is a non-IFRS measure defined as the last twelve months' (“LTM”) adjusted OIBD/LTM quarterly average
of total assets. It includes or excludes significant business acquisitions and disposals, respectively, of the last twelve months.
Not adjusted for discontinued operations.

6
Return on capital employed is a non-IFRS measure and is defined as the after-tax (30%) amount of the LTM adjusted operating income,
including our share of core joint ventures, divided by the LTM quarterly average of capital employed. Capital employed is defined
as the total assets less trade and other payables. It includes or excludes significant business acquisitions and disposals, respectively,
of the last twelve months. Not adjusted for assets of disposal group classified as held for sale. Starting in Q1 2015, it includes
our investment in Greenpac on an LTM basis. Not adjusted for discontinued operations.

7
Working capital includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and
other payables. Not adjusted for assets of a disposal group classified as held for sale. Not adjusted for discontinued operations.

8
% of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively,
of the last twelve months. Not adjusted for assets of a disposal group classified as held for sale. Not adjusted for discontinued
operations.



6







HISTORICAL FINANCIAL INFORMATION



|                                                                                                                          |       |       |       |   |       |   |       |      |       |   |       |   |       |       |       |   |       |   |       |      |       |   |      |  |   |      |  |      |      |   |      |      | 
|------------------------------------------------------------------------------------------------------------------------- | ----- | ----- | ----- | - | ----- | - | ----- | ---- | ----- | - | ----- | - | ----- | ----- | ----- | - | ----- | - | ----- | ---- | ----- | - | ---- |  | - | ---- |  | ---- | ---- | - | ---- | ---- | 
|                                                                                                                          | 2014  |       | 2015  |   | 2016  |  
|(in millions of Canadian dollars, unless otherwise noted)                                                                 | TOTAL |       | Q1    |   | Q2    |   | Q3    |      | Q4    |   | TOTAL |   | Q1    |       | Q2    |   | Q3    |   | Q4    |      | TOTAL |  
|Sales                                                                                                                     |       |       |       |   |       |   |       |      |       |   |      
|Packaging Products                                                                                                        |       |       |       |   |       |   |       |      |       |   |      
|Containerboard                                                                                                            | 1,181 |       | 300   |   | 322   |   | 353   |      | 326   |   | 1,301 |   | 336   |       | 342   |   | 356   |   | 336   |      | 1,370 |  
|Boxboard Europe                                                                                                           | 841   |       | 216   |   | 202   |   | 205   |      | 202   |   | 825   |   | 219   |       | 197   |   | 189   |   | 191   |      | 796   |  
|Specialty Products                                                                                                        | 568   |       | 135   |   | 146   |   | 151   |      | 147   |   | 579   |   | 149   |       | 157   |   | 158   |   | 156   |      | 620   |  
|Inter-segment sales                                                                                                       | (49   | )     | (12   | ) | (13   | ) | (15   | )    | (15   | ) | (55   | ) | (15   | )     | (14   | ) | (16   | ) | (16   | )    | (61   | )
|                                                                                                                          | 2,541 |       | 639   |   | 657   |   | 694   |      | 660   |   | 2,650 |   | 689   |       | 682   |   | 687   |   | 667   |      | 2,725 |  
|Tissue Papers                                                                                                             | 1,054 |       | 274   |   | 299   |   | 341   |      | 322   |   | 1,236 |   | 320   |       | 324   |   | 342   |   | 319   |      | 1,305 |  
|Inter-segment sales and Corporate activities                                                                              | (34   | )     | (3    | ) | (6    | ) | (9    | )    | (7    | ) | (25   | ) | (6    | )     | (8    | ) | (8    | ) | (7    | )    | (29   | )
|Total                                                                                                                     | 3,561 |       | 910   |   | 950   |   | 1,026 |      | 975   |   | 3,861 |   | 1,003 |       | 998   |   | 1,021 |   | 979   |      | 4,001 |  
|Operating income (loss)                                                                                                   |       |       |       |   |       |   |       |      |       |   |      
|Packaging Products                                                                                                        |       |       |       |   |       |   |       |      |       |   |       |  
|Containerboard                                                                                                            | 108   |       | 39    |   | 41    |   | 58    |      | 32    |   | 170   |   | 40    |       | 46    |   | 44    |   | 28    |      | 158   |  
|Boxboard Europe                                                                                                           | 29    |       | 9     |   | 9     |   | 5     |      | (51   | ) | (28   | ) | 8     |       | 7     |   | 1     |   | 3     |      | 19    |  
|Specialty Products                                                                                                        | 6     |       | 5     |   | 9     |   | 6     |      | 11    |   | 31    |   | 9     |       | 16    |   | 12    |   | 14    |      | 51    |  
|                                                                                                                          | 143   |       | 53    |   | 59    |   | 69    |      | (8    | ) | 173   |   | 57    |       | 69    |   | 57    |   | 45    |      | 228   |  
|Tissue Papers                                                                                                             | 48    |       | 2     |   | 10    |   | 30    |      | 22    |   | 64    |   | 19    |       | 18    |   | 26    |   | 12    |      | 75    |  
|Corporate activities                                                                                                      | (54   | )     | (27   | ) | (8    | ) | (22   | )    | (27   | ) | (84   | ) | (3    | )     | (22   | ) | (33   | ) | (24   | )    | (82   | )
|Total                                                                                                                     | 137   |       | 28    |   | 61    |   | 77    |      | (13   | ) | 153   |   | 73    |       | 65    |   | 50    |   | 33    |      | 221   |  
|Adjusted
    OIBD1                                                                                                        |       |       |       |   |       |   |       |      |       |   |      
|Packaging Products                                                                                                        |       |       |       |   |       |   |       |      |       |   |      
|Containerboard                                                                                                            | 164   |       | 52    |   | 55    |   | 68    |      | 56    |   | 231   |   | 55    |       | 60    |   | 58    |   | 43    |      | 216   |  
|Boxboard Europe                                                                                                           | 72    |       | 17    |   | 19    |   | 14    |      | 13    |   | 63    |   | 16    |       | 17    |   | 9     |   | 11    |      | 53    |  
|Specialty Products                                                                                                        | 40    |       | 10    |   | 14    |   | 18    |      | 16    |   | 58    |   | 14    |       | 16    |   | 18    |   | 17    |      | 65    |  
|                                                                                                                          | 276   |       | 79    |   | 88    |   | 100   |      | 85    |   | 352   |   | 85    |       | 93    |   | 85    |   | 71    |      | 334   |  
|Tissue Papers                                                                                                             | 96    |       | 15    |   | 23    |   | 43    |      | 38    |   | 119   |   | 34    |       | 39    |   | 47    |   | 30    |      | 150   |  
|Corporate activities                                                                                                      | (32   | )     | (9    | ) | (8    | ) | (9    | )    | (19   | ) | (45   | ) | (13   | )     | (20   | ) | (29   | ) | (19   | )    | (81   | )
|Total                                                                                                                     | 340   |       | 85    |   | 103   |   | 134   |      | 104   |   | 426   |   | 106   |       | 112   |   | 103   |   | 82    |      | 403   |  
|Net earnings (loss)                                                                                                       | (147  | )     | (35   | ) | 24    |   | 22    |      | (76   | ) | (65   | ) | 75    |       | 36    |   | 20    |   | 4     |      | 135   |  
|Adjusted1                                                                                                                 | 20    |       | 17    |   | 24    |   | 49    |      | 22    |   | 112   |   | 34    |       | 35    |   | 30    |   | 15    |      | 114   |  
|Net earnings (loss) per common share (in dollars)                                                                         |       |       |       |   |       |   |       |      |       |   |       |  
|Basic                                                                                                                     | $     | (1.57 | )     | $ | (0.37 | ) | $     | 0.25 |       | $ | 0.24  |   | $     | (0.81 | )     | $ | (0.69 | ) | $     | 0.79 |       | $ | 0.38 |  | $ | 0.21 |  | $    | 0.04 |   | $    | 1.42 | 
|Basic,
    adjusted1                                                                                                      | $     | 0.21  |       | $ | 0.18  |   | $     | 0.25 |       | $ | 0.52  |   | $     | 0.23  |       | $ | 1.18  |   | $     | 0.35 |       | $ | 0.38 |  | $ | 0.32 |  | $    | 0.16 |   | $    | 1.21 | 
|Net earnings (loss) from continuing operations per basic common share (in dollars)                                        | $     | (0.68 | )     | $ | (0.39 | ) | $     | 0.27 |       | $ | 0.24  |   | $     | (0.82 | )     | $ | (0.70 | ) | $     | 0.79 |       | $ | 0.38 |  | $ | 0.21 |  | 0.04 |      | $ | 1.42 |     
|                                                                                                                          |       |       |       |   |       |   |       |      |       |   |       |   |       |       |       |   |       |   |       |      |       |  
|Cash flow from operating activities from continuing operations (excluding changes in non-cash working capital components) | 244   |       | 35    |   | 70    |   | 110   |      | 107   |   | 322   |   | 56    |       | 107   |   | 68    |   | 85    |      | 316   |  
|                                                                                                                          |       |       |       |   |       |   |       |      |       |   |       |  
|Net
    debt2                                                                                                             | 1,613 |       | 1,691 |   | 1,693 |   | 1,741 |      | 1,721 |   | 1,721 |   | 1,684 |       | 1,664 |   | 1,625 |   | 1,532 |      | 1,532 |  
|                                                                                                                          |       |       |       |   |       |   |       |      |       |   |      
|US$/CAN$ - Average rate                                                                                                   | $     | 0.91  |       | $ | 0.81  |   | $     | 0.81 |       | $ | 0.76  |   | $     | 0.75  |       | $ | 0.78  |   | $     | 0.73 |       | $ | 0.78 |  | $ | 0.77 |  | $    | 0.75 |   | $    | 0.75 | 
|US$/CAN$ End of period rate                                                                                               | $     | 0.86  |       | $ | 0.79  |   | $     | 0.80 |       | $ | 0.75  |   | $     | 0.72  |       | $ | 0.72  |   | $     | 0.77 |       | $ | 0.77 |  | $ | 0.76 |  | $    | 0.74 |   | $    | 0.74 | 
|EURO€/CAN$ - Average rate                                                                                                 | $     | 0.68  |       | $ | 0.72  |   | $     | 0.74 |       | $ | 0.69  |   | $     | 0.68  |       | $ | 0.70  |   | $     | 0.66 |       | $ | 0.69 |  | $ | 0.69 |  | $    | 0.70 |   | $    | 0.68 | 
|EURO€/CAN$ End of period rate                                                                                             | $     | 0.71  |       | $ | 0.73  |   | $     | 0.72 |       | $ | 0.67  |   | $     | 0.67  |       | $ | 0.67  |   | $     | 0.68 |       | $ | 0.70 |  | $ | 0.68 |  | $    | 0.71 |   | $    | 0.71 | 
|Natural Gas Henry Hub - US$/mmBtu                                                                                         | $     | 4.42  |       | $ | 2.98  |   | $     | 2.64 |       | $ | 2.77  |   | $     | 2.27  |       | $ | 2.67  |   | $     | 2.09 |       | $ | 1.95 |  | $ | 2.80 |  | $    | 2.98 |   | $    | 2.46 | 



Sources: Bloomberg and Cascades.

1 See “Forward-looking statements
and supplemental information on non-IFRS measures” for more details.

2 Defined as total debt less cash and
cash equivalents. Refer to ''Supplemental information on non-IFRS measures'' for a reconciliation of this amount for current and
comparative periods.



7







BUSINESS HIGHLIGHTS



From time to time,
the Corporation enters into transactions to optimize its asset base and streamline its cost structure. The following transactions
should be taken into consideration when reviewing the overall and segmented analysis of the Corporation's 2016 and 2015 results.



BUSINESS ACQUISITION,
DISPOSAL AND CLOSURE



CONTAINERBOARD
PACKAGING GROUP

| | • | On
June 1, 2016, the Corporation announced the completion of a transaction with US-based company Rand-Whitney Container LLC for the
acquisition of its plant in Newtown, Connecticut. In return, Cascades transferred equipment and the customer list from its Thompson
plant, located in Connecticut, and paid US$12 million ($15 million) to Rand-Whitney.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | On
December 11, 2014, the Corporation announced that it had reached an agreement for the sale of its North American boxboard manufacturing
and converting assets. The transaction was closed on February 4, 2015. Results and cash flows are classified as discontinued operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SPECIALTY PRODUCTS
GROUP

| | • | On
June 22, 2016, the Corporation announced the closure of its de-inked pulp mill located in Auburn, Maine. The plant closed on July 15,
2016.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------



TISSUE GROUP

| | • | On
May 13, 2016, the Corporation decided to close the tissue papers converting operations in its Toronto, Ontario plant, in order
to optimize its supply chain and to maximize its profitability. The Corporation transferred some of the assets to other facilities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SIGNIFICANT FACTS AND DEVELOPMENTS



i. On June
30, 2016, the Corporation completed the transfer of its virgin fibre boxboard mill located in La Rochette, France, to its 57.7%-owned
subsidiary Reno de Medici, for a consideration of €19 million ($27 million). The transaction combined the Corporation’s
virgin and recycled boxboard activities in Europe. Apart from higher non-controlling interests after the closing, no impact was
recorded on the Corporation’s financial statements, as both entities had been fully consolidated prior to the transaction.



ii. On June
16, 2016, the Corporation announced construction of a new tissue converting plant in Scappoose, Oregon. The total investment is
planned to reach US$64 million ($83 million). The facility will house three new state-of-the-art converting lines that are scheduled
for commissioning at the end of the first quarter of 2017. The plant will manufacture virgin and recycled bathroom tissue products
and paper hand towels for the Cascades Pro (Away-From-Home) market. The plant will be supplied by the CorporatIons' tissue papers
plant located 12 kilometers away in St. Helens, which is expected to generate synergies.



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



iv. On November
27, 2015, the Corporation entered into an agreement to acquire the remaining 27% minority interest of Cascades Recovery that it
did not previously own for a cash consideration of $32 million, payable over a 10-year period. This transaction consolidated the
Corporations' leading position in the Canadian recovery and recycling sector.



v. 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 extended the term of the facility to July 2019. The applicable pricing grid was slightly lowered to better reflect
market conditions, while other existing financial conditions remained essentially unchanged.



vi. On May
19, 2015, the Corporation issued US$250 million ($305 million) in aggregate principal amount 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. The refinancing of these notes reduces future interest expense by approximately US$6 million
annually.



8







SPECIFIC ITEMS INCLUDED IN OPERATING
INCOME AND NET EARNINGS (LOSS)



The Corporation incurred
some specific items during 2016 and 2015 that adversely or positively affected its operating results. We believe it is useful for
readers to be aware of these items, as they provide a measure of performance with which to compare the Corporation's results between
periods, notwithstanding these specific items.



The reconciliation
of the specific items included in operating income (loss) by business segment is as follows:

|                                                                      |                |                 |                     |               |                       |             
|--------------------------------------------------------------------- | -------------- | --------------- | ------------------- | ------------- | --------------------- | ------------
|                                                                      | 2016          
|(in millions of Canadian dollars)                                     | Containerboard | Boxboard Europe | Specialty 
Products | Tissue Papers | Corporate 
Activities | Consolidated
|Operating income (loss)                                               | 158            | 19              | 51                  | 75            | (82)                  | 221         
|Depreciation and amortization                                         | 56             | 32              | 20                  | 64            | 20                    | 192         
|Operating income (loss) before depreciation and amortization          | 214            | 51              | 71                  | 139           | (62)                  | 413         
|Specific items:                                                       |                |                 |                     |               |                       |             
|Gain on acquisitions, disposals and others                            | —              | —               | (4)                 | —             | —                     | (4)         
|Impairment charges (reversals)                                        | 2              | —               | (3)                 | 4             | —                     | 3           
|Restructuring costs (gains)                                           | (1)            | 2               | 1                   | 7             | —                     | 9           
|Unrealized loss (gain) on financial instruments                       | 1              | —               | —                   | —             | (19)                  | (18)        
|                                                                      | 2              | 2               | (6)                 | 11            | (19)                  | (10)        
|Adjusted operating income (loss) before depreciation and amortization | 216            | 53              | 65                  | 150           | (81)                  | 403         
|Adjusted operating income (loss)                                      | 160            | 21              | 45                  | 86            | (101)                 | 211         



|                                                                      |                |                 |                     |               |                       |             
|--------------------------------------------------------------------- | -------------- | --------------- | ------------------- | ------------- | --------------------- | ------------
|                                                                      | 2015          
|(in millions of Canadian dollars)                                     | Containerboard | Boxboard Europe | Specialty 
Products | Tissue Papers | Corporate 
Activities | Consolidated
|Operating income (loss)                                               | 170            | (28)            | 31                  | 64            | (84)                  | 153         
|Depreciation and amortization                                         | 63             | 34              | 21                  | 55            | 17                    | 190         
|Operating income (loss) before depreciation and amortization          | 233            | 6               | 52                  | 119           | (67)                  | 343         
|Specific items :                                                      |                |                 |                     |               |                       |             
|Gain on acquisitions, disposals and others                            | (1)            | —               | —                   | —             | —                     | (1)         
|Impairment charges                                                    | —              | 56              | 11                  | —             | 2                     | 69          
|Restructuring costs (gains)                                           | —              | 1               | (5)                 | —             | 1                     | (3)         
|Unrealized loss (gain) on financial instruments                       | (1)            | —               | —                   | —             | 19                    | 18          
|                                                                      | (2)            | 57              | 6                   | —             | 22                    | 83          
|Adjusted operating income (loss) before depreciation and amortization | 231            | 63              | 58                  | 119           | (45)                  | 426         
|Adjusted operating income (loss)                                      | 168            | 29              | 37                  | 64            | (62)                  | 236         



GAIN ON ACQUISITIONS, DISPOSALS AND
OTHERS

The Corporation recorded
the following gains during 2016 and 2015:



2016

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



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



2015

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



9







IMPAIRMENT CHARGES AND RESTRUCTURING
COSTS

The following impairment
charges (reversals) and restructuring costs (gains) were recorded in 2016 and 2015:



2016

In the fourth quarter,
the Specialty Products Group sold the building of its de-inked pulp mill located in Auburn, Maine, and recorded a $2 million
reversal of impairment.



In the third quarter,
the Tissue Group incurred $2 million of impairment charges related to the revaluation of some equipment following the closure of
its Toronto converting plant in the second quarter. The Group also recorded a $3 million provision related to an onerous lease
due to the closure.



In the second quarter,
the Containerboard Packaging Group recorded a $1 million gain on the reversal of a provision for an onerous lease contract related
to the restructuring of its Ontario converting activities in 2012. In the same quarter, the Group recorded a $2 million impairment
charge on assets from the Connecticut converting plant that were not part of the transfer associated with the Rand-Whitney Newtown
plant acquisition.



In the second quarter,
the Boxboard Europe Group recorded $2 million of restructuring costs related to the reorganization of its activities following
the transfer of the virgin fibre boxboard mill located in La Rochette, France, to the Corporation's partly-owned Reno de Medici
subsidiary.



In the second quarter,
the Specialty Products Group recorded $1 million of restructuring costs following the closure of its de-inked pulp mill located
in Auburn, Maine. The Group also sold a piece of land related to a closed plant and recorded a $1 million reversal of impairment.



In the second quarter,
the Tissue Group incurred $4 million of severance costs following the transfer of the Toronto plant converting operations to other
Tissue Group sites. This transfer resulted in $2 million of impairment charges due to the revaluation of some equipment that was
not transferred.



2015

In the fourth quarter,
the Boxboard Europe Group reviewed the recoverable value of its virgin boxboard mill located in France and recorded impairment
charges of $42 million on fixed assets and $11 million on spare parts. In 2015, the Group also recorded impairment charges
of $3 million and a severance provision of $1 million related to plants that were closed over past years.



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 plants and recorded impairment charges of $10 million
on fixed assets and $1 million on spare parts.



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.



DERIVATIVE FINANCIAL INSTRUMENTS

In 2016, the Corporation
recorded an unrealized gain of $18 million, compared to an unrealized loss of $18 million in 2015, on certain derivative financial
instruments not designated for hedge accounting. The 2016 unrealized gain is mainly attributable to the reclassification of last
year's unrealized loss on foreign exchange hedging contracts in 2016 unadjusted results as they were realized during the year (see
note 27 of the 2016 audited consolidated financial statements for more details). The appreciation of the Canadian dollar at the
beginning of 2016 also had a positive impact.



LOSS ON REFINANCING
OF LONG-TERM DEBT

Following refinancing
of the Corporation's 2020 unsecured senior notes during the second quarter of 2015, the Corporation recorded premiums of $13 million
to repurchase and redeem notes prior to maturity. The Corporation similarly wrote off financing costs and discounts related to
the redeemed notes for an amount totaling $6 million.



10







INTEREST RATE
SWAPS

In 2016, the Corporation
recorded an unrealized gain of $1 million on interest rate swaps which is included in financing expense, compared to an unrealized
loss of $1 million in 2015.



FOREIGN EXCHANGE
LOSS (GAIN) ON LONG-TERM DEBT AND FINANCIAL INSTRUMENTS

In 2016, the Corporation
recorded a gain of $22 million on its US$-denominated debt and related financial instruments, compared to a loss of $91 million
during 2015. This is composed of a gain of $13 million in 2016, compared to a loss of $76 million in 2015, on our US$-denominated
long-term debt, net of our net investment hedges in the U.S. and Europe and forward exchange contracts designated as hedging instruments,
if any. It also includes a gain of $9 million during the year, compared to a loss of $15 million in 2015, on foreign exchange forward
contracts not designated for hedge accounting.



SHARE OF RESULTS
OF ASSOCIATES AND JOINT VENTURES



2016

On May 6, 2016, the
Corporation announced that its associate company Greenpac, located in Niagara Falls, New York, successfully refinanced its debt.
The Corporations' share of the fees related to this debt refinancing amounted to $7 million. In 2015, the Corporation also recorded
its share of an unrealized gain of $1 million on certain derivative financial instruments not designated for hedge accounting.



2015

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 from 27.43% to 20.29%, which resulted in a dilution gain of $15 million for the Corporation.



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



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



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



PROVISION FOR
INCOME TAXES



2016

The Corporation recorded
a $2 million income tax provision adjustment related to the sale of one of its businesses over the past years.



2015

The provision for
income taxes included $18 million of deferred tax assets reversal following the impairment charge on our virgin boxboard mill in
France.



DISCONTINUED OPERATIONS



2015

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 a payment of $46 million
in the first quarter of 2015. A selling price adjustment of $8 million was agreed on, of which $6 million was paid during the year.
The Corporation recorded a loss of $4 million. The Containerboard Group also recorded a $4 million gain in the first quarter on
the reversal of a post-employment benefit liability, which was not part of the transaction, but settled as a consequence of the
sale.



On June 30, 2014,
we sold the fine papers activities of the Specialty Products Group to Les Entreprises Rolland, a subsidiary of H.I.G. Capital.
The Corporation finalized the working capital selling price adjustment related to this transaction and recorded a $1 million gain
in 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 which was not part of the transaction and recorded a $1 million reversal
of impairment in the second quarter.



11







SUPPLEMENTAL INFORMATION ON NON-IFRS
MEASURES



Net earnings (loss),
a performance measure defined by IFRS, is reconciled below with operating income, adjusted operating income and adjusted operating
income before depreciation and amortization:

|                                                                                                             |      |   |      |  
|------------------------------------------------------------------------------------------------------------ | ---- | - | ---- | -
|(in millions of Canadian dollars)                                                                            | 2016 |   | 2015 |  
|Net earnings (loss) attributable to Shareholders for the year                                                | 135  |   | (65  | )
|Net earnings attributable to non-controlling interests                                                       | 2    |   | 9    |  
|Net earnings from discontinued operations                                                                    | —    |   | (1   | )
|Provision for income taxes                                                                                   | 45   |   | 40   |  
|Share of results of associates and joint ventures                                                            | (32  | ) | (37  | )
|Foreign exchange loss (gain) on long-term debt and financial instruments                                     | (22  | ) | 91   |  
|Financing expense and interest expense on employee future benefits and loss on refinancing of long-term debt | 93   |   | 116  |  
|Operating income                                                                                             | 221  |   | 153  |  
|Specific items:                                                                                              |      |   |      |  
|Gain on acquisitions, disposals and others                                                                   | (4   | ) | (1   | )
|Impairment charges                                                                                           | 3    |   | 69   |  
|Restructuring costs (gains)                                                                                  | 9    |   | (3   | )
|Unrealized loss (gain) on derivative financial instruments                                                   | (18  | ) | 18   |  
|                                                                                                             | (10  | ) | 83   |  
|Adjusted operating income                                                                                    | 211  |   | 236  |  
|Depreciation and amortization                                                                                | 192  |   | 190  |  
|Adjusted operating income before depreciation and amortization                                               | 403  |   | 426  |  



The following table
reconciles net earnings (loss) and net earnings (loss) per common share, as per IFRS, with adjusted net earnings and adjusted
net earnings per common share:

|                                                                                                   |                     |                                           |      |   |      |       |      |       |       |  
|-------------------------------------------------------------------------------------------------- | ------------------- | ----------------------------------------- | ---- | - | ---- | ----- | ---- | ----- | ----- | -
|                                                                                                   | NET EARNINGS (LOSS) | NET
    EARNINGS (LOSS) PER COMMON SHARE1
|(in millions of Canadian dollars, except amount per common share)                                  | 2016                |                                           | 2015 |   | 2016 |       | 2015 |      
|As per IFRS                                                                                        | 135                 |                                           | (65  | ) | $    | 1.42  |      | $     | (0.69 | )
|Specific items:                                                                                    |                     |                                           |      |  
|Gain on acquisitions, disposals and others                                                         | (4                  | )                                         | (1   | ) | $    | (0.03 | )    | $     | (0.01 | )
|Impairment charges                                                                                 | 3                   |                                           | 69   |   | $    | 0.03  |      | $     | 0.67  |  
|Restructuring costs (gains)                                                                        | 9                   |                                           | (3   | ) | $    | 0.06  |      | $     | (0.03 | )
|Unrealized loss (gain) on derivative financial instruments                                         | (18                 | )                                         | 18   |   | $    | (0.14 | )    | $     | 0.14  |  
|Loss on refinancing of long-term debt                                                              | —                   |                                           | 19   |   | —    |       | $    | 0.15  |      
|Unrealized loss (gain) on interest rate swaps                                                      | (1                  | )                                         | 1    |   | $    | (0.01 | )    | $     | 0.01  |  
|Foreign exchange loss (gain) on long-term debt and financial instruments                           | (22                 | )                                         | 91   |   | $    | (0.19 | )    | $     | 0.83  |  
|Share of results of associates and joint ventures                                                  | 7                   |                                           | (9   | ) | $    | 0.05  |      | $     | (0.07 | )
|Included in discontinued operations, net of tax                                                    | —                   |                                           | (2   | ) | —    |       | $    | (0.02 | )    
|Tax effect on specific items, other tax adjustments and attributable to non-controlling interests1 | 5                   |                                           | (6   | ) | $    | 0.02  |      | $     | 0.20  |  
|                                                                                                   | (21                 | )                                         | 177  |   | $    | (0.21 | )    | $     | 1.87  |  
|Adjusted                                                                                           | 114                 |                                           | 112  |   | $    | 1.21  |      | $     | 1.18  |  

1
Specific amounts per common share are calculated on an after-tax basis and are net of the portion attributable to non-controlling
interests. Per share amounts in line item ''Tax effect on specific items, other tax adjustments and attributable to non-controlling
interests'' only include the effect of tax adjustments. The $0.02 impact in 2016 is related to an income tax provision adjustment
on past years sale of assets. The $0.20 impact in 2015 is related to the $18 million deferred tax assets reversal following the
revaluation of our virgin boxboard mill in France.



12







The following table
reconciles cash flow from operating activities from continuing operations with operating income and operating income before depreciation
and amortization:

|                                                               |      |   |      |  
|-------------------------------------------------------------- | ---- | - | ---- | -
|(in millions of Canadian dollars)                              | 2016 |   | 2015 |  
|Cash flow from operating activities from continuing operations | 372  |   | 284  |  
|Changes in non-cash working capital components                 | (56  | ) | 38   |  
|Depreciation and amortization                                  | (192 | ) | (190 | )
|Net income taxes paid (received)                               | (10  | ) | 14   |  
|Net financing expense paid                                     | 89   |   | 89   |  
|Premium paid on long-term debt refinancing                     | —    |   | 13   |  
|Gain on acquisitions, disposals and others                     | 4    |   | 1    |  
|Impairment charges and restructuring costs                     | (4   | ) | (64  | )
|Unrealized gain (loss) on financial instruments                | 18   |   | (18  | )
|Dividend received, employee future benefits and others         | —    |   | (14  | )
|Operating income                                               | 221  |   | 153  |  
|Depreciation and amortization                                  | 192  |   | 190  |  
|Operating income before depreciation and amortization          | 413  |   | 343  |  



The following table
reconciles cash flow from operating activities from continuing operations with cash flow from operating activities from continuing
operations (excluding changes in non-cash working capital components) and adjusted cash flow from operating activities from continuing
operations:

|                                                                                                                          |      |   |      | 
|------------------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | 
|(in millions of Canadian dollars)                                                                                         | 2016 |   | 2015 | 
|Cash flow from operating activities from continuing operations                                                            | 372  |   | 284  | 
|Changes in non-cash working capital components                                                                            | (56  | ) | 38   | 
|Cash flow from operating activities from continuing operations (excluding changes in non-cash working capital components) | 316  |   | 322  | 
|Specific items, net of current income taxes if applicable:                                                                |      |   |      | 
|Restructuring costs                                                                                                       | 8    |   | 2    | 
|Premium paid on long-term debt refinancing                                                                                | —    |   | 13   | 
|Adjusted cash flow from operating activities from continuing operations                                                   | 324  |   | 337  | 



The following table
reconciles total debt and net debt with the ratio of net debt to adjusted operating income before depreciation and amortization
(adjusted OIBD):

|                                  |                   |  |                   | 
|--------------------------------- | ----------------- |  | ----------------- | 
|(in millions of Canadian dollars) | December 31, 2016 |  | December 31, 2015 | 
|Long-term debt                    | 1,530             |  | 1,710             | 
|Current portion of long-term debt | 36                |  | 34                | 
|Bank loans and advances           | 28                |  | 37                | 
|Total debt                        | 1,594             |  | 1,781             | 
|Less: Cash and cash equivalents   | 62                |  | 60                | 
|Net debt                          | 1,532             |  | 1,721             | 
|Adjusted OIBD                     | 403               |  | 426               | 
|Net debt / Adjusted OIBD ratio    | 3.8               |  | 4.0               | 



13







FINANCIAL RESULTS FOR THE YEAR ENDED
DECEMBER 31, 2016, COMPARED TO THE YEAR ENDED DECEMBER 31, 2015



SALES

Sales
increased by 4%, or $140 million, to $4,001 million in 2016, compared to $3,861 million in 2015. The 4% and 3% average depreciation
of the Canadian dollar against the U.S. dollar and the euro, respectively, contributed $95 million to the increase. A strong performance
from our recovery and recycling activities5 increased
sales by $32 million compared to last year. Despite a decrease in shipments from our European boxboard activities, higher volumes
from our three North American sectors contributed a total net amount of $12 million to sales compared to the prior year. Higher
average selling prices in the tissue and containerboard segments more than offset the decrease in the Boxboard Europe Group, and
had a net positive impact of $8 million on sales compared to last year.



Sales by geographic
segment are as follows, along with the location of our plants and employees around the world:

|                   |  |                 
|------------------ |  | ----------------
|Sales from (in %): |  | Sales to (in %):
|                   |  |                 



|                                                    |  |                                    
|--------------------------------------------------- |  | -----------------------------------
|Production
    units and sorting facilities (in %)1 |  | Count of employees worldwide (in %)
|                                                    |  |                                    

1 Excluding sales offices, distribution
and transportation hubs and corporate offices. Including the main associates and joint ventures.



OPERATING INCOME FROM CONTINUING OPERATIONS

The Corporation generated
operating income of $221 million in 2016, $68 million higher than the $153 million reported in 2015. Specific items recorded in
both years (please refer to the ''Specific Items Included in Operating Income and Net Earnings (loss)'' section for more details)
increased operating income by $93 million, which was partly offset by a $25 million decrease in adjusted operating income. Adding
to the benefit derived from increased sales, discussed above, were lower energy costs, which added $23 million to operating income.
The 4% and 3% average depreciation of the Canadian dollar against the U.S. dollar and the euro, respectively, also added $7 million
to operating income. Offsetting these benefits were higher corporate activities costs related to expenses associated with the implementation
of our ERP system and business process optimization initiatives, and costs of $2 million stemming from a fire at our containerboard
mill in Mississauga, Ontario. Variations in the mix of products sold in 2016, which generated higher sales, also resulted in corresponding
higher production and logistics costs during the year, primarily in the containerboard and tissue papers segments.



14







Adjusted operating
income was $211 million in 2016, compared to $236 million in 2015 (see the “Supplemental Information on Non-IFRS Measures”
and ''Specific Items Included in Operating Income and Net Earnings (Loss)'' sections for reconciliations of these amounts).



The main variances
in sales and operating income in 2016, compared to 2015, are shown below:

|           |  |                      
|---------- |  | ---------------------
|Sales ($M) |  | Operating income ($M)
|           |  |                      



1
Raw material:The impacts of these estimated costs are based on production costs per unit shipped externally or inter-segment,
which are affected by yield, product mix changes, and purchase and transfer prices. In addition to market pulp and recycled fibre,
they include purchases of external boards and parent rolls for the converting sector, and other raw material such as plastic and
wood chips.

2
F/X CAN$:The estimated impact of the exchange rate is based on the Corporation's Canadian export sales less purchases,
denominated in US$, that are impacted by exchange rate fluctuations, and by the translation of our non-Canadian subsidiaries OIBD
into CAN$. It also includes the impact of exchange rate fluctuations on the Corporation's Canadian units in currency other than
the CAN$ working capital items and cash positions, as well as our hedging transactions. It excludes indirect sensitivity (please
refer to page 34 for further details).

3
Other costs:''Other costs'' include the impact of variable and fixed costs based on production costs per unit shipped
externally, which are affected by downtimes, efficiency and product mix changes.

4
OIBD: Adjusted (excluding specific items).

5
Recovery and Recycling activities:While this segment is integrated within the other segments of the Corporation, any
variation in the results of Recovery and Recycling activities are presented separately and on a global basis in the charts.



The analysis of variances
in segment operating income appear within each business segment review (please refer to pages 47 to 58).



15







BUSINESS SEGMENT REVIEW



PACKAGING PRODUCTS - CONTAINERBOARD



Our Industry

|                                                                                                                                                                                                         |  |                                                                                                                                                                            
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|U.S.
    containerboard industry production and capacity utilization rate 1                                                                                                                              |  | U.S.
    containerboard inventories at box plants and mills2                                                                                                               
|Total U.S.containerboard production increased by 1% for a second consecutive year in 2016. Over the past three years, the industry's capacity utilization rate has remained stable at approximately 96%. |  | The average inventory level decreased by 3% in 2016 due to strong demand levels for corrugated boxes. The number of weeks of supply in inventory averaged 4.1 for the year.
|                                                                                                                                                                                                         |  |                                                                                                                                                                            



|                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|U.S
    corrugated box industry shipments2                                                                                                                                                                                                     |  | Canadian
    corrugated box industry shipments3                                                                                                                                                                                                  
|Total U.S. corrugated box shipments increased by 2% in 2016, representing the largest increase since 2010. The growing importance of e-commerce and the recovery of agriculture on the American West Coast were two main contributing factors. |  | Canadian corrugated box shipments increased for a third consecutive year. The 2% year-over-year increase in 2016 was mainly due to the weakness of the Canadian dollar, which increased demand for Canadian corrugated boxes from U.S. customers.
|                                                                                                                                                                                                                                               |  |                                                                                                                                                                                                                                                  



|                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference
    prices - containerboard 1                                                                                                                                                                                                                                                                                                              |  | Reference
    prices - recovered papers (brown grade)1                                                                                                                                                                                                                                                                
|Market softness at the beginning of the year negatively impacted containerboard prices. Demand for corrugated products increased through the year, and containerboard producers were able to increase prices by US$40/s.t. in October. Overall, the linerboard and corrugating medium reference prices declined by 1% and 7%, respectively, in 2016. |  | The average reference price of old corrugated containers no.11 ("OCC") increased by 12% in 2016. This reflects a combination of strong exports, steady to good demand from domestic mills, and new containerboard capacity added to the market. These items resulted in a tightening of supply in the domestic market.
|                                                                                                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                       



1
Source: RISI



2
Source: Fibre Box Association



3
Source: Canadian Corrugated and Containerboard Association



16







Our Performance



| | 
| | 
| | 
| | 



The main variances in sales and operating
income for the Containerboard Packaging Group in 2016, compared to 2015, are shown below:



|Sales ($M) |  | Operating income ($M)
|---------- |  | ---------------------
|           |  |                      



For Notes 1 to 4, see definitions on page
46.

The Corporation incurred
certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to
42 for reconciliation statements and further details.



17







2015
    2016
    
    Change in %Shipments1('000 s.t.)
    
    2%1,114
    1,138Average Selling Price(CAN$/unit)1,169
    1,204
    
    3%Sales ($M)
    
    5%1,301
    1,370Operating income ($M)(as reported)170
    158
    
    -7%(adjusted)
    
    -5%168
    160OIBD ($M)(as reported)233
    214
    
    -8%% of sales18%
    16%(adjusted)231
    216
    
    -6%% of sales18%
    16%  1 Shipments
do not take into account the elimination of business sector inter-company shipments. Including 11.7 billion square feet in 2015
compared to 12.2 billion square feet in 2016.  2 The
Corporation's interest in Greenpac is booked using the equity method. All transactions are therefore treated as external.


External mill shipments
decreased by 5,000 s.t., or 1%, although the manufacturing capacity utilization rate rose 1%. This is explained by the greater
number of tons shipped internally, which resulted in the mill integration rate increasing to 52% in 2016 compared to 51% in 2015.
When including paper sold to our associated companies, the integration rate increased to 67% from 64% last year. On the converting
side, shipments increased by 4% or 29,000 s.t. year-over-year. Excluding the 19,000 s.t. of supplementary shipments stemming from
the transaction concluded with US-based company Rand-Whitney (please refer to the ''Business Highlights'' section for further details)
in the second quarter of 2016, shipments for the converting activities increased by 2%. This performance is in line with the Canadian
and US industries, which both recorded an increase of 2%.  The 3% average selling
price increase reflects the combination of a 1% average selling price decrease in our primary products, 3% increase in our converted
products and the favorable impact stemming from the depreciation of the Canadian dollar.  The 5% increase
in sales reflects increased volume, which added $28 million (including $22 million stemming from the transaction concluded
with US-based company Rand-Whitney) to sales. The 4% depreciation of the Canadian dollar and higher average selling price added
$16 million and $13 million, respectively. The higher percentage of converted products in the product mix positively impacted sales
by $11 million.  The 5% decrease
in adjusted operating income is mainly explained by a $28 million increase in other costs. This is partly attributable to an increase
in production costs linked to higher repair and maintenance and chemical expenses, and increased logistics and warehousing costs.
In addition, the higher percentage of converted products sold, generating higher contribution to operating income, also contributed
to the increase in other production costs on a per ton basis. Depreciation of the Canadian dollar and lower energy costs respectively
added $3 million and $1 million to operating income, while higher average raw material costs subtracted $18 million from
operating income compared to last year. Lower depreciation and amortization, which decreased by $7 million compared to the prior
year, positively impacted operating income. This followed major equipment modernization efforts in 2015, which triggered the revaluation
of the remaining useful life of some assets. On the other hand, better average selling price and mix denominated in Canadian dollars
and higher volume, positively impacted our results of $24 million and $2 million respectively.  The Containerboard
Packaging Group recorded a $1 million gain during 2016 on the reversal of a provision for an onerous lease contract related to
the 2012 restructuring of its Ontario converting activities. As well, the Group recorded a $2 million impairment charge related
to assets from the Connecticut converting plant that were not part of the transfer associated with the Rand-Whitney Newtown, CT,
plant acquisition. Finally, the Group recorded a $1 million unrealized loss on embedded derivative financial instruments. In 2015,
the Containerboard Packaging Group sold a warehouse in Québec City and recorded a $1 million gain. Also, the Group recorded
a $1 million unrealized gain on certain derivative financial instruments not designated for hedge accounting.  Finally, the Corporation's
net earnings include our share of results from our associate Greenpac2 mill (59.7%). On an adjusted basis, Greenpac's contribution
to earnings before income taxes was $23 million in 2016, compared to $18 million in 2015.






18







PACKAGING PRODUCTS - BOXBOARD EUROPE



Our Industry



European
industry order inflow of coated boxboard1

In Europe, order inflows
of white-lined chipboard decreased by 4% in 2016 compared to 2015, reflecting particularly high demand in the first eight months
of 2015. Notably, order inflows of white-lined chipboard were 6% higher in 2016 than in 2014. Order inflow improved toward the
end of 2016, and the industry experienced the best fourth quarter of the last ten years with orders of approximately 790,000 tonnes.
Order inflows for folding boxboard in 2016 were 2% lower than in 2015.

|                                                                                                                           |  |                                                                                                                    
|-------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------
|Coated
recycled boxboard industry's order inflow from Europe

(White-lined
chipboard (WLC) - 5-week weekly moving average) |  | Coated
virgin boxboard industry's order inflow from Europe

(Folding
boxboard (FBB) - 5-week weekly moving average)
|                                                                                                                           |  |                                                                                                                    



|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference
    prices - boxboard in Europe2                                                                                                                                                                                                                                                                                                                                                                                                                |  | Reference
    prices
    - recovered papers in Europe2                                                                                                                                                                                                                          
|White-lined
    chipboard reference prices decreased for a second consecutive year in Western European countries. Challenging market conditions
    resulted in a 2% decline in the average price in 2016 compared to 2015. Folding boxboard reference prices eroded at the beginning
    of 2016 in some European countries, and then remained relatively stable for the remainder of the year, resulting in a 2% decrease
    in 2016 compared to 2015. |  | Recovered
    paper prices were under pressure in 2016 due to strong demand and exports. As a result, therecovered paper reference
    index in Europe was 10% higher in 2016 than in 2015, reflecting an increase in average prices for brown, white and groundwood
    grades.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                                                                                                 



| | 1 | Source:
                                         CEPI Cartonboard
| | - | -----------------------------------------------------------------



| | 2 | Source:
                                         RISI
| | - | -----------------------------------------------------



| | 3 | The
Cascades recycled white-lined chipboard selling prices index represents an approximation of Cascades’ recycled grade selling
prices in Europe. It is weighted by country. For each country, we use an average of PPI Europe prices for white-lined chipboard.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4 | The
Cascades virgin coated duplex boxboard selling prices index represents an approximation of Cascades’ virgin grade selling
prices in Europe. It is weighted by country. For each country, we use an average of PPI Europe prices for coated duplex boxboard.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5 | The
recovered paper index represents an approximation of Cascades’ recovered paper purchase prices in Europe. It is weighted
by country. For each country, we use an average of PPI Europe prices for recovered papers. This index should only be used as a
trend indicator and may differ from our actual purchasing costs and our purchase mix.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19







Our Performance



| | 
| | 
| | 
| | 



The main variances in sales and operating
income (loss) for the Boxboard Europe Group in 2016, compared to 2015, are shown below:

|           |  |                             
|---------- |  | ----------------------------
|Sales ($M) |  | Operating income (loss) ($M)
|           |  |                             
|           |  |                             

For Notes 1 to 4, see definitions on page
46.

The Corporation incurred
certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to
42 for reconciliation statements and further details.



20







2015
    2016
    
    Change in %Shipments1('000 s.t.)
    
    -4%1,111
    1,066Average Selling Price2(CAN$/unit)743
    746
    
    —(Euro€/unit)523
    509
    
    -3%Sales ($M)
    
    -4%825
    796Operating income (loss) ($M)(as reported)(28)
    19
    
    168%(adjusted)
    
    -28%29
    21OIBD ($M)(as reported)6
    51
    
    750%% of sales1%
    6%(adjusted)63
    53
    
    -16%% of sales8%
    7% 1 Shipments do not take into account
the elimination of business sector inter-company shipments. 2 Average selling price is a weighted
average of virgin and recycled boxboard shipments.


The decrease in shipments
is mostly attributable to lower recycled boxboard shipments, which declined 43,000 s.t. or 5% to 904,000 s.t. during the year,
while shipments of virgin boxboard marginally decreased by 1%. The decrease in shipments is mainly a reflection of the challenging
economic environment in Europe.  The average selling
price remained stable in 2016, as the impact of a 3% decrease in the average selling price in euros was offset by a 3% average
depreciation of the Canadian dollar against the euro. The decrease in the 2016 average selling price in euros reflects lower demand
and unfavourable geographic sales mix. When compared to 2015, the average selling price in recycled boxboard activities declined
€17, or 3%, while the average selling price in virgin boxboard activities decreased €18, or 2%, in 2016. On a consolidated
basis, however, the average selling price decreased by a less pronounced €14 year-over-year, reflecting the greater proportion
of higher priced virgin boxboard sold in 2016.  Sales decreased 4%
in 2016 to $796 million. This reflects lower volumes from recycled boxboard activities and a lower average selling price, which
decreased sales by $37 million and $26 million, respectively. Partially offsetting this was the benefit from the 3% average
depreciation of the Canadian dollar against the euro, which increased sales by $34 million in 2016.  Adjusted operating
income decreased by $8 million in 2016, reflecting a lower average selling price, lower volumes from recycled boxboard activities
and higher material costs, which negatively impacted operating income by $26 million, $9 million, and $5 million, respectively.
Partially offsetting these impacts were a $18 million decrease in production costs, savings of $11 million related to lower energy
costs in France and Italy, and a $1 million currency exchange benefit due to the 3% average depreciation of the Canadian dollar
against the euro.  In 2016, the Boxboard
Europe Group recorded $2 million of restructuring costs relating to the reorganization of our activities following the transfer
of our fully-owned virgin fibre boxboard mill located in La Rochette, France, to our Reno de Medici partially-owned subsidiary.  In 2015, the Boxboard
Europe Group reviewed the recoverable value of its virgin boxboard mill located in France and recorded impairment charges of $42 million
on fixed assets and $11 million on spare parts. The Group also recorded impairment charges of $3 million and severance provisions
of $1 million in 2015 related to plants that were closed in previous years.






21







PACKAGING PRODUCTS - SPECIALTY PRODUCTS



Our Industry



|                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference
    prices - uncoated recycled boxboard1                                                                                                                                                                                   |  | Reference
    prices - fibre costs in North America1                                                                                                                                                                                                                                                                                                                              
|The reference price for uncoated recycled boxboard was higher in early 2016 as a result of a price increase at the end of 2015. The price softened as the year progressed, which resulted in a 2% increase in 2016 compared to 2015. |  | The white grade recycled paper No. 37 (sorted office papers) annual price remained stable in 2016 compared to 2015. The brown grade recycled paper No. 11 (old corrugated containers) annual price was 12% higher in 2016 due to strong demand. The annual price for recycled paper No. 8 (special news) increased 19% in 2016 compared to 2015 after two years relatively stable.
|                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                                                                                                                                                                   



U.S.
recycled fibres exports to China1

The relationship between
recovered paper supply and demand, particularly from Asia, plays an important role in pricing dynamics. U.S. exports of recycled
fibres to China declined by 3% in 2016. Old corrugated container and mixed paper exports decreased by 2% and 23% respectively,
over 2015, while old newspaper and other grades increased by 7% and 69% over the same period. The global percentage of total U.S
exports to China decreased slightly in 2016 to 67% from 69% in 2015.

|                                                            |  |                                  
|----------------------------------------------------------- |  | ---------------------------------
|Total U.S. exports of recycled papers to China - all grades |  | Major grades exported by the U.S.
|                                                            |  |                                  



Chinese
imports of recycled fibre1

Total Chinese imports
fell by 3% in 2016 compared to 2015 as the second half of the year was affected by the bankruptcy of an important ocean freight
carrier. On a more detailed basis, old corrugated container imports were essentially flat as were other grades, while mixed paper
and old newspaper imports fell by 6% and 9%, respectively.

|                                                      |  |                               
|----------------------------------------------------- |  | ------------------------------
|Total Chinese imports of recycled papers - all grades |  | Major grades imported by China
|                                                      |  |                               
|                                                      |  |                               
|1
    Source: RISI                                   



22







Our Performance



| | 
| | 







The main variances
in sales and operating income for the Specialty Products Group in 2016, compared to 2015, are shown below:

|           |  |                      
|---------- |  | ---------------------
|Sales ($M) |  | Operating income ($M)
|           |  |                      



For Notes 1 to 5, see definitions on page
46.

The Corporation incurred
certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to
42 for reconciliation statements and further details.



23







2015
    2016
    
    Change in %Shipments1('000 s.t.)
    
    10%170
    187Sales ($M)
    
    7%579
    620Operating income ($M)(as reported)31
    51
    
    65%(adjusted)
    
    22%37
    45OIBD ($M)(as reported)52
    71
    
    37%% of sales9%
    11%(adjusted)58
    65
    
    12%% of sales10%
    10% 1 Industrial packaging shipments only.
Shipments do not take into account the elimination of business sector inter-company shipments. 2 Recovery and Recycling activities:
Given the level of integration of this segment within the other segments of the Corporation, variances in results are presented
excluding the impact of this segment. The variations of this segment are presented
separately on a global basis.


Shipments
for the Specialty Products Group increased in all sectors, with the exception of Recovery and Recycling activities2.
Shipments in the Industrial Packaging sector, primarily our uncoated recycled board mill, increased by 10% in 2016 compared to
2015.  The
7% year-over-year increase in sales is the result of increased shipments, higher selling prices in Recovery and Recycling activities2and the Industrial Packaging sector, and a favourable exchange rate. These positive factors
were partly offset by lower average selling prices in the Consumer Product Packaging sector and the loss of revenues following
the closure of the mill in Auburn, Maine, in the second quarter of 2016.  Adjusted
operating income increased by 22% in 2016. This reflects higher realized spreads (average selling price and raw material costs)
in Recovery and Recycling activities2, improved volumes
in all packaging sectors, and a favourable exchange rate. These factors were counterbalanced by higher administrative and maintenance
costs during the year as well as a lower average selling price in Consumer Products packaging.  In 2016, the Specialty
Products Group recorded a $3 million gain on the sale of pieces of land close to its former fine paper plant located at St-Jérôme,
Québec. As well, the Group recorded a $4 million gain on the sale of assets and $1 million in restructuring costs following
the closure of its de-inked pulp mill located in Maine, and also recorded a $3 million reversal of impairment following mainly
the sale of a building related to this closure. Finally, the Group recorded a $3 million environmental provision related to
plants closed in Québec in prior years.  In 2015, the Specialty
Products Group reviewed the recoverable value of one of its plants and recorded impairment charges of $10 million on fixed assets
and $1 million on spare parts. Also during the year, the Group proceeded with the legal restructuring of its Norcan Flexible
Packaging subsidiary, which was owned at 62.1%. As a result of the restructuring, 100% of the net assets of this business were
acquired through the Cascades Flexible Packaging subsidiary. The Corporation recorded a gain of $5 million on the extinguishment
of some liabilities following the transaction (including $2 million attributable to non-controlling interests).






24







TISSUE PAPERS



Our Industry

|                                                                                                                                                                                                                                 |  |                                                                                                                         
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------
|U.S.
    tissue paper industry production (parent rolls) and capacity utilization rate1                                                                                                                                          |  | U.S.
    tissue paper industry converted product shipments1                                                             
|Total parent roll production increased by 2% for a second consecutive year in 2016. The average capacity utilization rate fell by approximately 1% to 93% in 2016 compared to 2015, due to new capacity additions in the market. |  | In 2016, shipments for the retail and the away-from-home markets increased by 2% and 3%, respectively, compared to 2015.
|                                                                                                                                                                                                                                 |  |                                                                                                                         



|                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                       
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|U.S.
        producer price index - annual changes in converted tissue prices 2                                                                                                                                                                                                             |  | Reference
    prices - parent rolls1                                                                                                                                  
|In the U.S., prices for retail toilet tissue increased in the second half of 2016. Prices for industrial paper towels surged at the beginning of the year and then dramatically declined towards year-end. Prices for retail paper towels were down significantly in 2016 compared to 2015. |  | In 2016, the reference price for recycled parent rolls increased by 3% compared to 2015, while the reference price for virgin parent rolls rose by 2% during the year.
|                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                       



|                                                                                                                                                                                                    |  |                                                                                                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Reference
    prices - recovered papers (white grade)1                                                                                                                                              |  | Reference
    prices - market pulp1                                                                                                                                                                                        
|Despite an upward trend between May and December caused by lower levels of material generation, the reference price of Sorted office papers no.37 ("SOP") remained stable in 2016 compared to 2015. |  | In 2016, the reference price for NBSK rose by 1% compared to 2015 due to limited domestic supply and strong Chinese demand. The NBHK reference price fell by 3% in 2016 as a result of weak supply and demand fundamentals.
|                                                                                                                                                                                                    |  |                                                                                                                                                                                                                            



1 Source: RISI



2 Source: U.S. Bureau of Labor
Statistics



25







Our Performance



| | 
| | 
| | 
| | 



The main variances
in sales and operating income for the Tissue Group in 2016, compared to 2015, are shown below:



|Sales ($M) |  | Operating income ($M)
|---------- |  | ---------------------
|           |  |                      



For Notes 1 to 4, see definitions on page
46.

The Corporation incurred
certain specific items in 2016 and 2015 that adversely or positively affected its operating results. Please refer to pages 40 to
42 for reconciliation statements and further details.



26







2015
    2016
    
    Change in %Shipments1('000
    s.t.)
    
    2%598
    608Average Selling Price(CAN$/unit)2,065
    2,146
    
    4%Sales ($M)
    
    6%1,236
    1,305Operating income ($M)(as reported)64
    75
    
    17%(adjusted)
    
    34%64
    86OIBD ($M)(as reported)119
    139
    
    17%% of sales10%
    11%(adjusted)119
    150
    
    26%% of sales10%
    11% 1 Shipments do not take into account
the elimination of business sector inter-company shipments.


External manufacturing
shipments decreased by 7,000 s.t., or 3%, in 2016 compared to 2015. Converting shipments increased by 17,000 s.t., or 4%,
year-over-year in 2016, with this increase primarily reflecting higher shipments in Canada in both the Away-from-Home and the Consumer
Products sectors. Please note that Cascades' Away-from-Home sector product line has been rebranded as "Cascades Pro".  The average selling
price was positively impacted by price increases in both the Pro and the Consumer Products sectors, but was partially offset by
price decreases in parent rolls.  The increase in total
sales was largely driven by a $19 million favourable volume impact, a $14 million beneficial impact related to the change in the
mix of products sold, and the higher average selling price as detailed above. In addition, the depreciation of the Canadian dollar
against the U.S. dollar positively impacted sales by $36 million.  On an adjusted basis,
operating income was largely driven by the sales increase as detailed above. Improved operational efficiency, lower raw material
costs stemming from lower purchases of externally sourced jumbo rolls, and reduced energy prices all positively contributed to
operating income. These improvements were partially offset by increased marketing investments in both the Consumer Products and
Pro markets, project expenses related to the start-up of our new Oregon converting plant, and additional market related downtime
at year end.  In 2016, the Tissue
Group incurred impairment charges of $4 million related to the revaluation of some equipment following the transfer of the Toronto
plant converting operations to other sites. Also related to this closure, the Group recorded a $3 million provision related to
an onerous lease contract, and $4 million in severance costs.






27







CORPORATE ACTIVITIES



Operating income
in 2016 includes an unrealized gain of $19 million on financial instruments, in addition to a $6 million foreign exchange loss
that is mainly related to hedging contracts. This compares to an unrealized loss of $19 million on financial instruments and a
$1 million foreign exchange loss in 2015.



2016 results also
include a $2 million loss related to a fire which occurred at our containerboard mill in Mississauga, Ontario, in early July. Comparable
2015 results included $8 million of insurance refunds related to a 2014 fire at our Niagara Falls, New York, containerboard mill.
Also in 2015, the company entered into employment contracts with some members of Senior Management, and recorded a liability of
$3 million. Finally, in 2015, we incurred $1 million of severance costs related to the reorganization of Corporate activities.



Activities related
to our ERP system and business process re-engineering increased our costs in 2016 compared to 2015. These higher costs reflect
the implementation of our ERP platform in twice as many plants compared to last year, and costs associated with efforts to optimize
several internal processes such as planning, logistics and procurement during the year. These activities are expected to reduce
future cost levels, and will require average quarterly investments of approximately $7 million until they are completed at the
end of 2017.



STOCK-BASED COMPENSATION EXPENSE

Share-based compensation
expense recognized in the Corporate Activities results amounted to $4 million in 2016 compared to $8 million in 2015. For more
details on stock-based compensation please refer to Note 20 of the 2016 audited consolidated financial statements.



OTHER ITEMS ANALYSIS



DEPRECIATION AND AMORTIZATION

Depreciation and
amortization expense increased by $2 million to $192 million in 2016 from $190 million in 2015. Impairment charges recorded in
2016 and 2015 decreased depreciation and amortization expense for 2016, but were more than offset by the depreciation of the Canadian
dollar and capital investments completed during the same period. The 4% and 3% average depreciation of the Canadian dollar against
the U.S. dollar and the euro, respectively, increased annual depreciation expense by $2 million in 2016. Recently completed property,
plant and equipment projects and the revision of the useful life of some assets mainly explains the increase of depreciation and
amortization expense for the Tissue Group by $9 million in 2016 compared to 2015. For the same reasons, the Corporation incurred
$11 million of depreciation and amortization expense in 2015.



Other intangible
asset amortization expense increased by $4 million in 2016 compared to 2015 as a result of the accelerated ERP platform implementation
during the year.



FINANCING EXPENSE AND INTEREST ON EMPLOYEE
FUTURE BENEFITS

The financing expense
and interest on employee future benefits decreased by $4 million to $93 million in 2016, from $97 million in 2015. The 4% and 3%
average depreciation of the Canadian dollar, against the U.S. dollar and the euro, respectively, increased the interest expense
by $2 million in 2016 compared to 2015. This was more than offset by the 2015 refinancing of senior notes at lower interest rates
(see the ''Business Highlights'' section for more details), which decreased our interest expense by $3 million in 2016 compared
to 2015. Our lower net indebtedness also reduced interest expense.



Interest expense
on employee future benefit obligations stood at $5 million in 2016 compared to $6 million in 2015.



28







PROVISION FOR INCOME TAXES

In 2016, the Corporation
recorded an income tax provision of $45 million, for an effective tax rate of 25%. This compared to $40 million in 2015. The provision
for income taxes based on the effective income tax rate differs from the provision for (recovery of) income taxes based on the
combined basic rate for the following reasons:



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



The Corporation did
not record any deferred tax on the $53 million impairment charge related to our Boxboard mill in France during 2015. In addition,
deferred tax assets of $18 million were reversed following reassessment of the value of the mill. The tax provision or recovery
on foreign exchange gains or losses on long-term debt and related financial instruments, in addition to some share of results of
Canadian associates and joint ventures, are calculated at the rate of capital gains.



The Corporation's
share of results for our United States-based joint ventures and associates, which are mostly composed of the Greenpac mill, is
taxed based on the statutory tax rate. Moreover, as Greenpac is a limited liability company (LLC), partners agreed to account for
it as a disregarded entity for tax purposes. As such, income taxes at the United States statutory tax rate are fully integrated
into each partners' consolidated income tax provision based on its respective share in the LLC, and no income tax provision is
included in Greenpac's net earnings.



The effective tax
rate and income taxes are affected by the results of certain subsidiaries and joint ventures located in countries, notably the
United States, France and Italy, where the income tax rate is higher than in Canada. The normal effective tax rate is expected
to be in the range of 26% to 39%. The weighted-average applicable tax rate was 26.2% in 2016.



SHARE OF RESULTS OF ASSOCIATES AND
JOINT VENTURES

The share of results
of associates and joint ventures includes our 20.12% interest in Boralex Inc. (“Boralex”), a Canadian public corporation.
Boralex is a producer of electricity whose core business is the development and operation of power stations that generate renewable
energy, with operations in the Northeastern United States, Canada and France. To finance its acquisition of Enel Green Power France
SAS in December 2014, Boralex issued common shares in January 2015, which diluted our participation from 34.23% to 27.44%. 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 from 27.43% to 20.29%.



On January 18, 2017,
Boralex proceeded with the closing of its financing following the acquisition of the interest of Enercon Canada Inc in Niagara
Region Wind Farm in Southern Ontario, Canada. The acquisition was financed partly through subscription receipts issued in December
2016 and were exchanged for common shares at the closing. Following this transaction, our participation in Boralex now stands at
17.37%.



The Corporation records
its 59.7% share of the results of our associate Greenpac mill. In 2016, on an adjusted basis, Greenpac's contribution to our share
of results was $23 million compared to $18 million in 2015. No provision for income taxes is included in our Greenpac share of
results, as it is a disregarded entity for tax purposes (see the ''Provision for income taxes'' section above for more details).
For more information on specific items, please refer to section ''Specific items included in operating income and net earnings''.



29







LIQUIDITY AND CAPITAL RESOURCES



CASH FLOWS FROM OPERATING ACTIVITIES
FROM CONTINUING OPERATIONS

Continuing operating
activities generated $372 million of operating cash flow in 2016, compared to $284 million in 2015. Changes in non-cash working
capital components produced $56 million of liquidity in 2016, versus liquidity requirements of $38 million in 2015. The first half
of the year normally requires cash for working capital purposes due to seasonal variations, and prepaid expenses and payments of
year-end volume rebates are also more elevated in the first three months of the year. Moreover, inventory build-up normally takes
place during the first half of the year in preparation for the seasonally stronger summer. Higher sales in 2016 combined with increased
efficiencies of our finance shared services led to good cash inflow in the second half of the year. As at December 31, 2016,
working capital as a percentage of LTM sales stands at 11.0% compared to 11.3% as at December 31, 2015.



Cash flow from operating
activities from continuing operations, excluding changes in non-cash working capital components, stood at $316 million in 2016,
which compared to $322 million in 2015. In 2016, we incurred $8 million of cash cost following the closure of some plants, compared
to $2 million in 2015. In 2015, we also incurred $13 million of premium payments associated with the refinancing of long-term debt.
This cash flow measurement is relevant to the Corporation's ability to pursue its capital expenditure program and reduce its indebtedness.



INVESTING ACTIVITIES FROM CONTINUING
OPERATIONS

Investment activities
amounted to $185 million in 2016, compared to $153 million in 2015. Capital expenditure payments accounted for in 2016 totaled
$182 million, compared to $163 million in 2015. We also paid $16 million (including transaction fees) for the acquisition of the
Rand-Whitney plant located in Newtown, Connecticut (please refer to the ''Business Highlights'' section for more details).



PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENT



Total capital expenditure
payments in 2016 were $182 million, compared to $163 million in 2015. However, new capital expenditure projects amounted to $206
million in 2016, up 25% compared to the comparable $165 million in 2015. The variance in amounts is related to purchases of property,
plant and equipment included in ''Trade and Other Payables'' and to capital-lease acquisitions and other debt financing.



New capital expenditure
projects by sector were as follows (in $M):



|
|



The major capital
projects that were initiated, are in progress or were completed in 2016 are as follows:



CONTAINERBOARD PACKAGING GROUP

| | • | Converting
capacity investments at the Drummondville, Québec, plant;
| | - | --------------------------------------------------------------------



| | • | Installation
of a new water pulp process at the Cabano, Québec, mill to increase the return on wood-chips and reduce chemical usage
and atmospheric emissions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | New
rotary equipment at the converting plant in Winnipeg, Manitoba, which will increase efficiency and capacity;
| | - | ----------------------------------------------------------------------------------------------------------------



BOXBOARD EUROPE

| | • | Rebuilding
of some sections of the equipment at the Arnsberg, Germany, mill, which will increase production capacity, efficiency and savings
throughout the production process;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SPECIALTY PRODUCTS
GROUP

| | • | A
new sorting line for the collection of household and commercial recyclable materials for the Ottawa, Ontario, recovery facility;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



30







TISSUE GROUP

| | • | Investments
associated with the new tissue converting plant in Scappoose, Oregon. Please refer to the ''Significant Facts and Developments''
section for more details;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Upgrading
of equipment at the Wagram, North Carolina, converting plant.
| | - | -----------------------------------------------------------------------



INVESTMENTS IN INTANGIBLE, OTHER ASSETS,
ASSOCIATES & JOINT VENTURES



Investments in intangible
and other assets and in associated and joint ventures led to cash inflow of $8 million in 2016, compared to an outflow of $6 million
in 2015.



In 2016, we received
amounts from our associate company Greenpac that were related to a bridge loan from the Corporation, and management fees that were
due. In addition, we collected an amount that was no longer required to be held in trust, and also received payments for property,
plant and equipment sold in prior years. The amounts received were partly offset by the investments made in our ERP information
technology system, for software needed to support our business process re-engineering efforts, and by investments made in our associates
companies.



In 2015, similar
investments were made in our ERP information technology system and in software to support our business process re-engineering.
Amounts were received from our associate company Greenpac related to a bridge loan and management fees that were due to the Corporation.
We also received an amount related to the reimbursement of notes receivable from a business that had been sold in 2011.



FINANCING ACTIVITIES FROM CONTINUING
OPERATIONS



Financing activities
from continuing operations, including $15 million of dividend payments, debt repayment and the change in our revolving facility,
required $182 million in liquidity in 2016, compared to $129 million required in 2015.



In 2016, Cascades
purchased for cancellation 1,047,243 common shares at an average price of $8.62 representing an aggregate amount of $9 million.
We also issued 262,836 common shares and received $1 million in 2016 following options that were exercised and we also paid dividends
to non-controlling interests of Reno de Medici for a total amount of $1 million. During the year, the Corporation also received
$3 million related to the settlement of a portion of its 2017 derivatives related to repayment of long-term debt.



DEBT REFINANCING

On May 19, 2015,
the Corporation issued US$250 million ($305 million) in 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 totaling
$5 million.



Issuance proceeds
and the credit facility were used as follows:



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



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. Other existing financial conditions remained essentially unchanged.



In 2015, we entered
into agreements to acquire the 37.9% and 27% minority interests of Norcan Flexible Packaging and Cascades Recovery, respectively,
for a total amount of $5 million paid in 2015. An additionnal $30 million purchase price balance of Cascades Recovery is payable
over a ten-year period.



31







CASH FLOWS FROM DISCONTINUED OPERATIONS



The Corporation generated
cash flows of $30 million from discontinued operations in 2015. In 2015, the Containerboard Packaging Group sold its North American
boxboard activities and received $40 million and the Specialty Products Group paid $6 million for the settlement of the pension
plan of its East Angus, Québec, kraft paper mill closed in 2014. This Group also paid $2 million for the final selling price
adjustment related to its fine paper activities sold in 2014 for an amount of $36 million.



CONSOLIDATED FINANCIAL POSITION

AS AT DECEMBER 31, 2016, 2015 AND 2014



The Corporation's financial position and
ratios are as follows:



|                                                          |                   |       |                   |   |                   |   |   |      | 
|--------------------------------------------------------- | ----------------- | ----- | ----------------- | - | ----------------- | - | - | ---- | 
|(in millions of Canadian dollars, unless otherwise noted) | December 31, 2016 |       | December 31, 2015 |   | December 31, 2014 |  
|Cash and cash equivalents                                 | 62                |       | 60                |   | 29                |  
|Working
    capital1                                      | 326               |       | 406               |   | 379               |  
|As
    a % of sales2                                      | 11.0              | %     | 11.3              | % | 12.3              | %
|Bank loans and advances                                   | 28                |       | 37                |   | 46                |  
|Current portion of long-term debt                         | 36                |       | 34                |   | 40                |  
|Long-term debt                                            | 1,530             |       | 1,710             |   | 1,556             |  
|Total debt                                                | 1,594             |       | 1,781             |   | 1,642             |  
|Net debt (total debt less cash and cash equivalents)      | 1,532             |       | 1,721             |   | 1,613             |  
|Equity attributable to Shareholders                       | 984               |       | 867               |   | 893               |  
|Non-controlling interests                                 | 90                |       | 96                |   | 110               |  
|Total equity                                              | 1,074             |       | 963               |   | 1,003             |  
|Total equity and net debt                                 | 2,606             |       | 2,684             |   | 2,616             |  
|Ratio of net debt/(total equity and net debt)             | 58.8              | %     | 64.1              | % | 61.7              | %
|Shareholders' equity per common share (in dollars)        | $                 | 10.41 |                   | $ | 9.09              |   | $ | 9.48 | 

1 Working capital
includes accounts receivable (excluding the short-term portion of other assets) plus inventories less trade and other payables.

2
% of sales = Average LTM working capital/LTM sales. It includes or excludes significant business acquisitions and disposals, respectively,
of the last twelve months. Not adjusted for assets of disposal group classified as held for sale. Not adjusted for discontinued
operations.



NET DEBT RECONCILIATION

The variances in
the net debt (total debt less cash and cash equivalents) in 2016 are shown below (in millions of dollars), with the applicable
financial ratios included (see the “Supplemental Information on Non-IFRS Measures” section for reconciliation of these
figures):

|
|
|



|    |                                    |    
|--- | ---------------------------------- | ---
|426 | Adjusted OIBD (last twelve months) | 403
|4.0 | Net debt/Adjusted OIBD             | 3.8



32







Liquidity available
via the Corporation's credit facilities, along with the expected cash flow generated by its operating activities, will provide
sufficient funds to meet our financial obligations and to fulfill our capital expenditure program for at least the next twelve
months. Capital expenditures for 2017 have been budgeted at approximately $200 million. This amount is subject to change, depending
on the Corporation’s operating results and on general economic conditions. As at December 31, 2016, the Corporation
had $647 million (net of letters of credit in the amount of $13 million) available through its $750 million credit facility
(excluding our subsidiary Reno de Medici credit facility).



EMPLOYEE FUTURE BENEFITS



The Corporation’s
employee future benefits assets and liabilities amounted to $460 million and $588 million respectively as at December 31, 2016,
including an amount of $106 million for post-retirement benefits other than pension plans. The pension plans include an amount
of $61 million, which does not require any funding by the Corporation until it is paid to the employees. This amount is not expected
to increase, as the Corporation has reviewed its benefits program to phase out some of them for future retirees.



With regard to pension
plans, the Corporation’s risk is limited, since all defined benefit pension plans are closed to new employees and less than
10% of its active employees are subject to those pension plans, while the remaining employees are part of the Corporation’s
defined- contribution plans, such as group RRSPs or 401(k). Based on their balances as at December 31, 2016, 18% of the Corporation
pension plans have been evaluated on December 31, 2015 (17% in 2014). Where applicable, Cascades used the measurement relief allowed
by law in order to reduce the impact of its increased current contributions.



Considering the assumptions
used and the asset ceiling limit, the deficit status for accounting purposes of its pension plans amounted to $22 million
as at December 31, 2016, compared to $36 million in 2015. The 2016 pension plan expense was $7 million and the cash outflow was
$7 million. Due to the good investment returns in 2016 and the change in the assumptions, the expected expense for these pension
plans is $6 million in 2017. As for the cash flow requirements, these pension plans are expected to require a net contribution
of approximately $7 million in 2017. Finally, on a consolidated basis, the solvency ratio of the Corporation’s pension plans
has remained stable at around 100%.



COMMENTS ON THE FOURTH QUARTER OF 2016



Sales increased by
$4 million to $979 million in the fourth quarter of 2016, compared to $975 million in the same period of 2015. This reflects higher
sales from Recovery and Recycling activities and higher volumes from our containerboard packaging activities. Partially offsetting
these increases were lower average selling prices, primarily in our boxboard Europe and containerboard activities.



The Corporation generated
operating income of $33 million in the fourth quarter of 2016, an increase of $46 million from the comparable operating loss of
$13 million in the same period of 2015. This increase is largely due to the beneficial impact of the $61 million variance in specific
items recorded in the both periods.



On
an adjusted basis, fourth quarter 2016 operating income stood at $32 million compared to $47 million in the same period of 2015.
The decrease is due to higher raw material costs in each business segment, higher repair and maintenance and logistics costs, as
well as additional marketing initiatives in our Tissue Papers Group. Lower average selling prices from our boxboard Europe and
containerboard activities during the fourth quarter of 2016 also contributed to the reduction in operating income year-over-year.
On the other hand, the $7 million decrease in the depreciation and amortization expense in the fourth quarter of 2016 compared
to 2015,following major equipment modernization efforts in 2015, which triggered the revaluation
of the remaining useful life of some assets, partly offset these factors.



The main specific
items, before income taxes, that impacted our fourth quarter 2016 operating income and/or net earnings were:



| | • | a
$2 million impairment reversal related to a building sold after the closure of our de-inked pulp mill located in Auburn, Maine
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | • | a
$1 million unrealized loss on derivative financial instruments
| | - | ----------------------------------------------------------------



| | • | a
$13 million foreign exchange loss on long-term debt and financial instruments
| | - | -------------------------------------------------------------------------------



Adjusted net earnings
amounted to $15 million, or $0.16 per share, in the fourth quarter of 2016, compared to net earnings of $22 million, or $0.23 per
share, for the same period of 2015. As reported, net earnings stood at $4 million, or $0.04 per share in the fourth quarter of
2016, compared to a net loss of $76 million, or $0.81 per share, for the same period of 2015.



33







The reconciliation
of the specific items included in operating income (loss) by business segment is as follows:



|                                                                      |                                                |                 |                     |               |                       |             
|--------------------------------------------------------------------- | ---------------------------------------------- | --------------- | ------------------- | ------------- | --------------------- | ------------
|                                                                      | For the 3-month period ended December 31, 2016
|(in millions of Canadian dollars)                                     | Containerboard                                 | Boxboard Europe | Specialty 
Products | Tissue Papers | Corporate 
Activities | Consolidated
|Operating income (loss)                                               | 28                                             | 3               | 14                  | 12            | (24)                  | 33          
|Depreciation and amortization                                         | 14                                             | 8               | 5                   | 18            | 5                     | 50          
|Operating income (loss) before depreciation and amortization          | 42                                             | 11              | 19                  | 30            | (19)                  | 83          
|Specific items :                                                      |                                                |                 |                     |               |                       |             
|Impairment reversal                                                   | —                                              | —               | (2)                 | —             | —                     | (2)         
|Unrealized loss on financial instruments                              | 1                                              | —               | —                   | —             | —                     | 1           
|                                                                      | 1                                              | —               | (2)                 | —             | —                     | (1)         
|Adjusted operating income (loss) before depreciation and amortization | 43                                             | 11              | 17                  | 30            | (19)                  | 82          
|Adjusted operating income (loss)                                      | 29                                             | 3               | 12                  | 12            | (24)                  | 32          



|                                                                      |                                                |                 |                    |               |                      |             
|--------------------------------------------------------------------- | ---------------------------------------------- | --------------- | ------------------ | ------------- | -------------------- | ------------
|                                                                      | For the 3-month period ended December 31, 2015
|(in millions of Canadian dollars)                                     | Containerboard                                 | Boxboard Europe | Specialty Products | Tissue Papers | Corporate Activities | Consolidated
|Operating income (loss)                                               | 32                                             | (51)            | 11                 | 22            | (27)                 | (13)        
|Depreciation and amortization                                         | 23                                             | 9               | 5                  | 16            | 4                    | 57          
|Operating income (loss) before depreciation and amortization          | 55                                             | (42)            | 16                 | 38            | (23)                 | 44          
|Specific items :                                                      |                                                |                 |                    |               |                      |             
|Impairment charges                                                    | —                                              | 55              | —                  | —             | 2                    | 57          
|Restructuring gain                                                    | —                                              | —               | —                  | —             | (1)                  | (1)         
|Unrealized loss on financial instruments                              | 1                                              | —               | —                  | —             | 3                    | 4           
|                                                                      | 1                                              | 55              | —                  | —             | 4                    | 60          
|Adjusted operating income (loss) before depreciation and amortization | 56                                             | 13              | 16                 | 38            | (19)                 | 104         
|Adjusted operating income (loss)                                      | 33                                             | 4               | 11                 | 22            | (23)                 | 47          



The main variances
in sales and operating income (loss) in the fourth quarter of 2016, compared to the same period of 2015, are shown below:

|           |  |                             
|---------- |  | ----------------------------
|Sales ($M) |  | Operating income (loss) ($M)
|           |  |                             



For Notes 1 to 5, see definitions on page
46.



34







NEAR-TERM OUTLOOK



Looking ahead, we
expect near-term financial performance to reflect recent increases in raw material costs and the usual seasonal trends in our business
segments. In Europe, favourable order inflow trends at the beginning of 2017, and the recently announced €60 April price increase
suggest early signs of improvement in market dynamics compared to the softness seen in 2016. On a segmented basis, we expect the
fall 2016 price increase announcement to benefit our Containerboard Packaging division in the first quarter, and to be fully implemented
as of the end of the second quarter. However, recent raw material price increases will counterbalance the benefit. We recently
announced a second price increase in Containerboard, which should start to take effect in the second quarter, and be fully realized
during the second half of the year. In our Tissue Group, the combination of lower marketing costs, recent product repositioning
efforts and the beneficial impact of price increases announced in 2016 are expected to support performance going forward. On a
positive note, our new Tissue converting facility in Scappoose, Oregon, began operating its first line last month, as planned.
The facility will continue ramping up, and will add two new converting lines through the second quarter. Finally, we anticipate
our Specialty Products Group to maintain its positive momentum built over the past two years. On the cost side, tight market dynamics,
including strong demand, are expected to continue putting pressure on the price of our input materials in the near-term.



Corporate investments
are expected to remain elevated through the end of this year. However, we look forward to completing the implementation of our
ERP platform and other initiatives undertaken to modernize our internal processes in 2017. In addition, we will continue our efforts
to deleverage our balance sheet, and to analyze our strategic options with the view of creating additional value for our shareholders.
As always, our strategic efforts will be guided by our commitment to increase operational efficiency, execution and flexibility
through targeted investments and growth initiatives.



CAPITAL STOCK INFORMATION



SHARE TRADING

Cascades' stock is
traded on the Toronto Stock Exchange under the CAS ticker. From January 1, 2016 to December 31, 2016, Cascades' share price fluctuated
between $7.72 and $13.67. During the same period, 43.6 million Cascades' shares were traded on the Toronto Stock Exchange. On December
31, 2016, Cascades shares closed at $12.10. This compares to a closing price of $12.71 on the same day last year.



COMMON SHARES
OUTSTANDING

As at December 31,
2016, the Corporation's issued and outstanding capital stock consisted of 94,526,516 common shares (95,310,923 as at December 31, 2015),
and 5,093,536 issued and outstanding stock options (5,262,796 as at December 31, 2015). In 2016, the Corporation repurchased for
cancellation 1,047,243 common shares, and 262,836 options were exercised. As at March 1, 2017, issued and outstanding capital
stock consisted of 94,606,610 common shares and 5,013,442 stock options.



NORMAL COURSE
ISSUER BID PROGRAM

The current normal
course issuer bid enables the Corporation to purchase for cancellation up to 1,907,173 common shares between March 17, 2016
and March 16, 2017. During the period from March 17, 2016 to March 1, 2017, Cascades purchased and canceled 902,738 common
shares at a weighted average price of $8.65 per common share, representing an aggregate amount of approximately $7.8 million.



DIVIDEND POLICY

On March 1, 2017,
Cascades' Board of Directors declared a quarterly dividend of $0.04 per share to be paid on April 3, 2017, to shareholders of record
at the close of business on March 24, 2017. This $0.04 per share dividend is in-line with the previous quarter and the same quarter
last year. On March 1, 2017, dividend yield was 1.2%.



|                                             |         |      |         |   |         |   |         |      |         |   |         |   |         |      |         |   |      |  |   |       |  |   |       | 
|-------------------------------------------- | ------- | ---- | ------- | - | ------- | - | ------- | ---- | ------- | - | ------- | - | ------- | ---- | ------- | - | ---- |  | - | ----- |  | - | ----- | 
|                                             | 2015    |      | 2016    |  
|TSX Ticker: CAS                              | Q1      |      | Q2      |   | Q3      |   | Q4      |      | Q1      |   | Q2      |   | Q3      |      | Q4      |  
|Common
    shares outstanding (in millions)1 | 94.2    |      | 94.4    |   | 94.5    |   | 95.3    |      | 95.4    |   | 94.5    |   | 94.4    |      | 94.5    |  
|Closing
    price1                           | $       | 7.63 |         | $ | 7.15    |   | $       | 8.61 |         | $ | 12.71   |   | $       | 8.57 |         | $ | 9.15 |  | $ | 12.83 |  | $ | 12.10 | 
|Average
    daily volume2                    | 171,939 |      | 121,917 |   | 123,487 |   | 218,204 |      | 291,483 |   | 166,510 |   | 118,987 |      | 118,554 |  
|Dividend
    yield1                          | 2.1     | %    | 2.2     | % | 1.9     | % | 1.3     | %    | 1.9     | % | 1.7     | % | 1.2     | %    | 1.3     | %

1
On the last day of the quarter.

2
Average daily volume on the Toronto Stock Exchange.



35







CASCADES' SHARE
PRICE FOR THE PERIOD STARTING JANUARY 1, 2015 TO DECEMBER 31, 2016







CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS



The Corporation’s
principal contractual obligations and commercial commitments relate to outstanding debt, operating-leases and obligations for its
pension and post-employment benefit plans. The following table summarizes these obligations as at December 31, 2016:



CONTRACTUAL OBLIGATIONS

|                                                                  |       |  |                   |  |                    |  |                    |  |               | 
|----------------------------------------------------------------- | ----- |  | ----------------- |  | ------------------ |  | ------------------ |  | ------------- | 
|Payment due by period (in millions of Canadian dollars)           | TOTAL |  | LESS THAN A 
YEAR |  | BETWEEN 1-2 
YEARS |  | BETWEEN 2-5 
YEARS |  | OVER 5 
YEARS | 
|Long-term debt and capital-leases, including capital and interest | 2,011 |  | 118               |  | 113                |  | 624                |  | 1,156         | 
|Operating leases                                                  | 65    |  | 23                |  | 13                 |  | 20                 |  | 9             | 
|Pension
    plans and other post-employment benefits1             | 1,096 |  | 38                |  | 37                 |  | 119                |  | 902           | 
|Total contractual obligations                                     | 3,172 |  | 179               |  | 163                |  | 763                |  | 2,067         | 

1These amounts represent all the benefits payable to current members during the following
years and thereafter without limitations. The majority of benefit payments are payable from trustee-administered funds. The difference
will come from future investment returns expected on plan assets and future contributions that will be made by the Corporation
for services rendered after December 31, 2016.



FACTORING OF ACCOUNTS
RECEIVABLE

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



36







TRANSACTIONS WITH RELATED PARTIES



The Corporation has
also entered into various agreements with its joint-venture partners, significantly influenced companies and entities that are
affiliated with one or more of its directors, for the supply of raw material, including recycled paper, virgin pulp and energy,
as well as the supply of unconverted and converted products, and other agreements entered into in the normal course of business.
Aggregate sales by the Corporation to its joint-venture partners and other affiliates totaled $240 million and $189 million for
2016 and 2015 respectively. Aggregate sales to the Corporation from its joint-venture partners and other affiliates came to $182
million and $196 million for 2016 and 2015 respectively.



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 related party transaction
in Note 29 is the minimum amount to be paid to Greenpac, which corresponds to the potential lost gross margin on 340,000 tons.



CHANGES IN ACCOUNTING POLICY AND DISCLOSURES



A) NEW IFRS ADOPTED



IAS 1 - PRESENTATION OF FINANCIAL STATEMENTS

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



B) RECENT IFRS PRONOUNCEMENTS NOT YET
ADOPTED



IFRS 15 —
REVENUE RECOGNITION

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



IFRS 9 — FINANCIAL INSTRUMENTS

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



IFRS 16 — LEASES

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



37







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.



CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS



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



CRITICAL ACCOUNTING
ESTIMATES AND ASSUMPTIONS

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



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

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



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



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



GROWTH RATES

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



DISCOUNT RATES

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



FOREIGN EXCHANGE
RATES

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



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



38







B. INCOME TAXES

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



C. EMPLOYEE BENEFITS

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



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



CRITICAL JUDGMENTS
IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES



SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS

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



39







CONTROLS AND PROCEDURES



EVALUATION OF
THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES, AND INTERNAL CONTROL OVER FINANCIAL REPORTING



The Corporation's
President and Chief Executive Officer, and its Vice-President and Chief Financial Officer have designed, or caused to be designed
under their supervision, disclosure controls and procedures (DC&P), and internal controls over financial reporting (ICFR) as
defined in National Instrument 52-109, “Certification of Disclosure in Issuer's Annual and Interim Filings,” in order
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with IFRS.



The DC&P have
been designed to provide reasonable assurance that material information relating to the Corporation is made known to the President
and Chief Executive Officer, and the Vice-President and Chief Financial Officer by others, and that information required to be
disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under
securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation.
The President and Chief Executive Officer and the Vice-President and Chief Financial Officer have concluded, based on their evaluation,
that the Corporation's DC&P were effective as at December 31, 2016, providing reasonable assurance that material information
related to the issuer is made known to them by others within the Corporation.



The President and
Chief Executive Officer, and the Vice-President and Chief Financial Officer have assessed the effectiveness of the ICFR as at December 31,
2016, based on the control framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO
Framework). Based on this assessment, they have concluded that the Corporation’s ICFR were effective as at December 31,
2016 and expect to certify the Corporation’s annual filings with the U.S. Securities and Exchange Commission on Form 40-F,
as required by the United States Sarbanes-Oxley Act.



During the quarter
ended December 31, 2016, there were no changes to the Corporation's ICFR that materially affected, or are reasonably likely
to materially affect, its ICFR.



40







RISK FACTORS



As part of its ongoing
business operations, the Corporation is exposed to certain market risks, including risks ensuing from changes in selling prices
for its principal products, costs of raw material, interest rates and foreign currency exchange rates, all of which impact the
Corporation’s financial position, operating results and cash flows. The Corporation manages its exposure to these and other
market risks through regular operating and financing activities and, on a limited basis, through the use of derivative financial
instruments. We use these derivative financial instruments as risk management tools, not for speculative investment purposes. The
following is a discussion of key areas of business risks and uncertainties that we have identified, and our mitigating strategies.
The risk areas below are listed in no particular order, as risks are evaluated based on both severity and probability. Readers
are cautioned that the following is not an exhaustive list of all the risks we are exposed to, nor will our mitigation strategies
eliminate all risks listed.



| | a) | The
markets for some of the Corporation’s products tend to be cyclical in nature and prices for some of its products, as well
as raw material and energy costs, may fluctuate significantly, which can adversely affect its business, operating results, profitability
and financial position.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The markets for some
of the Corporation’s products, particularly containerboard and boxboard, are cyclical. As a result, prices for these types
of products and for its two principal raw material, recycled paper and virgin fibre, have fluctuated significantly in the past
and will likely continue to fluctuate significantly in the future, principally due to market imbalances between supply and demand.
Demand is heavily influenced by the strength of the global economy and the countries or regions in which Cascades does business,
particularly Canada and the United States, the Corporation’s two primary markets. Demand is also influenced by fluctuations
in inventory levels held by customers and consumer preferences. Supply depends primarily on industry capacity and capacity utilization
rates. In periods of economic weakness, reduced spending by consumers and businesses results in decreased demand, which can potentially
cause downward price pressure. Industry participants may also, at times, add new capacity or increase capacity utilization rates,
potentially causing supply to exceed demand and exerting downward price pressure. Depending on market conditions and related demand,
Cascades may have to take market-related downtime. In addition, the Corporation may not be able to maintain current prices or implement
additional price increases in the future. If Cascades is unable to do so, its revenues, profitability and cash flows could be adversely
affected. In addition, other participants may introduce new capacity or increase capacity utilization rates, which could also adversely
affect the Corporation’s business, operating results and financial position. Prices for recycled and virgin fibre also fluctuate
considerably. The costs of these material present a potential risk to the Corporation’s profit margins, in the event that
it is unable to pass along price increases to its customers on a timely basis. Although changes in the price of recycled fibre
generally correlate with changes in the price of products made from recycled paper, this may not always be the case. If Cascades
wasn’t able to implement increases in the selling prices for its products to compensate for increases in the price of recycled
or virgin fibre, the Corporation’s profitability and cash flows would be adversely affected. In addition, Cascades uses energy,
mainly natural gas and fuel oil, to generate steam, which it then uses in the production process and to operate machinery. Energy
prices, particularly for natural gas and fuel oil, have continued to remain very volatile. Cascades continues to evaluate its energy
costs and consider ways to factor energy costs into its pricing. However, should energy prices increase, the Corporation’s
production costs, competitive position and operating results would be adversely affected. A substantial increase in energy costs
would adversely affect the Corporation’s operating results and could have broader market implications that could further
adversely affect the Corporation’s business or financial results.



To mitigate price
risk, our strategies include the use of various derivative financial instrument transactions, whereby it sets the price for notional
quantities of old corrugated containers, electricity and natural gas.



Additional information
on our North American electricity and natural gas hedging programs as at December 31, 2016 is set out below:



NORTH AMERICAN ELECTRICITY HEDGING



|                                                         |               |      |        |   | 
|-------------------------------------------------------- | ------------- | ---- | ------ | - | 
|                                                         | UNITED STATES |      | CANADA |  
|Electricity consumption                                  | 40            | %    | 60     | %
|Electricity consumption in a regulated market            | 56            | %    | 65     | %
|% of consumption hedged in a de-regulated market (2016)  | 23            | %    | —      |  
|Average prices (2017 - 2018) (in US$, per KWh)           | $             | 0.04 |        | — | 
|Fair value as at December 31, 2016 (in millions of CAN$) | $             | (1   | )      | — | 



41







NORTH AMERICAN NATURAL GAS HEDGING



|                                                                   |               |      |        |   |      |  
|------------------------------------------------------------------ | ------------- | ---- | ------ | - | ---- | -
|                                                                   | UNITED STATES |      | CANADA |  
|Natural gas consumption                                            | 42            | %    | 58     | %
|% of consumption hedged (2016)                                     | 46            | %    | 47     | %
|Average prices (2017 - 2021) (in US$, per mmBTU) (in CAN$, per GJ) | $             | 3.29 |        | $ | 3.75 |  
|Fair value as at December 31, 2016 (in millions of CAN$)           | $             | (1   | )      | $ | (4   | )



| | b) | Cascades
faces significant competition and some of its competitors may have greater cost advantages or be able to achieve greater economies
of scale, or be able to better withstand periods of declining prices and adverse operating conditions, which could negatively
affect the Corporation’s market share and profitability.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The markets for the
Corporation’s products are highly competitive. In some of the markets in which Cascades competes, such as tissue papers,
it competes with a small number of other producers. In some businesses, such as the containerboard industry, competition tends
to be global. In others, such as the tissue industry, competition tends to be regional. In the Corporation’s packaging products
segment, it also faces competition from alternative packaging materials, such as vinyl, plastic and Styrofoam, which can lead to
excess capacity, decreased demand and pricing pressures. Competition in the Corporation’s markets is primarily based on price,
as well as customer service and the quality, breadth and performance characteristics of its products. The Corporation’s ability
to compete successfully depends on a variety of factors, including:



| | • | its
ability to maintain high plant efficiency, operating rates and lower manufacturing costs
| | - | --------------------------------------------------------------------------------------------



| | • | the
availability, quality and cost of raw material, particularly recycled and virgin fibre, and labour, and
| | - | -----------------------------------------------------------------------------------------------------------



| | • | the
cost of energy.
| | - | -------------------



Some of the Corporation’s
competitors may, at times, have lower fibre, energy and labour costs, and less restrictive environmental and governmental regulations
to comply with than Cascades. For example, fully integrated manufacturers, or those whose requirements for pulp or other fibre
are met fully from their internal sources, may have some competitive advantages over manufacturers that are not fully integrated,
such as Cascades, in periods of relatively high raw material pricing, in that the former are able to ensure a steady source of
these raw material at costs that may be lower than prices in the prevailing market. In contrast, competitors that are less integrated
than Cascades may have cost advantages in periods of relatively low pulp or fibre prices because they may be able to purchase pulp
or fibre at prices lower than the costs the Corporation incurs in the production process. Other competitors may be larger in size
or scope than Cascades, which may allow them to achieve greater economies of scale on a global basis or to better withstand periods
of declining prices and adverse operating conditions. In addition, there has been an increasing trend among the Corporation’s
customers towards consolidation. With fewer customers in the market for the Corporation’s products, the strength of its negotiating
position with these customers could be weakened, which could have an adverse effect on its pricing, margins and profitability.



To mitigate competition
risk, Cascades’ targets are to offer quality products that meet customers’ needs at competitive prices and to provide
good customer service.



| | c) | Because
of the Corporation’s international operations, it faces political, social and exchange rate risks that can negatively affect
its business, operating results, profitability and financial condition.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Cascades has customers
and operations located outside Canada. In 2016, sales outside Canada, in Canadian dollars, represented approximately 61% of the
Corporation’s consolidated sales, including 39% in the United States. In 2016, 25% of sales from Canadian operations were
made to the United States.



The Corporation’s
international operations present it with a number of risks and challenges, including:



| | • | effective
product marketing in other countries
| | - | ----------------------------------------------



| | • | tariffs
and other trade barriers, and
| | - | -------------------------------------



| | • | different
regulatory schemes and political environments applicable to the Corporation’s operations, in areas such as environmental
and health and safety compliance.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



42







In addition, the
Corporation’s consolidated financial statements are reported in Canadian dollars, while a portion of its sales is made in
other currencies, primarily the U.S. dollar and the euro. The variation of the Canadian dollar against the U.S. dollar may adversely
or positively affect the Corporation’s reported operating results and financial condition. This has a direct impact on export
prices and also contributes to the impact on Canadian dollar prices in Canada, because several of the Corporation’s product
lines are priced in U.S. dollars. As well, a substantial portion of the Corporation’s debt is also denominated in currencies
other than the Canadian dollar. The Corporation has senior notes outstanding and also some borrowings under its credit facility
that are denominated in U.S. dollars and in euros, in the amounts of US$889 million and €73 million respectively as at December
31, 2016.



Moreover, in some
cases, the currency of the Corporation’s sales does not match the currency in which it incurs costs, which can negatively
affect the Corporation’s profitability. Fluctuations in exchange rates can also affect the relative competitive position
of a particular facility, where the facility faces competition from non-local producers, as well as the Corporation’s ability
to successfully market its products in export markets. As a result, if the Canadian dollar were to remain permanently strong compared
to the U.S. dollar and the euro, it could affect the profitability of the Corporation’s facilities, which could lead Cascades
to shut down facilities either temporarily or permanently, all of which could adversely affect its business or financial results.
To mitigate the risk of currency rises from future commercial transactions, recognized assets and liabilities, and net investments
in foreign operations, which are partially covered by purchases and debt, Management has implemented a policy for managing foreign
exchange risk against the relevant functional currency.



The Corporation uses
various foreign exchange forward contracts and related currency option instruments to anticipate sales net of purchases, interest
expenses and debt repayment. Gains or losses from the derivative financial instruments designated as hedges are recorded under
“Other comprehensive income (loss)” and are reclassified under earnings in accordance with the hedge items.



Additional information
on our North American foreign exchange hedging program is set out below:



NORTH
AMERICAN FOREIGN EXCHANGE HEDGING1



|                                                                                                                       |              |            |              |   |    |  
|---------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ------------ | - | -- | -
|Sell contracts and currency options on net exposure to $US:                                                            | 2017         |            | 2018         |  
|Total amount (in millions of US$)                                                                                      | $ 48 to 92   | $ 15 to 40 |             
|Estimated % of sales, net of expenses from Canadian operations (excluding subsidiaries with non-controlling interests) | 29% to 55%   |            | 9% to 24%    |  
|Average rate (US$/CAN$)                                                                                                | 0.77 to 0.79 |            | 0.74 to 0.77 |  
|Fair value as at December 31, 2016 (in millions of CAN$)                                                               | $            | (6         | )            | $ | (2 | )



|1 | See Note 27 of the audited consolidated financial statements for more details on financial instruments.
|- | -------------------------------------------------------------------------------------------------------



d) The Corporation’s operations
are subject to comprehensive environmental regulations and involve expenditures that may be

material in relation to its operating
cash flow.



The Corporation is
subject to environmental laws and regulations imposed by the various governments and regulatory authorities in all countries in
which it operates. These environmental laws and regulations impose stringent standards on the Corporation regarding, among other
things:



| | • | air
emissions
| | - | -------------



| | • | water
discharges
| | - | ----------------



| | • | use
and handling of hazardous materials
| | - | ---------------------------------------



| | • | use,
handling and disposal of waste, and
| | - | ----------------------------------------



| | • | remediation
of environmental contamination.
| | - | -------------------------------------------



The
Corporation is also subject to the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”)
as well as to other applicable legislation in the United States, Canada and Europe that holds companies accountable for the investigation
and remediation of hazardous substances. The Corporation’s European subsidiaries and some of our Québec plants are
also subject to an emissions market, aimed at reducing worldwide CO2 emissions.
Each unit has been allocated emission rights (“CO2 quota”).
On a calendar-year basis, the Corporation must buy the necessary credits to cover its deficit, on the open market, if its emissions
are higher than quota.



The Corporation’s
failure to comply with applicable environmental laws, regulations or permit requirements may result in civil or criminal fines,
penalties or enforcement actions. These may include regulatory or judicial orders enjoining or curtailing operations, or requiring
corrective measures, the installation of pollution control equipment or remedial actions, any of which could entail significant
expenditures. It is difficult to predict the future development of such laws and regulations, or their impact on future earnings
and operations, but these laws and regulations may require capital expenditures to ensure compliance. In addition, amendments to,
or more stringent implementation of, current laws and regulations governing the Corporation’s operations could have a material
adverse effect on its business, operating results or financial position. Furthermore, although Cascades generally tries to plan
for capital expenditures relating to environmental and health and safety compliance on an annual basis, actual capital expenditures
may exceed those estimates. In such an event, Cascades may be forced to curtail other capital expenditures or other activities.
In addition, the enforcement of existing environmental laws and regulations has become increasingly strict.



43







The Corporation may
discover currently unknown environmental problems or conditions in relation to its past or present operations, or may face unforeseen
environmental liabilities in the future.



These conditions
and liabilities may:



| | • | require
site remediation or other costs to maintain compliance or correct violations of environmental laws and regulations, or
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | • | result
in governmental or private claims for damage to person, property or the environment.
| | - | -------------------------------------------------------------------------------------------



Either of these could
have a material adverse effect on the Corporation’s financial condition or operating results.



Cascades may be subject
to strict liability and, under specific circumstances, joint and several (solidary) liability for the investigation and remediation
of soil, surface and groundwater contamination, including contamination caused by other parties on properties that it owns or operates,
and on properties where the Corporation or its predecessors have arranged for the disposal of regulated materials. As a result,
the Corporation is involved from time to time in administrative and judicial proceedings and inquiries relating to environmental
matters. The Corporation may become involved in additional proceedings in the future, the total amount of future costs and other
environmental liabilities of which could be material.



To date, the Corporation
is in compliance, in all material respects, with all applicable environmental legislation or regulations. However, we expect to
incur ongoing capital and operating expenses in order to achieve and maintain compliance with applicable environmental requirements.



EMISSIONS MARKET

The Corporation is
exposed to the emissions trading market and has to hold carbon credits equivalent to its emissions. Depending on circumstances,
the Corporation may have to buy credits on the market or could sell some in the future. At short or medium term, these transactions
would have no significant effect on the financial position of the Corporation and it is not anticipated that this will change in
the future.



e) Cascades may be subject to losses
that might not be covered in whole or in part by its insurance coverage.



Cascades carries
comprehensive liability, fire and extended coverage insurance on most of its facilities, with policy specifications and insured
limits customarily carried in its industry for similar properties. In addition, some types of losses, such as losses resulting
from wars, acts of terrorism or natural disasters, are generally not insured because they are either uninsurable or not economically
practical. Moreover, insurers have recently become more reluctant to insure against these types of events. Should an uninsured
loss or a loss in excess of insured limits occur, Cascades could lose capital invested in that property, as well as the anticipated
future revenues derived from the manufacturing activities conducted on that property, while remaining obligated for any mortgage
indebtedness or other financial obligations related to the property. Any such loss could adversely affect its business, operating
results or financial condition.



To mitigate the risk
subject to insurance coverage, the Corporation reviews its strategy annually with the Board of Directors and is seeking different
alternatives to achieve more efficient forms of insurance coverage at the lowest costs possible.



f) Labour disputes could have a material
adverse effect on the Corporation’s cost structure and ability to run its mills and plants.



As at December 31,
2016, the Corporation had nearly 11,000 employees, of whom approximately 9,000 were employees of its Canadian and United States
operations. Approximately 28% of the Corporation’s Canadian and United States employees are unionized under 27 separate collective
bargaining agreements. In addition, in Europe, some of the Corporation’s operations are subject to national industry collective
bargaining agreements that are renewed on an annual basis. The Corporation’s inability to negotiate acceptable contracts
with these unions upon expiration of an existing contract could result in strikes or work stoppages by the affected workers, and
increased operating costs as a result of higher wages or benefits paid to union members. If the unionized workers were to engage
in a strike or another form of work stoppage, Cascades could experience a significant disruption in operations or higher labour
costs, which could have a material adverse effect on its business, financial condition, operating results and cash flow. Of the
Corporation’s 27 collective bargaining agreements in North America, 2 are expired and are currently under negotiation, 6
will expire in 2017 and 6 more will expire in 2018.



The Corporation generally
begins the negotiation process several months before agreements are due to expire and is currently in the process of negotiating
with the unions where the agreements have expired or will soon expire. However, Cascades may not be successful in negotiating new
agreements on satisfactory terms, if at all.



44







g) Cascades may
make investments in entities that it does not control and may not receive dividends or returns from those investments in a timely
fashion or at all.



Cascades has established
joint ventures, made investments in associates and acquired significant participation in subsidiaries in order to increase its
vertical integration, enhance customer service and increase efficiency in its marketing and distribution in the United States and
other markets. The Corporation’s principal joint ventures, associates and significant participations in subsidiaries are:



| | • | two
50%-owned joint ventures with Sonoco Products Corporation, of which one are in Canada (two plants) and one in the United States
(two plants), that produce specialty paper packaging products such as headers, rolls and wrappers;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a
20.12% interest in Boralex Inc., 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 North-eastern United States and
France.;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | a
57.7%-owned subsidiary, Reno de Medici S.p.A. (RdM), a European manufacturer of recycled boxboard; and
| | - | --------------------------------------------------------------------------------------------------------



| | • | a
59.7% interest in Greenpac Mill LLC, an American corporation that manufactures a light-weight linerboard made with 100% recycled
fibres.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



Apart from RdM, Cascades
does not have effective control over these entities. The Corporation’s inability to control entities in which it invests
may affect its ability to receive distributions from these entities or to fully implement its business plan. The incurrence of
debt or entrance into other agreements by an entity not under the Corporation’s control may result in restrictions or prohibitions
on that entity’s ability to pay distributions to the Corporation. Even where these entities are not restricted by contract
or by law from paying dividends or making distributions to Cascades, the Corporation may not be able to influence the payout or
timing of these dividends or distributions. In addition, if any of the other investors in a non-controlled entity fails to observe
its commitments, the entity may not be able to operate according to its business plan or Cascades may be required to increase its
level of commitment. If any of these events were to transpire, the Corporation’s business, operating results, financial condition
and ability to make payments on the notes could be adversely affected.



In addition, the
Corporation has entered into various shareholder agreements relating to its joint ventures and equity investments. Some of these
agreements contain “shotgun” provisions, which provide that if one Shareholder offers to buy all the shares owned by
the other parties to the agreement, the other parties must either accept the offer or purchase all the shares owned by the offering
Shareholder at the same price and conditions. Some of the agreements also stipulate that, in the event that a Shareholder is subject
to bankruptcy proceedings or otherwise defaults on any indebtedness, the non-defaulting parties to that agreement are entitled
to invoke the ''shotgun'' provision or sell their shares to a third party. The Corporation’s ability to purchase the other
Shareholders’ interests in these joint ventures if they were to exercise these ''shotgun'' provisions could be limited by
the covenants in the Corporation’s credit facility and the indenture. In addition, Cascades may not have sufficient funds
to accept the offer or the ability to raise adequate financing should the need arise, which could result in the Corporation having
to sell its interests in these entities or otherwise alter its business plan.



h) Acquisitions
have been, and are expected to continue to be, a substantial part of the Corporation’s growth strategy, which could expose
the Corporation to difficulties in integrating the acquired operation, diversion of management time and resources, and unforeseen
liabilities, among other business risks.



Acquisitions have
been a significant part of the Corporation’s growth strategy. Cascades expects to continue to selectively seek strategic
acquisitions in the future. The Corporation’s ability to consummate and to effectively integrate any future acquisitions
on terms that are favourable to it may be limited by the number of attractive acquisition targets, internal demands on its resources
and, to the extent necessary, its ability to obtain financing on satisfactory terms, if at all. Acquisitions may expose the Corporation
to additional risks, including:



| | • | difficulty
in integrating and managing newly acquired operations, and in improving their operating efficiency
| | - | -------------------------------------------------------------------------------------------------------------



| | • | difficulty
in maintaining uniform standards, controls, procedures and policies across all of the Corporation’s businesses
| | - | -------------------------------------------------------------------------------------------------------------------------



| | • | entry
into markets in which Cascades has little or no direct prior experience
| | - | -----------------------------------------------------------------------------



| | • | the
Corporation’s ability to retain key employees of the acquired corporation
| | - | -----------------------------------------------------------------------------



| | • | disruptions
to the Corporation’s ongoing business, and
| | - | ------------------------------------------------------



| | • | diversion
of management time and resources.
| | - | -------------------------------------------



In addition, future
acquisitions could result in Cascades' incurring additional debt to finance the acquisition or possibly assuming additional debt
as part of it, as well as costs, contingent liabilities and amortization expenses. The Corporation may also incur costs and divert
Management's attention for potential acquisitions that are never consummated. For acquisitions Cascades does consummate, expected
synergies may not materialize. The Corporation’s failure to effectively address any of these issues could adversely affect
its operating results, financial condition and ability to service debt, including its outstanding senior notes.



45







Although Cascades
generally performs a due diligence investigation of the businesses or assets that it acquires, and anticipates continuing to do
so for future acquisitions, the acquired business or assets may have liabilities that Cascades fails or is unable to uncover during
its due diligence investigation and for which the Corporation, as a successor owner, may be responsible. When feasible, the Corporation
seeks to minimize the impact of these types of potential liabilities by obtaining indemnities and warranties from the seller, which
may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties,
if obtained, may not fully cover the liabilities because of their limited scope, amount or duration, or the financial resources
of the indemnitor or warrantor, or for other reasons.



i) The Corporation
undertakes impairment tests, which could result in a write-down of the value of assets and, as a result, have a material adverse
effect.



IFRS requires that
Cascades regularly undertake impairment tests of long-lived assets and goodwill to determine whether a write-down of such assets
is required. A write-down of asset value as a result of impairment tests would result in a non-cash charge that reduces the Corporation’s
reported earnings. Furthermore, a reduction in the Corporation’s asset value could have a material adverse effect on the
Corporation’s compliance with total debt-to-capitalization tests under its current credit facilities and, as a result, limit
its ability to access further debt capital.



j) Certain Cascades insiders collectively
own a substantial percentage of the Corporation’s common shares.



Messrs. Bernard,
Laurent and Alain Lemaire (“the Lemaires”) collectively own 29.8% of the common shares as at December 31, 2016, and
there may be situations in which their interests and the interests of other holders of common shares do not align. Because the
Corporation’s remaining common shares are widely held, the Lemaires may be effectively able to:



| | • | elect
all of the Corporation’s directors and, as a result, control matters requiring Board approval
| | - | ---------------------------------------------------------------------------------------------------



| | • | control
matters submitted to a Shareholder vote, including mergers, acquisitions and consolidations with third parties, and the sale of
all or substantially all of the Corporation’s assets, and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | otherwise
control or influence the Corporation’s business direction and policies.
| | - | ---------------------------------------------------------------------------------



In addition, the
Lemaires may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance
the value of their equity investment, even though the transactions might involve increased risk to the holders of the common shares.



k) If
Cascades is not successful in retaining or replacing its key personnel, particularly if the Lemaires do not stay active in
the Corporation’s business, its business, financial condition or operating results could be adversely affected.



Although Cascades
believes that the Lemaires will remain active in the business and that Cascades will continue to be able to attract and retain
other talented personnel and replace key personnel should the need arise, competition in recruiting replacement personnel could
be significant. Cascades does not carry key-man insurance on the Lemaires or on any other members of its senior management.



| | l) | Risks
relating to the Corporation’s indebtedness and liquidity.
| | -- | ---------------------------------------------------------------



The significant
amount of the Corporation’s debt could adversely affect its financial health and prevent it from fulfilling its obligations
under its outstanding indebtedness. The Corporation has a significant amount of debt. As at December 31, 2016, it had $1,532
million in outstanding total net debt on a consolidated basis, including capital-lease obligations. The Corporation also had $647
million available under its revolving credit facility. On the same basis, its consolidated ratio of net debt to total equity as
of December 31, 2016 was 58.8%. The Corporation’s actual financing expense, including interest on employees' future benefits,
was $93 million. Cascades also has significant obligations under operating leases, as described in its audited consolidated financial
statements that are incorporated by reference herein.



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 were essentially unchanged.



On May 19, 2015,
the Corporation issued US$250 million ($305 million) in aggregate principal amount 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 totaling
$5 million. The refinancing of these notes reduces future interest expense by approximately US$6 million annually.



46







The Corporation has
outstanding senior notes rated by Moody’s Investor Service (“Moody’s”) and Standard & Poor’s
(“S&P”).



The following table
reflects the Corporation’s secured debt rating/corporate rating/unsecured debt rating as at the date on which this MD&A
was approved by the Board of Directors, and the evolution of these ratings compared to past years:

|                        |                         |                        
|----------------------- | ----------------------- | -----------------------
|Credit rating (outlook) | MOODY'S                 | STANDARD & POOR'S      
|2004                    | Ba1/Ba2/Ba3 (stable)    | BBB-/BB+/BB+ (negative)
|2005 - 2006             | Ba1/Ba2/Ba3 (stable)    | BB+/BB/BB- (negative)  
|2007                    | Baa3/Ba2/Ba3 (stable)   | BBB-/BB/BB- (stable)   
|2008                    | Baa3/Ba2/Ba3 (negative) | BB+/BB-/B+ (negative)  
|2009 - 2010             | Baa3/Ba2/Ba3 (stable)   | BB+/BB-/B+ (stable)    
|2011                    | Baa3/Ba2/Ba3 (stable)   | BB+/BB-/B+ (positive)  
|2012                    | Baa3/Ba2/Ba3 (stable)   | BB+/BB-/B+ (negative)  
|2013                    | Baa3/Ba2/Ba3 (stable)   | BB/B+/B (stable)       
|2014                    | Baa3/Ba2/Ba3 (stable)   | BB/B+/B+ (stable)      
|2015                    | Baa3/Ba2/Ba3 (stable)   | BB/B+/B+ (stable)      
|2016                    | Baa3/Ba2/Ba3 (stable)   | BB+/BB-/BB- (stable)   



This facility is
in place with a core group of highly rated international banks. The Corporation may decide to enter into certain derivative instruments
to reduce interest rates and foreign exchange exposure.



The Corporation’s
leverage could have major consequences for holders of its common shares. For example, it could:



| | • | make
it more difficult for the Corporation to satisfy its obligations with respect to its indebtedness
| | - | ------------------------------------------------------------------------------------------------------



| | • | increase
the Corporation’s vulnerability to competitive pressures and to general adverse economic or market conditions, and require
it to dedicate a substantial portion of its cash flow from operations to servicing debt, reducing the availability of its cash
flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | limit
its flexibility in planning for, or reacting to, changes in its business and industry, and
| | - | ------------------------------------------------------------------------------------------------



| | • | limit
its ability to obtain additional sources of financing.
| | - | ------------------------------------------------------------



Cascades may
incur additional debt in the future, which would intensify the risks it now faces as a result of its leverage as described above.
Even though we are substantially leveraged, we and our subsidiaries will be able to incur substantial additional indebtedness in
the future. Although our credit facility and the indentures governing the notes restrict us and our restricted subsidiaries from
incurring additional debt, these restrictions are subject to important exceptions and qualifications. If we or our subsidiaries
incur additional debt, the risks that we and they now face as a result of our leverage could intensify.



The Corporation’s
operations are substantially restricted by the terms of its debt, which could limit its ability to plan for or react to market
conditions, or to meet its capital needs. The Corporation’s credit facilities and the indenture governing its senior
notes include a number of significant restrictive covenants. These covenants restrict, among other things, the Corporation’s
ability to:



| | • | borrow
money
| | - | ------------



| | • | pay
dividends on stock or redeem stock or subordinated debt
| | - | -----------------------------------------------------------



| | • | make
investments
| | - | ----------------



| | • | sell
assets, including capital stock in subsidiaries
| | - | ----------------------------------------------------



| | • | guarantee
other indebtedness
| | - | ----------------------------



| | • | enter
into agreements that restrict dividends or other distributions from restricted subsidiaries
| | - | -------------------------------------------------------------------------------------------------



| | • | enter
into transactions with affiliates
| | - | ---------------------------------------



| | • | create
or assume liens
| | - | ----------------------



| | • | enter
into sale and leaseback transactions
| | - | ------------------------------------------



| | • | engage
in mergers or consolidations, and
| | - | ----------------------------------------



| | • | enter
into a sale of all or substantially all of our assets.
| | - | ------------------------------------------------------------



These covenants could
limit the Corporation’s ability to plan for or react to market conditions, or to meet its capital needs. The Corporation’s
current credit facility contains other, more restrictive covenants, including financial covenants that require it to achieve certain
financial and operating results, and maintain compliance with specified financial ratios. The Corporation’s ability to comply
with these covenants and requirements may be affected by events beyond its control, and it may have to curtail some of its operations
and growth plans to maintain compliance.



47







The restrictive covenants
contained in the Corporation’s senior note indenture, along with the Corporation’s credit facility, do not apply to
its subsidiaries with non-controlling interests.



The Corporation’s
failure to comply with the covenants contained in its credit facility or its senior note indenture, including as a result of events
beyond its control or due to other factors, could result in an event of default that could cause accelerated repayment of the debt.
If Cascades is not able to comply with the covenants and other requirements contained in the indenture, its credit facility or
its other debt instruments, an event of default under the relevant debt instrument could occur. If an event of default does occur,
it could trigger a default under its other debt instruments, Cascades could be prohibited from accessing additional borrowings
and the holders of the defaulted debt could declare amounts outstanding with respect to that debt, which would then be immediately
due and payable. The Corporation’s assets and cash flow may not be sufficient to fully repay borrowings under its outstanding
debt instruments. In addition, the Corporation may not be able to re-finance or re-structure the payments on the applicable debt.
Even if the Corporation were able to secure additional financing, it may not be available on favourable terms. A significant or
prolonged downtime in general business and difficult economic conditions may affect the Corporation’s ability to comply with
its covenants, and could require it to take actions to reduce its debt or to act in a manner contrary to its current business objectives.



m) Cascades is
a holding corporation and depends on its subsidiaries to generate sufficient cash flow to meet its debt service

obligations.



Cascades is structured
as a holding corporation, and its only significant assets are the capital stock or other equity interests in its subsidiaries,
joint ventures and minority investments. As a holding corporation, Cascades conducts substantially all of its business through
these entities. Consequently, the Corporation’s cash flow and ability to service its debt obligations are dependent on the
earnings of its subsidiaries, joint ventures and minority investments, and the distribution of those earnings to Cascades, or on
loans, advances or other payments made by these entities to Cascades. The ability of these entities to pay dividends or make other
payments or advances to Cascades will depend on their operating results and will be subject to applicable laws and contractual
restrictions contained in the instruments governing their debt. In the case of the Corporation’s joint ventures, associates
and minority investments, Cascades may not exercise sufficient control to cause distributions to itself. Although its credit facility
and the indenture, respectively, limit the ability of its restricted subsidiaries to enter into consensual restrictions on their
ability to pay dividends and make other payments to the Corporation, these limitations do not apply to its joint ventures, associates
or minority investments. The limitations are also subject to important exceptions and qualifications. The ability of the Corporation’s
subsidiaries to generate cash flow from operations that is sufficient to allow the Corporation to make scheduled payments on its
debt obligations will depend on their future financial performance, which will be affected by a range of economic, competitive
and business factors, many of which are outside of the Corporation’s control. If the Corporation’s subsidiaries do
not generate sufficient cash flow from operations to satisfy the Corporation’s debt obligations, Cascades may have to undertake
alternative financing plans, such as re-financing or re-structuring its debt, selling assets, reducing or delaying capital investments,
or seeking to raise additional capital. Re-financing may not be possible, and assets may not be able to be sold, or, if they are
sold, Cascades may not realize sufficient amounts from those sales. Additional financing may not be available on acceptable terms,
if at all, or the Corporation may be prohibited from incurring it, if available, under the terms of its various debt instruments
in effect at the time. The Corporation’s inability to generate sufficient cash flow to satisfy its debt obligations, or to
re-finance its obligations on commercially reasonable terms, would have an adverse effect on its business, financial condition
and operating results. The earnings of the Corporation’s operating subsidiaries and the amount that they are able to distribute
to the Corporation as dividends or otherwise may not be adequate for the Corporation to service its debt obligations.



n) Risks related to the common shares.



The market
price of the common shares may fluctuate, and purchasers may not be able to re-sell the common shares at or above the purchase
price. The market price of the common shares may fluctuate due to a variety of factors relative to the Corporation’s
business, including announcements of new developments, fluctuations in the Corporation’s operating results, sales of the
common shares in the marketplace, failure to meet analysts’ expectations, general conditions in all of our segments or the
worldwide economy. In recent years, the common shares, the stock of other companies operating in the same sectors and the stock
market in general have experienced significant price fluctuations, which have been unrelated to the operating performance of the
affected companies. There can be no assurance that the market price of the common shares will not continue to experience significant
fluctuations in the future, including fluctuations that are unrelated to the Corporation’s performance.



| | o) | Cash-flow
and fair-value interest rate risks.
| | -- | ---------------------------------------------



As the Corporation
has no significant interest-bearing assets, its earnings and operating cash flows are substantially independent of changes in market
interest rates.



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



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p) 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 accounts receivable from its customers. In order to reduce this risk, the Corporation’s credit
policies include the analysis of a customer’s financial position and a regular review of its credit limits. The Corporation
also believes that no particular concentration of credit risks exists due to the geographic diversity of its customers and the
procedures in place for managing commercial risks. Derivative financial instruments include an element of credit risk, should the
counterparty be unable to meet its obligations.



q) Cyber Security



The Corporation relies
on information technology to process, transmit and store electronic data in its daily business activities. Any potential information
technology security incident as a result of malicious misbehavior or involuntary in nature could have negative repercussions on
business activities, intellectual property, operating results and financial position of the Corporation. Cyber security represents
a Company-wide challenge and the related risks are part of the corporate risk management program that is presented to the Audit
and Finance committee of the Corporation. To limit Corporation exposure to incidents that may affect confidentiality, integrity
and availability of information, the Corporation has put in place control measures that are based on industry best practices.



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