EXHIBIT 13.2


MANAGEMENT’S REPORT


TO THE SHAREHOLDERS OF CASCADES INC


March 12, 2015


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


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


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


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


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


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


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


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


Management conducted an assessment of the effectiveness of the Corporation’s internal control over financial reporting, as at December 31, 2014 based on the framework and criteria established in Internal Control-Integrated Framework, issued by the 1992 Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Corporation’s internal control over financial reporting was effective as at December 31, 2014.








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






































1


---



INDEPENDENT AUDITOR'S REPORT


TO THE SHAREHOLDERS OF CASCADES INC.





March 12, 2015





We have audited the accompanying consolidated financial statements of Cascades Inc. and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2014 and 2013, and the consolidated statements of earnings (loss), comprehensive income (loss), equity and cash flows for the years then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.





Management’s responsibility for the consolidated financial statements


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





Auditor’s responsibility


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





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





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





Opinion


In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Cascades Inc. and its subsidiaries as at December 31, 2014 and 2013, and their financial performance and their cash flows for the years then ended in accordance with International Financial Reporting Standards.








/s/ PricewaterhouseCoopers LLP 1


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




2


---

CONSOLIDATED BALANCE SHEETS


(in millions of Canadian dollars)
    NOTE
    DECEMBER 31, 2014
    
    DECEMBER 31, 2013AssetsCurrent assetsCash and cash equivalents
    
    29
    
    23Accounts receivable
    6 and 14
    453
    
    512Current income tax assets
    
    13
    
    34Inventories
    7 and 14
    462
    
    543Financial assets
    26
    1
    
    2Assets of disposal group classified as held for sale
    5
    72
    
    —1,030
    
    1,114Long-term assetsInvestments in associates and joint ventures
    8
    259
    
    261Property, plant and equipment
    9 and 14
    1,573
    
    1,684Intangible assets with finite useful life
    10
    183
    
    196Financial assets
    26
    25
    
    17Other assets
    11
    83
    
    108Deferred income tax assets
    17
    185
    
    118Goodwill and other intangible assets with indefinite useful life
    10
    335
    
    3333,673
    
    3,831Liabilities and EquityCurrent liabilitiesBank loans and advances
    
    46
    
    56Trade and other payables
    12
    557
    
    590Current income tax liabilities
    
    5
    
    2Current portion of long-term debt
    14
    40
    
    39Current portion of provisions for contingencies and charges
    13
    11
    
    2Current portion of financial liabilities and other liabilities
    15 and 26
    16
    
    11Liabilities of disposal group classified as held for sale
    5
    32
    
    —707
    
    700Long-term liabilitiesLong-term debt
    14
    1,556
    
    1,540Provisions for contingencies and charges
    13
    33
    
    37Financial liabilities
    26
    45
    
    39Other liabilities
    15
    191
    
    212Deferred income tax liabilities
    17
    138
    
    1092,670
    
    2,637Equity attributable to ShareholdersCapital stock
    18
    483
    
    482Contributed surplus
    19
    18
    
    17Retained earnings
    
    454
    
    642Accumulated other comprehensive loss
    20
    (62
    )
    (60
    )893
    
    1,081Non-controlling interest
    
    110
    
    113Total equity
    
    1,003
    
    1,1943,673
    
    3,831


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


Approved by the Board of Directors





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








3


---

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)





(For the years ended December 31 (in millions of Canadian dollars, except per-share amounts and number of shares)
    NOTE
    2014
    
    2013Sales
    
    3,561
    
    3,370Cost of sales and expensesCost of sales (including depreciation and amortization of $174 million; 2013 — $167 million)
    21
    3,063
    
    2,863Selling and administrative expenses
    21
    334
    
    335Loss on acquisitions, disposals and others
    23
    —
    
    3Impairment charges and restructuring costs
    24
    23
    
    2Foreign exchange gain
    
    (2
    )
    (4
    )Loss (gain) on derivative financial instruments
    26
    6
    
    (5
    )3,424
    
    3,194Operating income
    
    137
    
    176Financing expense
    25
    101
    
    104Interest expense on employee future benefits
    25
    6
    
    8Loss on refinancing of long-term debt
    14
    44
    
    —Foreign exchange loss (gain) on long-term debt and financial instruments
    
    30
    
    (2
    )Share of results of associates and joint ventures
    
    —
    
    3Profit (loss) before income taxes
    
    (44
    )
    63Provision for income taxes
    17
    16
    
    19Net earnings (loss) from continuing operations including non-controlling interest for the year
    
    (60
    )
    44Net loss from discontinued operations for the year
    5
    (83
    )
    (30
    )Net earnings (loss) including non-controlling interest for the year
    
    (143
    )
    14Net earnings attributable to non-controlling interest
    
    4
    
    3Net earnings (loss) attributable to Shareholders for the year
    
    (147
    )
    11Net earnings (loss) from continuing operations per basic and diluted common share
    
    $
    (0.68
    )
    $
    0.44Net earnings (loss) per basic and diluted common share
    
    $
    (1.57
    )
    $
    0.11Weighted average basic number of common shares outstanding
    
    94,025,600
    
    93,885,402Weighted average number of diluted common shares
    
    95,355,998
    
    94,694,761Net earnings (loss) attributable to Shareholders:Continuing operations
    
    (64
    )
    41Discontinued operations
    5
    (83
    )
    (30
    )Net earnings (loss)
    
    (147
    )
    11


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





4


---

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)





For the years ended December 31 (in millions of Canadian dollars)
    NOTE
    2014
    
    2013Net earnings (loss) including non-controlling interest for the year
    
    (143
    )
    14Other comprehensive income (loss)Items that may be reclassified subsequently to earningsTranslation adjustments
    20Change in foreign currency translation of foreign subsidiaries
    
    37
    
    52Change in foreign currency translation related to net investment hedging activities
    
    (44
    )
    (30
    )Income taxes
    
    6
    
    4Cash flow hedges
    20Change in fair value of foreign exchange forward contracts
    
    3
    
    (7
    )Change in fair value of interest rate swaps
    
    (13
    )
    13Change in fair value of commodity derivative financial instruments
    
    (1
    )
    9Income taxes
    
    5
    
    (6
    )(7
    )
    35Items that are reclassified to retained earningsActuarial gain (loss) on post-employment benefit obligations
    16
    (39
    )
    97Income taxes
    17
    11
    
    (26
    )(28
    )
    71Other comprehensive income (loss)
    
    (35
    )
    106Comprehensive income (loss) including non-controlling interest for the year
    
    (178
    )
    120Comprehensive income (loss) attributable to non-controlling interest for the year
    
    (3
    )
    12Comprehensive income (loss) attributable to Shareholders for the year
    
    (175
    )
    108Comprehensive income (loss) attributable to Shareholders:Continuing operations
    
    (84
    )
    110Discontinued operations
    
    (91
    )
    (2
    )Comprehensive income (loss)
    
    (175
    )
    108


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





5


---

CONSOLIDATED STATEMENTS OF EQUITY





For the year ended December 31, 2014(in millions of Canadian dollars)
    CAPITAL STOCK
    
    CONTRIBUTED SURPLUS
    
    RETAINED EARNINGS
    
    ACCUMULATED OTHER COMPREHENSIVE LOSS
    
    TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS
    
    NON-CONTROLLING INTEREST
    
    TOTAL EQUITYBalance - Beginning of year
    482
    
    17
    
    642
    
    (60
    )
    1,081
    
    113
    
    1,194Comprehensive income (loss)Net earnings (loss)
    —
    
    —
    
    (147
    )
    —
    
    (147
    )
    4
    
    (143
    )Other comprehensive income (loss)
    —
    
    —
    
    (26
    )
    (2
    )
    (28
    )
    (7
    )
    (35
    )—
    
    —
    
    (173
    )
    (2
    )
    (175
    )
    (3
    )
    (178
    )Dividends
    —
    
    —
    
    (15
    )
    —
    
    (15
    )
    —
    
    (15
    )Stock options
    —
    
    1
    
    —
    
    —
    
    1
    
    —
    
    1Issuance of common shares
    1
    
    —
    
    —
    
    —
    
    1
    
    —
    
    1Balance - End of year
    483
    
    18
    
    454
    
    (62
    )
    893
    
    110
    
    1,003For the year ended December 31, 2013(in millions of Canadian dollars)
    CAPITAL STOCK
    
    CONTRIBUTED SURPLUS
    
    RETAINED EARNINGS
    
    ACCUMULATED OTHER COMPREHENSIVE LOSS
    
    TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS
    
    NON-CONTROLLING INTEREST
    
    TOTAL EQUITYBalance - Beginning of year
    482
    
    16
    
    567
    
    (87
    )
    978
    
    116
    
    1,094Comprehensive incomeNet earnings
    —
    
    —
    
    11
    
    —
    
    11
    
    3
    
    14Other comprehensive income
    —
    
    —
    
    70
    
    27
    
    97
    
    9
    
    106—
    
    —
    
    81
    
    27
    
    108
    
    12
    
    120Dividends
    —
    
    —
    
    (15
    )
    —
    
    (15
    )
    —
    
    (15
    )Stock options
    —
    
    1
    
    —
    
    —
    
    1
    
    —
    
    1Acquisition of non-controlling interest
    —
    
    —
    
    9
    
    —
    
    9
    
    (15
    )
    (6
    )Balance - End of year
    482
    
    17
    
    642
    
    (60
    )
    1,081
    
    113
    
    1,194


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





6


---

CONSOLIDATED STATEMENTS OF CASH FLOWS





For the years ended December 31 (in millions of Canadian dollars)
    NOTE
    2014
    
    2013Operating activities from continuing operationsNet earnings (loss) attributable to Shareholders for the year
    
    (147
    )
    11Net loss from discontinued operations for the year
    
    83
    
    30Net earnings (loss) from continuing operations
    
    (64
    )
    41Adjustments for:Financing expense and interest expense on employee future benefits
    25
    107
    
    112Loss on refinancing of long-term debt
    
    44
    
    —Depreciation and amortization
    
    174
    
    167Loss on acquisitions, disposals and others
    23
    —
    
    3Impairment charges and restructuring costs
    24
    21
    
    —Unrealized loss (gain) on derivative financial instruments
    
    6
    
    (6
    )Foreign exchange loss (gain) on long-term debt and financial instruments
    
    30
    
    (2
    )Provision for income taxes
    17
    16
    
    19Share of results of associates and joint ventures
    
    —
    
    3Net earnings attributable to non-controlling interest
    
    4
    
    3Net financing expense paid
    
    (73
    )
    (100
    )Premium paid on long-term debt refinancing
    
    (31
    )
    —Net income taxes received
    
    14
    
    5Dividend received
    8
    15
    
    12Employee future benefits and others
    
    (19
    )
    (26
    )244
    
    231Changes in non-cash working capital components
    25
    (13
    )
    5231
    
    236Investing activities from continuing operationsInvestments in associates and joint ventures
    
    —
    
    (32
    )Payments for property, plant and equipment
    
    (178
    )
    (138
    )Proceeds on disposals of property, plant and equipment
    
    7
    
    12Investments in intangible and other assets
    
    (2
    )
    (15
    )(173
    )
    (173
    )Financing activities from continuing operationsBank loans and advances
    
    (3
    )
    (31
    )Change in revolving credit facilities
    
    (154
    )
    76Issuance of senior notes, net of related expenses
    14
    833
    
    —Repayment of senior notes
    14
    (740
    )
    (10
    )Increase in other long-term debt
    
    23
    
    14Payments of other long-term debt
    
    (50
    )
    (50
    )Settlement of derivative financial instruments
    
    —
    
    (14
    )Issuance of common shares
    18
    1
    
    —Acquisition of non-controlling interest
    
    —
    
    (19
    )Dividends paid to the Corporation's Shareholders
    18
    (15
    )
    (15
    )(105
    )
    (49
    )Change in cash and cash equivalents during the year from continuing operations
    
    (47
    )
    14Change in cash and cash equivalents during the year from discontinued operations
    5
    54
    
    (12
    )Net change in cash and cash equivalents during the year
    
    7
    
    2Currency translation on cash and cash equivalents
    
    (1
    )
    1Cash and cash equivalents - Beginning of year
    
    23
    
    20Cash and cash equivalents - End of year
    
    29
    
    23


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


7


---

SEGMENTED INFORMATION





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





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





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


SALESFor the years ended December 31 (in millions of Canadian dollars)
    NOTE
    2014
    
    2013Packaging ProductsContainerboard
    
    1,407
    
    1,314Boxboard Europe
    
    873
    
    837Specialty Products
    
    716
    
    774Discontinued operations of Containerboard
    5
    (226
    )
    (219
    )Discontinued operations of Boxboard Europe
    5
    (32
    )
    (51
    )Discontinued operations of Specialty Products
    5
    (148
    )
    (226
    )Intersegment sales
    
    (49
    )
    (50
    )2,541
    
    2,379Tissue Papers
    
    1,054
    
    1,033Intersegment sales and others
    
    (34
    )
    (42
    )Total
    
    3,561
    
    3,370





OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION (OIBD)For the years ended December 31 (in millions of Canadian dollars)
    NOTE
    2014
    
    2013Packaging ProductsContainerboard
    
    108
    
    156Boxboard Europe
    
    50
    
    30Specialty Products
    
    (4
    )
    32Discontinued operations of Containerboard
    5
    56
    
    1Discontinued operations of Boxboard Europe
    5
    14
    
    17Discontinued operations of Specialty Products
    5
    30
    
    3254
    
    239Tissue Papers
    
    95
    
    150Corporate
    
    (38
    )
    (46
    )Operating income before depreciation and amortization
    
    311
    
    343Depreciation and amortization
    
    (174
    )
    (167
    )Financing expense and interest expense on employee future benefits
    
    (107
    )
    (112
    )Loss on refinancing of long-term debt
    
    (44
    )
    —Foreign exchange gain (loss) on long-term debt and financial instruments
    
    (30
    )
    2Share of results of associates and joint ventures
    
    —
    
    (3
    )Profit (loss) before income taxes
    
    (44
    )
    63





8


---

PAYMENTS FOR PROPERTY, PLANT AND EQUIPMENTFor the years ended December 31 (in millions of Canadian dollars)
    NOTE
    2014
    
    2013Packaging ProductsContainerboard
    
    34
    
    44Boxboard Europe
    
    33
    
    29Specialty Products
    
    19
    
    22Discontinued operations of Containerboard
    5
    (2
    )
    (4
    )Discontinued operations of Specialty Products
    5
    (1
    )
    (6
    )83
    
    85Tissue Papers
    
    88
    
    47Corporate
    
    8
    
    15Total acquisitions
    
    179
    
    147Proceeds on disposals of property, plant and equipment
    
    (7
    )
    (12
    )Capital-lease acquisitions and acquisitions included in other debts
    
    (14
    )
    (4
    )158
    
    131Acquisitions of property, plant and equipment included in ''Trade and other payables''Beginning of year
    
    33
    
    28End of year
    
    (20
    )
    (33
    )Payments for property, plant and equipment net of proceeds on disposals
    
    171
    
    126





TOTAL ASSETS(in millions of Canadian dollars)
    DECEMBER 31, 2014
    
    DECEMBER 31, 2013Packaging ProductsContainerboard
    1,250
    
    1,312Boxboard Europe
    637
    
    712Specialty Products
    355
    
    4692,242
    
    2,493Tissue Papers
    834
    
    755Corporate
    414
    
    358Intersegment eliminations
    (83
    )
    (46
    )3,407
    
    3,560Investments in associates and joint ventures
    259
    
    261Other investments
    7
    
    10Total assets
    3,673
    
    3,831






























































9


---

Information by geographic segment is as follows:


For the years ended December 31 (in millions of Canadian dollars)
    2014
    
    2013SalesOperations located in CanadaWithin Canada
    1,249
    
    1,201To the United States
    509
    
    488Offshore
    24
    
    261,782
    
    1,715Operations located in the United StatesWithin the United States
    839
    
    779To Canada
    50
    
    49Offshore
    1
    
    2890
    
    830Operations located in ItalyWithin Italy
    240
    
    233Other countries
    146
    
    137386
    
    370Operations located in other countriesWithin Europe
    378
    
    349Other countries
    125
    
    106503
    
    455Total
    3,561
    
    3,370





(in millions of Canadian dollars)
    DECEMBER 31, 2014
    
    DECEMBER 31, 2013Property, plant and equipmentCanada
    845
    
    1,015United States
    387
    
    304Italy
    282
    
    306Other countries
    59
    
    59Total
    1,573
    
    1,684


(in millions of Canadian dollars)
    DECEMBER 31, 2014
    
    DECEMBER 31, 2013Goodwill, customer relationships and client lists, and other finite and indefinite useful life intangible assetsCanada
    457
    
    471United States
    54
    
    50Italy
    7
    
    8Total
    518
    
    529

















10


---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


For each of the years in the two-year period ended December 31, 2014


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








NOTE 1


GENERAL INFORMATION


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





The Board of Directors approved the consolidated financial statements on March 12, 2015 .








NOTE 2


SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





CHANGE IN CLASSIFICATION OF SHIPPING EXPENSES


In 2014, the Corporation classifies shipping expenses of $ 33 million as Cost of sales. As a result of this classification, the Corporation has reclassified shipping expenses that were previously classified within Selling and administrative expenses under Cost of sales for the comparative period, resulting in a reclassification adjustment of $ 36 million as at December 31, 2013.





BASIS OF PRESENTATION


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





BASIS OF MEASUREMENT


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





BASIS OF CONSOLIDATION


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





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

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




















11


---

The following are the principal subsidiaries of the Corporation:


PERCENTAGE OWNED (%)
    JURISDICTIONCascades Canada ULC
    100
    CanadaCascades Recovery Inc.
    73
    CanadaCascades USA Inc.
    100
    DelawareCascades S.A.S. (France)
    100
    FranceCascades Europe  S.A.S.
    100
    FranceReno de Medici S.p.A.
    57.61
    Italy





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

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





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

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





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





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





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

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





REVENUE RECOGNITION


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





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





FINANCIAL INSTRUMENTS AND HEDGING RELATIONSHIPS


Financial assets and financial liabilities are recognized when the Corporation becomes a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Corporation has transferred substantially all risks and rewards of ownership.





Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.





CLASSIFICATION


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











12


---

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

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





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

HTM financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities, other than loans and receivables, AFS or fair value through profit or loss that the entity has the positive intention and ability to hold to maturity. These financial assets are measured at amortized cost. The Corporation has no HTM financial assets as at December 31, 2014 and 2013 .





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

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





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





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

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





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

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





IMPAIRMENT OF FINANCIAL ASSETS


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





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

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




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




















13


---

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES


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





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

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

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




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





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





|   |                
|-- | ---------------
|A. | CASH FLOW HEDGE

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





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





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





|   |                     
|-- | --------------------
|B. | NET INVESTMENT HEDGE

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





CASH AND CASH EQUIVALENTS


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





ACCOUNTS RECEIVABLE


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





INVENTORIES


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





14


---

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION


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





Buildings                Between 20 and 33 years


Machinery and equipment        Between 7 and 20 years


Automotive equipment        Between 5 and 10 years


Other property, plant and equipment    Between 3 and 10 years





GRANTS AND INVESTMENT TAX CREDITS


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





BORROWING COSTS


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





INTANGIBLE ASSETS


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





Customer relationships and client lists    Between 2 and 30 years


Other finite-life intangible assets    Between 2 and 20 years


Application software    Between 3 and 10 years


Enterprise Resource Planning (ERP) 7 years


Favourable leases    Term of the lease





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





IMPAIRMENT





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

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





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





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

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











15


---

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

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





LEASES


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





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





PROVISIONS FOR CONTINGENCIES AND CHARGES


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





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





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





ENVIRONMENTAL RESTORATION OBLIGATIONS AND ENVIRONMENTAL COSTS


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





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





LONG-TERM DEBT


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





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














16


---

EMPLOYEE BENEFITS


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





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





As well, when an asset is recorded for a pension plan, its carrying value cannot be greater than the future economic benefit that the Corporation will get from the asset. The future economic benefit includes the suspension of contribution if the pension plan provisions allows for it under the minimum funding requirements. When there is a minimum funding requirement, it can increase the liability recorded. All special contributions legally required to fund a plan deficit are considered. For plans for which an actuarial evaluation is required as at December 31, 2014, a schedule  of contributions is estimated to establish the minimum funding requirement. For other plans, we have used contributions from the most recent actuarial report.





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





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





Interest costs on pension and other post-employment benefits are recognized in the consolidated statement of earnings as Interest expense on employee future benefits. The measurement date of the employee future benefit plans is December 31 of each year. An actuarial evaluation is performed at least every three years. Based on their balances as at December 31, 2014 , 100 % of the plans were evaluated on December 31, 2013 ( 45 % in 2012) .





INCOME TAXES


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





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





FOREIGN CURRENCY TRANSLATION


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





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

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





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

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


17


---

SHARE-BASED PAYMENTS


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





DIVIDEND DISTRIBUTION


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





EARNINGS PER COMMON SHARE


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








NOTE 3


CHANGES IN ACCOUNTING POLICY AND DISCLOSURES





A) NEW IFRS ADOPTED





IFRS 7 — FINANCIAL INSTRUMENTS DISCLOSURES


IFRS 7 requires disclosure of both gross and net information about financial instruments eligible for offset in the balance sheet and financial instruments subject to master netting arrangements. Concurrent with the amendments to IFRS 7, the IASB also amended IAS 32, Financial Instruments: Presentation to clarify the existing requirements for offsetting financial instruments in the balance sheet. The amendments to IAS 32 were effective as of January 1, 2014. The Corporation evaluated this standard and there is no impact on the consolidated financial statements.





B) RECENT IFRS PRONOUNCEMENTS NOT YET ADOPTED





IFRS 15 — REVENUE RECOGNITION


In May 2014, the 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, 2017 with early adoption permitted. At this time, the Corporation is reviewing the impact that this standard will have on its consolidated financial statements.





IFRS 9 — FINANCIAL INSTRUMENTS


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








18


---

NOTE 4


CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS





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





CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS


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





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


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





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





DESCRIPTION OF SIGNIFICANT IMPAIRMENT TESTING ASSUMPTIONS (see Notes 5 and 24)





GROWTH RATES


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





DISCOUNT RATES


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





FOREIGN EXCHANGE RATES


Foreign exchange rates are determined using the financial institutions' average forecast for the first two years of forecasting. For the three following 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 best estimate.





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





B.    INCOME TAXES


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





C.    EMPLOYEE BENEFITS


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











19


---

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





CRITICAL JUDGMENTS IN APPLYING THE CORPORATION'S ACCOUNTING POLICIES





SUBSIDIARIES AND EQUITY ACCOUNTED INVESTMENTS


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








NOTE 5


DISCONTINUED OPERATIONS AND DISPOSAL





DISCONTINUED OPERATIONS





Containerboard Group


On December 11, 2014, the Containerboard Group announced that it had reached an agreement for the sale of its boxboard activities in North America to Graphic Packaging Holding Company for $45 million. The sale was completed on February 4, 2015. Following the announcement, impairment charges of $2 million on intangible assets, $23 million on property, plant and equipment and $6 million on spare parts were recorded.





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





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





The operating results and cash flows from these activities are presented as discontinued operations and prior periods have been restated.


(in millions of Canadian dollars)
    2014
    
    2013Results of the discontinued operations of North American boxboard activitiesSales, net of intercompany transactions
    226
    
    219Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
    207
    
    209Depreciation and amortization
    6
    
    7Selling and administrative expenses
    11
    
    12Loss on acquisitions, disposals and others
    1
    
    —Impairment charges and restructuring costs
    64
    
    —Foreign exchange gain
    (1
    )
    (1
    )Operating loss
    (62
    )
    (8
    )Financing expense
    —
    
    (1
    )Interest expense on employee future benefits
    —
    
    1Recovery of income tax
    (18
    )
    (2
    )Net loss from discontinued operations
    (44
    )
    (6
    )





(in millions of Canadian dollars)
    2014
    
    2013Net cash flow of discontinued operations of North American boxboard activitiesCash flow from (used for):Operating activities
    9
    
    (10
    )Investing activities
    —
    
    (2
    )Total
    9
    
    (12
    )


20


---

ASSETS AND LIABILITIES OF DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE


BUSINESS SEGMENT
    CONTAINERBOARD GROUPNorth American Boxboard Activities(in millions of Canadian dollar)Accounts receivables
    25Inventories
    25Property, plant and equipment
    19Other assets
    3Total assets
    72Trade and other payables
    25Other liabilities
    7Total liabilities
    32Net assets classified as held for sale
    40Estimated selling price adjustment related to pension plan deficit as at December 31, 2014
    4Estimated selling price adjustment related to working capital balance as at December 31, 2014
    1Base selling price as per agreement
    45





Boxboard Europe Group


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





In 2013, the Djupafors mill recorded severances totaling $ 1 million in relation to consolidation of its virgin boxboard activities in Djupafors, Sweden. The mill also recorded an impairment charge of $ 10 million on property, plant and equipment. This impairment charge was recorded due to sustained difficult market conditions which led to insufficient profitability. The recoverable amount was based on  the selling price of assets as it was higher than the income approach.





The operating results and cash flows from this activity are presented as discontinued operations and prior periods have been restated.


(in millions of Canadian dollars)
    2014
    
    2013Results of the discontinued operations of Swedish virgin boxboard activitiesSales, net of intercompany transactions
    32
    
    51Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
    32
    
    54Depreciation and amortization
    —
    
    1Selling and administrative expenses
    2
    
    3Impairment charges and restructuring costs
    12
    
    11Net loss from discontinued operations
    (14
    )
    (18
    )





(in millions of Canadian dollars)
    2014
    
    2013Net cash flow of the discontinued operations of Swedish virgin boxboard activitiesCash flow from (used for):Operating activities
    3
    
    (7
    )





Specialty Product Group


On June 30, 2014, we sold our fine papers activities of the Specialty Products Group to Les Entreprises Rolland, a subsidiary of H.I.G. Capital, for a cash consideration of $39 million, before transaction fees of $1 million, of which $37 million was received on closing and $2 million during the third quarter. During the third quarter, the Corporation recorded and paid a preliminary working capital adjustment of $2 million. The transaction is still subject to working capital adjustment as of December 31, 2014. A loss on disposal of $43 million was recorded in 2014.














21


---

On September 26, 2014, we ceased the operation of our kraft papers manufacturing activities of the Specialty Product Group located in East Angus, Québec. The closure was announced on July 9, 2014, and an impairment charge of $2 million on spare parts and restructuring costs of $4 million were recorded in the second quarter. At the same time, a curtailment gain of $9 million was recorded on the pension plan. In the fourth quarter, we recorded $1 million of closure costs for the mill.





In 2013, the recoverable amount of the East Angus mill had been reviewed and impairment charges of $16 million on property, plant and equipment and $4 million on spare parts were recorded. The strength of the Canadian dollar over the last few years combined with lower demand reduced profitability. The recoverable amount was based on the selling prices of assets as it was higher than the income approach.





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


(in millions of Canadian dollars)
    2014
    
    2013Results of the discontinued operations of specialty papers sectorSales, net of intercompany transactions
    148
    
    226Cost of sales and expenses (excluding depreciation and amortization), net of intercompany transactions
    128
    
    194Depreciation and amortization
    3
    
    7Selling and administrative expenses
    9
    
    15Loss on acquisitions, disposals and others
    43
    
    —Impairment charges and restructuring costs
    (2
    )
    20Operating loss
    (33
    )
    (10
    )Interest expense on employee future benefits
    1
    
    3Recovery of income tax
    (9
    )
    (5
    )Net loss from discontinued operations
    (25
    )
    (8
    )





(in millions of Canadian dollars)
    2014
    
    2013Net cash flow of discontinued operations of specialty papers sectorCash flow from (used for):Operating activities
    7
    
    13Investing activities
    35
    
    (6
    )Total
    42
    
    7





Corporate activities


In 2013, in Corporate activities, we also reversed a $ 2 million provision for which we retained liability following the Dopaco sale in 2011 as it did not materialize.


(in millions of Canadian dollars)
    2014
    
    2013Condensed net loss from discontinued operations
    (83
    )
    (30
    )Condensed net loss from discontinued operations per common shareBasic and diluted
    $
    (0.89
    )
    $
    (0.33
    )





















































22


---

DISPOSAL OF THE FINE PAPERS ACTIVITIES





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


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








NOTE 6


ACCOUNTS RECEIVABLE


(in millions of Canadian dollars)
    NOTE
    
    2014
    
    2013Accounts receivable - Trade
    
    416
    
    458Receivables from related parties
    28
    
    19
    
    20Less: provision for doubtful accounts
    
    (12
    )
    (13
    )Trade receivables - net
    
    423
    
    465Provisions for volume rebates
    
    (31
    )
    (27
    )Other
    
    61
    
    74453
    
    512





As of December 31, 2014 , trade receivables of $ 99 million (December 31, 2013 - $ 155 million) were past due but not impaired. The aging of these trade receivables at each reporting date is as follows:


(in millions of Canadian dollars)
    2014
    
    2013Past due 1-30 days
    72
    
    118Past due 31-60 days
    14
    
    23Past due 61-90 days
    9
    
    9Past due 91 days and over
    4
    
    599
    
    155





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


(in millions of Canadian dollars)
    2014
    
    2013Balance at beginning of year
    13
    
    12Provision for doubtful accounts, net of unused beginning balance
    4
    
    4Receivables written off during the year as uncollectable
    (4
    )
    (3
    )Business disposals
    (1
    )
    —Balance at end of year
    12
    
    13





23


---

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





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








NOTE 7


INVENTORIES


(in millions of Canadian dollars)
    2014
    
    2013Finished goods
    218
    
    254Raw material
    99
    
    128Supplies and spare parts
    145
    
    161462
    
    543





As at December 31, 2014 , finished goods, raw material and supplies and spare parts were adjusted to net realizable value ("NRV") by $ 7 million, nil and $ 1 million, respectively (December 31, 2013 - $ 5 million, nil, $ 2 million). As at December 31, 2014 , the carrying amount of inventory carried at net realizable value consisted of $ 19 million in finished goods inventory, nil in raw material inventory and nil million in supplies and spare parts (December 31, 2013 - $ 22 million, nil and $ 4 million).





The Corporation has sold all the goods that were written down in 2013 . No reversal of previously written-down inventory occurred in 2014 nor in 2013 . The cost of raw material and supplies and spare parts included in Cost of sales amounted to $ 1,405 million ( 2013 - $ 1,268 million).








NOTE 8


INVESTMENTS IN ASSOCIATES AND JOINT VENTURES





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

(in millions of Canadian dollars)
    2014
    
    2013Investments in associates
    217
    
    230Investments in joint ventures
    42
    
    31259
    
    261





Investments in associates and joint ventures as at December 31, 2014 , include goodwill of $ 49 million (December 31, 2013 - $ 20 million).





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

The following are the principal associates of the Corporation:


PERCENTAGE OF EQUITY OWNED (%)
    BUSINESS RELATIONSHIP
    PRINCIPAL ESTABLISHMENTBoralex Inc.
    34.23
    Note 1
    Kingsey Falls, CanadaGreenpac Holding LLC
    59.7
    Note 2
    Niagara Falls, United States


1 Boralex Inc., is a Canadian public corporation and a major electricity producer whose core business is the development and operation of power stations that generate renewable


energy, with operations in Canada, the northeastern United States and France.


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






































24


---

The Corporation's financial information from its principal associates (100%) is as follows:


2014
    
    2013(in millions of Canadian dollars)
    BORALEX INC.
    
    GREENPAC HOLDING LLC
    
    BORALEX INC.
    
    GREENPAC HOLDING LLCBalance sheetCash and cash equivalents
    75
    
    56
    
    125
    
    13Current assets
    158
    
    114
    
    193
    
    70Current financial assets
    1
    
    —
    
    —
    
    —Long-term assets
    1,756
    
    504
    
    1,229
    
    479Long-term financial assets
    3
    
    —
    
    —
    
    —Current liabilities
    59
    
    47
    
    60
    
    33Current financial liabilities
    206
    
    41
    
    99
    
    5Long-term liabilities
    61
    
    —
    
    50
    
    —Long-term financial liabilities
    1,256
    
    341
    
    828
    
    338Statements of earnings (loss)Sales
    193
    
    246
    
    169
    
    58Depreciation and amortization
    60
    
    24
    
    54
    
    9Financing expense
    58
    
    25
    
    51
    
    11Provision for (recovery of) income taxes
    (1
    )
    —
    
    1
    
    —Net earnings (loss)
    (11
    )
    (4
    )
    (4
    )
    (18
    )Other comprehensive income (loss)Translation adjustment
    (2
    )
    (2
    )
    18
    
    —Cash flow hedges
    (28
    )
    (10
    )
    25
    
    (10
    )Available for sale asset
    —
    
    —
    
    1
    
    —(30
    )
    (12
    )
    44
    
    (10
    )Total comprehensive income (loss)
    (41
    )
    (16
    )
    40
    
    (28
    )Cash flowDividend received from associates
    7
    
    —
    
    —
    
    —





Investment in Boralex Inc. has a fair value of $ 169 million as at December 31, 2014 (December 31, 2013 - $ 142 million).





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

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


PERCENTAGE EQUITY OWNED (%)
    BUSINESS RELATIONSHIP
    PRINCIPAL ESTABLISHMENTCascades Sonoco Inc.
    50
    Note 1
    Birmingham and Tacoma, United StatesCascades Conversion Inc.
    50
    Note 1
    Kingsey Falls, CanadaConverdis Inc.
    50
    Note 1
    Berthierville, CanadaMaritime Paper Products Limited Partnership (MPPLP)
    40
    Note 2
    Dartmouth, Nova Scotia


1 The joint ventures all produce specialty paper packaging products such as headers, rolls and wrappers.


2 MPPLP is a Canadian corporation converting containerboard.



































25


---

The Corporation's joint ventures information (100%) is as follows:


2014(in millions of Canadian dollars)
    CASCADES SONOCO INC.
    
    CASCADES CONVERSION INC.
    
    CONVERDIS INC.
    
    MARITIME PAPER PRODUCTS LIMITED PARTNERSHIPBalance sheetCash and cash equivalents
    4
    
    1
    
    —
    
    —Current assets
    25
    
    14
    
    6
    
    24Long-term assets
    12
    
    26
    
    5
    
    34Current liabilities
    6
    
    3
    
    2
    
    —Current financial liabilities
    2
    
    1
    
    —
    
    19Long-term liabilities
    3
    
    2
    
    1
    
    6Long-term financial liabilities
    —
    
    —
    
    —
    
    4Statement of earnings (loss)Sales
    104
    
    62
    
    23
    
    86Depreciation and amortization
    2
    
    1
    
    —
    
    2Provision for income taxes
    3
    
    2
    
    —
    
    —Net earnings (loss)
    7
    
    6
    
    1
    
    (4
    )Other comprehensive income (loss)Translation adjustment
    3
    
    —
    
    —
    
    —Total comprehensive income (loss)
    10
    
    6
    
    1
    
    (4
    )Cash flowDividend received from joint ventures
    3
    
    3
    
    —
    
    —


2013(in millions of Canadian dollars)
    CASCADES SONOCO INC.
    
    CASCADES CONVERSION INC.
    
    CONVERDIS INC.Balance sheetCash and cash equivalents
    4
    
    2
    
    —Current assets
    20
    
    17
    
    5Long-term assets
    12
    
    21
    
    5Current liabilities
    4
    
    5
    
    2Current financial liabilities
    3
    
    —
    
    —Long-term liabilities
    3
    
    2
    
    1Statement of earningsSales
    97
    
    62
    
    24Depreciation and amortization
    1
    
    1
    
    —Provision for income taxes
    3
    
    2
    
    —Net earnings
    7
    
    6
    
    1Other comprehensive incomeTranslation adjustment
    1
    
    —
    
    —Total comprehensive income
    8
    
    6
    
    1Cash flowDividend received from joint ventures
    6
    
    3
    
    —





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











26


---

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

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


2014
    
    2013(in millions of Canadian dollars, unless otherwise noted)
    RENO DE MEDICI S.p.A.
    
    NORCAN FLEXIBLE PACKAGING
    
    CASCADES RECOVERY INC.
    
    RENO DE MEDICI S.p.A.
    
    NORCAN FLEXIBLE PACKAGING
    
    CASCADES RECOVERY INC.Principal establishment
    Milan, Italy
    
    Mississauga, Canada
    
    Toronto, Canada
    
    Milan, Italy
    
    Mississauga, Canada
    
    Toronto, Canada% of shares held by non-controlling interest
    42.39
    %
    37.9
    %
    27
    %
    42.39
    %
    43.54
    %
    27
    %Net earnings (loss) attributable to non-controlling interest
    5
    
    (3
    )
    2
    
    3
    
    (1
    )
    1Non-controlling interest accumulated at the end of the year
    83
    
    (1
    )
    28
    
    85
    
    2
    
    26Subsidiaries financial informationAssets
    508
    
    10
    
    132
    
    559
    
    18
    
    124Liabilities
    313
    
    12
    
    39
    
    360
    
    13
    
    39Net earnings (loss)
    6
    
    (4
    )
    6
    
    3
    
    (1
    )
    3Cash flows from operating activities
    37
    
    —
    
    16
    
    37
    
    1
    
    16Cash flows from investing activities
    (20
    )
    —
    
    (9
    )
    (17
    )
    —
    
    (5
    )Cash flows from financing activities
    (17
    )
    —
    
    (2
    )
    (21
    )
    (1
    )
    (16
    )





In 2010 , the Corporation entered into a put and call agreement with Industria E Innovazione (“Industria”) whereby it had the option to buy 9.07 % ( 100 % of the shares held by Industria) of the shares of Reno de Medici (RdM) for € 0.43 per share between March 1, 2011 and December 31, 2012 . Industria also had the option of requiring the Corporation to purchase its shares for € 0.41 per share between January 1, 2013 and March 31, 2014 . As the put option held by Industria became effective on January 1, 2013 , the non-controlling interest has been adjusted by 9.07 % effective January 1, 2013 , to 42.39 %.





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

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


(in millions of Canadian dollars)
    2014
    
    2013Non-significant associates
    13
    
    13Non-significant joint ventures
    8
    
    721
    
    20





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


(in millions of Canadian dollars)
    2014
    
    2013Non-significant associates
    —
    
    1Non-significant joint ventures
    2
    
    (2
    )2
    
    (1
    )





The Corporation received dividends of $ 2 million from these associates and joint ventures as at December 31, 2014 (December 31, 2013 - $ 3 million).





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

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





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


27


---

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


28


---

NOTE 9


PROPERTY, PLANT AND EQUIPMENT


(in millions of Canadian dollars)
    NOTE
    
    LAND
    
    BUILDINGS
    
    MACHINERY AND EQUIPMENT
    
    AUTOMOTIVE EQUIPMENT
    
    OTHER
    
    TOTALAs at January 1, 2013Cost
    
    104
    
    681
    
    2,764
    
    78
    
    225
    
    3,852Accumulated depreciation and impairment
    
    —
    
    273
    
    1,757
    
    57
    
    106
    
    2,193Net book amount
    
    104
    
    408
    
    1,007
    
    21
    
    119
    
    1,659Year ended December 31, 2013Opening net book amount
    
    104
    
    408
    
    1,007
    
    21
    
    119
    
    1,659Additions
    
    3
    
    8
    
    51
    
    11
    
    84
    
    157Disposals
    
    —
    
    —
    
    (8
    )
    —
    
    (2
    )
    (10
    )Depreciation
    
    —
    
    (25
    )
    (123
    )
    (7
    )
    (9
    )
    (164
    )Impairment charges
    5 and 24
    
    (2
    )
    (13
    )
    —
    
    —
    
    (1
    )
    (16
    )Other
    
    —
    
    10
    
    68
    
    —
    
    (76
    )
    2Exchange differences
    
    4
    
    11
    
    37
    
    —
    
    4
    
    56Closing net book amount
    
    109
    
    399
    
    1,032
    
    25
    
    119
    
    1,684As at December 31, 2013Cost
    
    111
    
    721
    
    2,831
    
    84
    
    215
    
    3,962Accumulated depreciation and impairment
    
    2
    
    322
    
    1,799
    
    59
    
    96
    
    2,278Net book amount
    
    109
    
    399
    
    1,032
    
    25
    
    119
    
    1,684Year ended December 31, 2014Opening net book amount
    
    109
    
    399
    
    1,032
    
    25
    
    119
    
    1,684Additions
    
    1
    
    7
    
    17
    
    16
    
    141
    
    182Disposals
    
    —
    
    (2
    )
    (1
    )
    —
    
    (7
    )
    (10
    )Depreciation
    
    —
    
    (26
    )
    (128
    )
    (7
    )
    (5
    )
    (166
    )Business disposal
    5
    
    (1
    )
    (17
    )
    (42
    )
    (1
    )
    (1
    )
    (62
    )Contribution to a joint venture
    8
    
    —
    
    (2
    )
    (3
    )
    —
    
    —
    
    (5
    )Assets of disposal group classified as held for sale
    5
    
    —
    
    (8
    )
    (9
    )
    (1
    )
    (1
    )
    (19
    )Impairment charges
    5 and 24
    
    (2
    )
    (2
    )
    (46
    )
    —
    
    —
    
    (50
    )Other
    
    1
    
    16
    
    141
    
    1
    
    (156
    )
    3Exchange differences
    
    (1
    )
    3
    
    6
    
    —
    
    8
    
    16Closing net book amount
    
    107
    
    368
    
    967
    
    33
    
    98
    
    1,573As at December 31, 2014Cost
    
    110
    
    681
    
    2,554
    
    93
    
    195
    
    3,633Accumulated depreciation and impairment
    
    3
    
    313
    
    1,587
    
    60
    
    97
    
    2,060Net book amount
    
    107
    
    368
    
    967
    
    33
    
    98
    
    1,573





Other property, plant and equipment includes buildings and machinery and equipment in the process of construction or installation with a book value of $ 63 million (December 31, 2013 - $ 60 million) and deposits on purchases of equipment amounting to $ 7 million (December 31, 2013 - $ 10 million). The carrying value of finance-lease assets is $ 18 million.





In 2014 , $ 1 million of interest incurred on qualifying assets was capitalized. The weighted average capitalization rate on funds borrowed in 2014 was 5.74 %.








29


---

NOTE 10


GOODWILL AND OTHER INTANGIBLE ASSETS


(in millions of Canadian dollars)
    NOTE
    
    APPLICATION SOFTWARE AND ERP
    
    CUSTOMER RELATIONSHIPS AND CLIENT LISTS
    
    OTHER INTANGIBLE ASSETS WITH FINITE USEFUL LIFE
    
    TOTAL INTANGIBLE ASSETS WITH FINITE USEFUL LIFE
    
    GOODWILL
    
    OTHER INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFE
    
    TOTAL INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIFEAs at January 1, 2013Cost
    
    81
    
    179
    
    41
    
    301
    
    329
    
    7
    
    336Accumulated amortization and impairment
    
    19
    
    53
    
    29
    
    101
    
    —
    
    1
    
    1Net book amount
    
    62
    
    126
    
    12
    
    200
    
    329
    
    6
    
    335Year ended December 31, 2013Opening net book amount
    
    62
    
    126
    
    12
    
    200
    
    329
    
    6
    
    335Additions
    
    15
    
    —
    
    —
    
    15
    
    —
    
    —
    
    —Impairment charges
    24
    
    —
    
    (2
    )
    —
    
    (2
    )
    (4
    )
    —
    
    (4
    )Amortization
    
    (4
    )
    (11
    )
    (3
    )
    (18
    )
    —
    
    —
    
    —Exchange differences
    
    —
    
    1
    
    —
    
    1
    
    1
    
    1
    
    2Closing net book amount
    
    73
    
    114
    
    9
    
    196
    
    326
    
    7
    
    333As at December 31, 2013Cost
    
    97
    
    180
    
    41
    
    318
    
    330
    
    8
    
    338Accumulated amortization and impairment
    
    24
    
    66
    
    32
    
    122
    
    4
    
    1
    
    5Net book amount
    
    73
    
    114
    
    9
    
    196
    
    326
    
    7
    
    333Year ended December 31, 2014Opening net book amount
    
    73
    
    114
    
    9
    
    196
    
    326
    
    7
    
    333Additions
    
    6
    
    —
    
    —
    
    6
    
    —
    
    —
    
    —Impairment charges
    5
    
    —
    
    (2
    )
    —
    
    (2
    )
    —
    
    —
    
    —Amortization
    
    (5
    )
    (10
    )
    (2
    )
    (17
    )
    —
    
    —
    
    —Exchange differences
    
    —
    
    —
    
    —
    
    —
    
    2
    
    —
    
    2Closing net book amount
    
    74
    
    102
    
    7
    
    183
    
    328
    
    7
    
    335As at December 31, 2014Cost
    
    102
    
    170
    
    35
    
    307
    
    332
    
    8
    
    340Accumulated amortization and impairment
    
    28
    
    68
    
    28
    
    124
    
    4
    
    1
    
    5Net book amount
    
    74
    
    102
    
    7
    
    183
    
    328
    
    7
    
    335








NOTE 11


OTHER ASSETS


(in millions of Canadian dollars)
    NOTE
    
    2014
    
    2013Notes receivable from business disposals
    
    
    13
    
    18Other investments
    
    7
    
    10Other assets
    
    48
    
    42Deferred financing costs
    
    2
    
    4Employee future benefits
    16
    
    20
    
    4490
    
    118Less: Current portion, included in accounts receivables
    
    (7
    )
    (10
    )Total other assets
    
    83
    
    108





In 2012 , the Corporation granted a US$ 15 million ($ 15 million) bridge loan to Greenpac Holding LLC (Greenpac Project). The loan is included in Other assets will mature no later than 2021 and bears interest ranging from 7.5 % to 9.5 % depending on the mill debt/OIBD ratio. Including accrued interest, the bridge loan stands at $ 22 million as at December 31, 2014 (December 31, 2013 - $ 20 million). However, we expect the loan to be repaid over the next 4 years through secured tax credits to be received by members of the project and operational cash flows. In 2014 , the Corporation also recorded in Other assets $ 2 million worth of deferred revenue for the supervision of Greenpac ( 2013 - $ 6 million). These costs are repayable to the Corporation by Greenpac Mill over an eight-year period.





30


---

NOTE 12


TRADE AND OTHER PAYABLES


(in millions of Canadian dollars)
    NOTE
    
    2014
    
    2013Trade payables
    
    390
    
    450Payables to related parties
    28
    
    27
    
    25Accrued expenses
    
    140
    
    115Trade and other payables
    
    557
    
    590








NOTE 13


PROVISIONS FOR CONTINGENCIES AND CHARGES


(in millions of Canadian dollars)
    NOTE
    
    ENVIRONMENTAL RESTORATION OBLIGATIONS
    
    ENVIRONMENTAL COSTS
    
    LEGAL CLAIMS
    
    SEVERANCES
    
    ONEROUS CONTRACT
    
    OTHER
    
    TOTAL PROVISIONSAs at January 1, 2013
    
    8
    
    13
    
    8
    
    2
    
    5
    
    3
    
    39Additional provision
    
    —
    
    1
    
    2
    
    4
    
    1
    
    —
    
    8Payments
    
    —
    
    (1
    )
    (4
    )
    (2
    )
    (3
    )
    (1
    )
    (11
    )Revaluation
    
    —
    
    —
    
    —
    
    —
    
    —
    
    2
    
    2Unwinding of discount
    
    —
    
    —
    
    —
    
    —
    
    1
    
    —
    
    1As at December 31, 2013
    
    8
    
    13
    
    6
    
    4
    
    4
    
    4
    
    39Additional provision
    
    —
    
    1
    
    1
    
    10
    
    4
    
    4
    
    20Payments
    
    —
    
    —
    
    —
    
    (12
    )
    (2
    )
    (1
    )
    (15
    )Revaluation
    
    1
    
    —
    
    —
    
    —
    
    —
    
    —
    
    1Business disposal
    5
    
    (1
    )
    —
    
    —
    
    —
    
    —
    
    —
    
    (1
    )Unwinding of discount
    
    —
    
    —
    
    —
    
    —
    
    1
    
    —
    
    1Other
    
    —
    
    —
    
    (4
    )
    4
    
    —
    
    —
    
    —Exchange differences
    
    —
    
    —
    
    —
    
    (1
    )
    —
    
    —
    
    (1
    )As at December 31, 2014
    
    8
    
    14
    
    3
    
    5
    
    7
    
    7
    
    44





Analysis of total provisions:


(in millions of Canadian dollars)
    2014
    
    2013Non-current
    33
    
    37Current
    11
    
    244
    
    39





ENVIRONMENTAL RESTORATION


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





ENVIRONMENTAL COSTS


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





LEGAL CLAIMS


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





In the normal course of operations, the Corporation is party to various legal actions and contingencies, mostly related to contract disputes, environmental and product warranty claims, and labour issues. While the final outcome with respect to legal actions outstanding or pending as at December 31, 2014, cannot be predicted with certainty, it is Management's opinion that the outcome will not have a material adverse effect on the Corporation's consolidated financial position, the results of its operations or its cash flows.





The Corporation is currently working with representatives of the Ontario Ministry of the Environment (MOE) - Northern Region and Environment Canada - Great Lakes Sustainability Fund in Toronto, regarding its potential responsibility for an environmental impact identified at its former Thunder Bay facility ("Thunder Bay"). Both authorities have requested that the Corporation look into a site management plan relating to the


31


---

sediment quality adjacent to Thunder Bay's lagoon. Several meetings have been held during the year with the MOE and Environment Canada. A study on the sediment quality and potential remediation options has commenced.





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





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








NOTE 14


LONG-TERM DEBT


(in millions of Canadian dollars)
    MATURITY
    2014
    
    2013Revolving credit facility, weighted average interest rate of 2.63% as at December 31, 2014, consists of $103 million; US$50 million and €123 million (December 31, 2013 - $291 million; US$10 million and €125 million)
    2016
    332
    
    4847.75% Unsecured senior notes of $200 million repurchased in 2014
    2016
    —
    
    1997.75% Unsecured senior notes of US$500 million repurchased in 2014
    2017
    —
    
    5277.875% Unsecured senior notes of US$250 million
    2020
    287
    
    2635.50% Unsecured senior notes of $250 million
    2021
    250
    
    —5.50% Unsecured senior notes of US$550 million
    2022
    638
    
    —Other debts of subsidiaries
    
    31
    
    39Other debts without recourse to the Corporation
    
    73
    
    801,611
    
    1,592Less: Unamortized financing costs
    
    15
    
    13Total long-term debt
    
    1,596
    
    1,579Less:Current portion of debts of subsidiaries
    
    10
    
    15Current portion of debts without recourse to the Corporation
    
    30
    
    2440
    
    391,556
    
    1,540





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




Issuance proceeds were used as follows:


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





32


---

|   |                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b. | In2013, the Corporation repurchased US$4million of its7.25% unsecured senior notes for an amount of US$4million ($4million) and US$6million of its6.75% unsecured senior notes for an amount of US$6million ($6million). No gain or loss resulted from these transactions.




|   |                                                                                                                                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|c. | As at December 31,2014, accounts receivable and inventories totaling approximately $627million (December 31,2013- $655million) as well as property, plant and equipment totaling approximately $249million (December 31,2013- $261million) were pledged as collateral for the Corporation's revolving credit facility.




d. The Corporation has finance leases for various items of property, plant and equipment. Renewals and purchase options are specific to the entity that holds the lease. Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: 2014
    2013(in millions of Canadian dollars)
    MINIMUM PAYMENTS
    
    PRESENT VALUE OF PAYMENTS
    
    MINIMUM PAYMENTS
    
    PRESENT VALUE OF PAYMENTSWithin one year
    6
    
    5
    
    6
    
    5Later than 1 year but no later than 5 years
    12
    
    9
    
    10
    
    7More than 5 years
    8
    
    6
    
    9
    
    6Total minimum lease payments
    26
    
    20
    
    25
    
    18Less: amounts representing finance charges
    6
    
    —
    
    7
    
    —Present value of minimum lease payments
    20
    
    20
    
    18
    
    18








NOTE 15


OTHER LIABILITIES


(in millions of Canadian dollars)
    NOTE
    
    2014
    
    2013Employee future benefits
    16
    
    188
    
    202Other
    
    5
    
    11193
    
    213Less: Current portion, included in Trade and other payables
    
    (2
    )
    (1
    )Total other liabilities
    
    191
    
    212








33


---



NOTE 16


EMPLOYEE FUTURE BENEFITS





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


(in millions of Canadian dollars)
    NOTE
    2014
    
    2013Balance sheet obligations forDefined pension benefits
    16(a)
    59
    
    44Post-employment benefits other than defined benefit pension plans
    16(b)
    109
    
    114Net liability in the balance sheet
    
    168
    
    158Allocated as follow:Short-term
    
    —
    
    (6
    )Long-term
    
    168
    
    164Net liability on balance sheet
    
    168
    
    158Income statement chargeDefined pension benefits
    
    8
    
    11Defined contribution benefits
    
    19
    
    18Post-employment benefits other than defined benefit pension plans
    
    6
    
    6Included in discontinued operations
    
    (2
    )
    1131
    
    46Remeasurements forDefined pension benefits
    16(a)
    30
    
    (89
    )Post-employment benefits other than defined benefit pension plans
    16(b)
    9
    
    (8
    )39
    
    (97
    )





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

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





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
























































34


---



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


(in millions of Canadian dollars)
    PRESENT VALUE OF OBLIGATION
    
    FAIR VALUE OF PLAN ASSETS
    
    TOTAL
    
    IMPACT OF MINIMUM FUNDING REQUIREMENT (ASSET CEILING)
    
    TOTALAs at January 1, 2013
    723
    
    (598
    )
    125
    
    13
    
    138Current service cost
    12
    
    —
    
    12
    
    —
    
    12Interest expense (income)
    29
    
    (22
    )
    7
    
    1
    
    8Impact on profit or loss
    41
    
    (22
    )
    19
    
    1
    
    20RemeasurementsReturn on plan assets, excluding amounts included in interest expense (income)
    —
    
    (63
    )
    (63
    )
    —
    
    (63
    )Loss from change in demographic assumptions
    17
    
    —
    
    17
    
    —
    
    17Gain from change in financial assumptions
    (42
    )
    —
    
    (42
    )
    —
    
    (42
    )Experience gains
    (1
    )
    —
    
    (1
    )
    —
    
    (1
    )Impact of remeasurements on other comprehensive income
    (26
    )
    (63
    )
    (89
    )
    —
    
    (89
    )Exchange differences
    3
    
    (1
    )
    2
    
    —
    
    2ContributionsEmployers
    —
    
    (27
    )
    (27
    )
    —
    
    (27
    )Plan participants
    3
    
    (3
    )
    —
    
    —
    
    —Benefit payments
    (90
    )
    90
    
    —
    
    —
    
    —As at December 31, 2013
    654
    
    (624
    )
    30
    
    14
    
    44Current service cost
    8
    
    —
    
    8
    
    —
    
    8Interest expense (income)
    27
    
    (24
    )
    3
    
    —
    
    3Plan changes
    1
    
    —
    
    1
    
    —
    
    1Business closures
    (7
    )
    —
    
    (7
    )
    —
    
    (7
    )Other
    7
    
    (7
    )
    —
    
    —
    
    —Impact on profit or loss
    36
    
    (31
    )
    5
    
    —
    
    5RemeasurementsReturn on plan assets, excluding amounts included in interest expense (income)
    —
    
    (37
    )
    (37
    )
    —
    
    (37
    )Loss from change in demographic assumptions
    2
    
    —
    
    2
    
    —
    
    2Loss from change in financial assumptions
    66
    
    —
    
    66
    
    —
    
    66Experience losses
    10
    
    —
    
    10
    
    —
    
    10Change in asset ceiling, excluding amounts included in interest expense
    —
    
    —
    
    —
    
    (11
    )
    (11
    )Impact of remeasurements on other comprehensive income
    78
    
    (37
    )
    41
    
    (11
    )
    30Exchange differences
    —
    
    (1
    )
    (1
    )
    —
    
    (1
    )Business disposal
    (134
    )
    131
    
    (3
    )
    (3
    )
    (6
    )Included in assets of disposal group classified as held for sale
    (51
    )
    47
    
    (4
    )
    —
    
    (4
    )ContributionsEmployers
    —
    
    (9
    )
    (9
    )
    —
    
    (9
    )Plan participants
    2
    
    (2
    )
    —
    
    —
    
    —Benefit payments
    (73
    )
    73
    
    —
    
    —
    
    —As at December 31, 2014
    512
    
    (453
    )
    59
    
    —
    
    59












































35


---



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


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





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





2013(in millions of Canadian dollars)
    CANADA
    
    UNITED STATES
    
    EUROPE
    
    TOTALPresent value of funded obligations
    594
    
    7
    
    —
    
    601Fair value of plan assets
    619
    
    5
    
    —
    
    624Deficit (surplus) of funded plans
    (25
    )
    2
    
    —
    
    (23
    )Impact of minimum funding requirement (asset ceiling)
    14
    
    —
    
    —
    
    14Present value of unfunded obligations
    33
    
    —
    
    20
    
    53Net liability on balance sheet
    22
    
    2
    
    20
    
    44





2013(in millions of Canadian dollars)
    CONTAINER-BOARD
    
    BOXBOARD EUROPE
    
    SPECIALTY PRODUCTS
    
    TISSUE PAPERS
    
    CORPORATE
    
    TOTALPresent value of funded obligations
    386
    
    —
    
    186
    
    28
    
    1
    
    601Fair value of plan assets
    424
    
    —
    
    173
    
    25
    
    2
    
    624Deficit (surplus) of funded plans
    (38
    )
    —
    
    13
    
    3
    
    (1
    )
    (23
    )Impact of minimum funding requirement (asset ceiling)
    11
    
    —
    
    3
    
    —
    
    —
    
    14Present value of unfunded obligations
    7
    
    20
    
    2
    
    2
    
    22
    
    53Net liability on balance sheet
    (20
    )
    20
    
    18
    
    5
    
    21
    
    44





The significant actuarial assumptions are as follows:


2014
    
    2013CANADA
    
    UNITED STATES
    
    EUROPE
    
    CANADA
    
    UNITED STATES
    
    EUROPEDiscount rate
    3.75
    %
    3.62
    %
    1.9
    %
    4.75
    %
    4.5
    %
    3.25
    %Salary growth rate
    Between 2.5% and 3%
    
    N/A
    
    —
    %
    Between 1.5% and 3%
    
    N/A
    
    —
    %Inflation rate
    2.5
    %
    N/A
    
    1.75
    %
    2.5
    %
    N/A
    
    1.75
    %























36


---



Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. For Canadian pension plans which represent 95 % of all pension plans, these assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:


2014
    
    2013Retiring at the end of the yearMale
    21.5
    
    20.9Female
    24
    
    23.1Retiring 20 years after the end of the reporting yearMale
    22.6
    
    22.6Female
    25
    
    24.2





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


IMPACT ON DEFINED BENEFIT OBLIGATIONCHANGE IN ASSUMPTION
    INCREASE IN ASSUMPTION
    DECREASE IN ASSUMPTIONDiscount rate
    0.25%
    (3.0)%
    3.1%Salary growth rate
    0.25%
    0.4%
    (0.3)%INCREASE BY 1 YEAR IN ASSUMPTIONLife expectancy
    
    2.8
    %





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


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








37


---



2013(in millions of Canadian dollars)
    LEVEL 1
    
    LEVEL 2
    
    LEVEL 3
    
    TOTAL
    
    %Cash and  short-term investments
    28
    
    1
    
    —
    
    29
    
    4.6
    %BondsCanadian bonds
    115
    
    97
    
    —
    
    212212
    
    34.0
    %SharesCanadian shares
    113
    
    —
    
    —
    
    113Foreign shares
    13
    
    —
    
    —
    
    13126
    
    20.2
    %Mutual fundsMoney market funds
    —
    
    11
    
    —
    
    11Canadian bond mutual funds
    —
    
    11
    
    —
    
    11Foreign bond mutual funds
    —
    
    2
    
    —
    
    2Canadian equity mutual funds
    —
    
    49
    
    —
    
    49Foreign equity mutual funds
    —
    
    176
    
    —
    
    176Alternative investments funds
    —
    
    2
    
    —
    
    2251
    
    40.2
    %OtherDerivatives contract, net
    6
    
    —
    
    —
    
    66
    
    1.0
    %275
    
    349
    
    —
    
    624





The plan assets include shares of the Corporation for an amount of less than $ 1 million. Those shares have been bought by one of the asset managers. Annual benefit annuities of an approximate value of $ 68 million are pledged by insurance contracts.





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

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





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


2014(in millions of Canadian dollars)
    CANADA
    
    UNITED STATES
    
    EUROPE
    
    TOTALPresent value of unfunded obligations
    81
    
    4
    
    24
    
    109Liability on balance sheet
    81
    
    4
    
    24
    
    109


2014(in millions of Canadian dollars)
    CONTAINERBOARD
    
    BOXBOARD EUROPE
    
    SPECIALTY PRODUCTS
    
    TISSUE PAPERS
    
    CORPORATE
    
    TOTALPresent value of unfunded obligations
    48
    
    24
    
    6
    
    13
    
    18
    
    109Liability on balance sheet
    48
    
    24
    
    6
    
    13
    
    18
    
    109


2013(in millions of Canadian dollars)
    CANADA
    
    UNITED STATES
    
    EUROPE
    
    TOTALPresent value of unfunded obligations
    85
    
    3
    
    26
    
    114Liability on balance sheet
    85
    
    3
    
    26
    
    114
 2013(in millions of Canadian dollars)
    CONTAINERBOARD
    
    BOXBOARD EUROPE
    
    SPECIALTY PRODUCTS
    
    TISSUE PAPERS
    
    CORPORATE
    
    TOTALPresent value of unfunded obligations
    46
    
    26
    
    17
    
    12
    
    13
    
    114Liability on balance sheet
    46
    
    26
    
    17
    
    12
    
    13
    
    114
 .


38


---



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


(in millions of Canadian dollars)
    PRESENT VALUE OF OBLIGATION
    
    FAIR VALUE OF PLAN ASSET
    
    TOTALAs at January 1, 2013
    120
    
    —
    
    120Current service cost
    3
    
    —
    
    3Interest expense
    4
    
    —
    
    4Post-employment variation
    (1
    )
    —
    
    (1
    )Plan changes
    1
    
    —
    
    1Impact on profit or loss
    7
    
    —
    
    7RemeasurementsLoss from change in demographic assumptions
    1
    
    —
    
    1Gain from change in financial assumptions
    (11
    )
    —
    
    (11
    )Experience losses
    2
    
    —
    
    2Impact of remeasurements on other comprehensive income
    (8
    )
    —
    
    (8
    )Exchange differences
    3
    
    —
    
    3Contributions and premiums paid by the employer
    —
    
    (8
    )
    (8
    )Benefit payments
    (8
    )
    8
    
    —As at December 31, 2013
    114
    
    —
    
    114Current service cost
    2
    
    —
    
    2Interest expense
    5
    
    —
    
    5Plan changes
    1
    
    —
    
    1Business acquisitions, disposals and closures
    (2
    )
    —
    
    (2
    )Impact on profit or loss
    6
    
    —
    
    6RemeasurementsLoss from change in financial assumptions
    9
    
    —
    
    9Impact of remeasurements on other comprehensive income
    9
    
    —
    
    9Business disposal
    (9
    )
    —
    
    (9
    )Contributions and premiums paid by the employer
    —
    
    (11
    )
    (11
    )Benefit payments
    (11
    )
    11
    
    —As at December 31, 2014
    109
    
    —
    
    109





The method of accounting, assumptions relating to discount rate and life expectancy, and the frequency of valuations for post-employment benefits are similar to those used for defined benefit pension plans, with the addition of actuarial assumptions relating to the long-term increase in healthcare costs of 4.50 % a year ( 2013 - 4.75 %).





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


IMPACT ON OBLIGATION FOR POST-EMPLOYMENT BENEFITSCHANGE IN ASSUMPTION
    INCREASE IN ASSUMPTION
    DECREASE IN ASSUMPTIONDiscount rate
    0.25
    %
    (2.4
    )%
    2.6
    %Salary growth rate
    0.25
    %
    0.6
    %
    (0.6
    )%Health care cost increase
    1.0
    %
    2.3
    %
    (2.3
    )%INCREASE BY 1 YEAR IN ASSUMPTIONLife expectancy
    
    1.3
    %








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

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





Asset volatility


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





39


---



For the Canadian pension plans, which represent 99 % of funded pension plans, the Corporation intends to reduce the level of investment risk by investing more in assets that better match the liabilities when the financial situation of the plans improves and/or the rate of return on bonds used for solvency valuations will increase.





The first step of this process was completed in 2013 with the sale of a number of equity holdings and the purchase of a mixture of government and corporate bonds for smaller pension plans ($ 50 million or less); for larger pension plans, it has been done through future contracts. The government bonds represent investments in Canadian government securities only. The corporate bonds are global securities with an emphasis on Canada.  As at December 31, 2014, 58 % of the plan's assets are invested in bonds, in kind or through futures. The second step began in 2014 as we purchased $ 66 millions in annuities from a life insurance company for some pensioners.





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





Changes in bond yields


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





Inflation risk


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





Life expectancy


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





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





As at December 31, 2014 , the aggregate surplus of the Corporation’s funded pension plans (mostly in Canada) amounted to $ 1 million (a surplus of $ 23 million as at December 31, 2013 ). The Corporation will make special payments of $ 1 million for past service to fund the Canadian pension plan deficit over ten years. As well, in  2015, the Corporation will make one-time contributions totaling $7 million to pension plans of units closed or sold in 2014. Current agreed expected service contributions amount to $ 6 million and will be made in the normal course. As for the cash flow requirement, these pension plans are expected to require a net contribution of approximately $ 14 million in 2015 .





The weighted average duration of the defined benefit obligation is 12 years ( 2013 - 13 years).





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


(in millions of Canadian dollars)
    LESS THAN A YEAR
    
    BETWEEN 1-2 YEARS
    
    BETWEEN 2-5 YEARS
    
    OVER 5 YEARS
    
    TOTALPension benefits
    49
    
    30
    
    95
    
    1,039
    
    1,213Post-employment benefits other than defined benefit pension plans
    9
    
    7
    
    26
    
    142
    
    184As at December 31, 2014
    58
    
    37
    
    121
    
    1,181
    
    1,397





These amounts represent all the benefits payable to current members during the following years and thereafter without limitations. The majority of benefit payments are payable from trustee administered funds. The difference will come from future investment returns expected on plan assets and future contributions that will be made by the Corporation for services rendered after December 31, 2014 .


40


---

NOTE 17


INCOME TAXES





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

(in millions of Canadian dollars)
    2014
    
    2013Current tax
    16
    
    (3
    )Deferred tax
    —
    
    2216
    
    19





|   |                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------
|b. | The provision for (recovery of) 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)
    2014
    
    2013Provision for (recovery of) income taxes based on the combined basic Canadian and provincial income tax rate
    (12
    )
    17Adjustment of provision for (recovery of) income taxes arising from the following:Difference in statutory income tax rate of foreign operations
    1
    
    5Reassessment
    3
    
    1Permanent differences - others
    22
    
    (2
    )Change in unrecognized temporary differences
    2
    
    (2
    )28
    
    2Provision for income taxes
    16
    
    19





Weighted average income tax rate for the year ended December 31, 2014 , was 26.5 % ( 2013 - 28.9 %).





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

(in millions of Canadian dollars)
    2014
    
    2013Foreign currency translation related to hedging activities
    (6
    )
    (4
    )Cash flow hedge
    —
    
    1Actuarial gain (loss) on post-employment benefit obligations
    (11
    )
    26(17
    )
    23





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


(in millions of Canadian dollars)
    2014
    
    2013Deferred income tax assets:Deferred income tax assets to be recovered after more than 12 months
    328
    
    333Deferred income tax assets to be recovered within 12 months
    —
    
    7328
    
    340Deferred income tax liabilities:Deferred income tax liabilities to be used after more than 12 months
    281
    
    33147
    
    9





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


(in millions of Canadian dollars)
    2014
    
    2013As at January 1
    9
    
    48Through statement of earnings (loss)
    —
    
    (22
    )Variance of income tax credit, net of related income tax
    —
    
    3Through statement of comprehensive income (loss)
    17
    
    (23
    )Included in discontinued operations
    29
    
    7Exchange differences
    (8
    )
    (4
    )As at December 31
    47
    
    9








41


---

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





DEFERRED INCOME TAX ASSET


(in millions of Canadian dollars)
    RECOGNIZED TAX BENEFIT ARISING FROM INCOME TAX LOSSES
    
    EMPLOYEE FUTURE BENEFITS
    
    EXPENSE ON RESEARCH
    
    UNUSED TAX CREDITS
    
    FINANCIAL INSTRUMENTS
    
    OTHERS
    
    TOTALAs at January 1, 2013
    141
    
    59
    
    56
    
    49
    
    16
    
    14
    
    335Through statement of earnings (loss)
    33
    
    (1
    )
    7
    
    2
    
    (8
    )
    (4
    )
    29Variance of income tax credit
    —
    
    —
    
    —
    
    3
    
    —
    
    —
    
    3Through statement of comprehensive income (loss)
    —
    
    (26
    )
    —
    
    —
    
    (1
    )
    —
    
    (27
    )As at December 31, 2013
    174
    
    32
    
    63
    
    54
    
    7
    
    10
    
    340Through statement of earnings (loss)
    (17
    )
    (11
    )
    7
    
    (15
    )
    1
    
    12
    
    (23
    )Through statement of comprehensive income (loss)
    —
    
    11
    
    —
    
    —
    
    —
    
    —
    
    11Included in discontinued operations
    5
    
    2
    
    —
    
    —
    
    —
    
    (8
    )
    (1
    )Exchange differences
    1
    
    —
    
    —
    
    —
    
    —
    
    —
    
    1As at December 31, 2014
    163
    
    34
    
    70
    
    39
    
    8
    
    14
    
    328





DEFERRED INCOME TAX LIABILITIES (in millions of Canadian dollars)
    PROPERTY, PLANT AND EQUIPMENT
    
    FOREIGN EXCHANGE GAIN (LOSS) ON LONG-TERM DEBT
    
    INTANGIBLE ASSETS
    
    INVESTMENTS
    
    OTHERS
    
    TOTALAs at January 1, 2013
    161
    
    59
    
    44
    
    14
    
    9
    
    287Through statement of earnings (loss)
    8
    
    (12
    )
    8
    
    40
    
    7
    
    51Through statement of comprehensive loss
    —
    
    (4
    )
    —
    
    —
    
    —
    
    (4
    )Included in discontinued operations
    (7
    )
    —
    
    —
    
    —
    
    —
    
    (7
    )Exchange differences
    4
    
    —
    
    —
    
    —
    
    —
    
    4As at December 31, 2013
    166
    
    43
    
    52
    
    54
    
    16
    
    331Through statement of earnings (loss)
    (12
    )
    (20
    )
    —
    
    14
    
    (5
    )
    (23
    )Through statement of comprehensive loss
    —
    
    (6
    )
    —
    
    —
    
    —
    
    (6
    )Included in discontinued operations
    (25
    )
    —
    
    (1
    )
    (4
    )
    —
    
    (30
    )Exchange differences
    5
    
    —
    
    —
    
    4
    
    —
    
    9As at December 31, 2014
    134
    
    17
    
    51
    
    68
    
    11
    
    281





When taking into consideration the offsetting of balances within the same tax jurisdiction, the net deferred tax asset of $ 47 million is presented on the balance sheet as $ 185 million of deferred income tax asset amounts and $ 138 million of deferred income tax liabilities.



























































42


---

The Corporation has accumulated losses for income tax purposes amounting to approximately $ 798 million which may be carried forward to reduce taxable income in future years. The future tax benefit of $ 163 million resulting from the deferral of these losses has been recognized in the accounts as a deferred income tax asset. Deferred income tax assets are recognized for tax loss carry-forward to the extent that the realization of the related tax benefits through future taxable profits is probable. Income tax losses as at December 31, 2014 are detailed as follows:


(in millions of Canadian dollars)
    UNRECOGNIZED TAX LOSSES
    
    RECOGNIZED TAX LOSSES
    
    TOTAL TAX LOSSES
    
    MATURITYCanada
    —
    
    6
    
    6
    
    2015—
    
    8
    
    8
    
    2026—
    
    14
    
    14
    
    2027—
    
    3
    
    3
    
    2029—
    
    51
    
    51
    
    2030—
    
    78
    
    78
    
    2031—
    
    128
    
    128
    
    2032—
    
    85
    
    85
    
    2033—
    
    137
    
    137
    
    2034United States
    —
    
    2
    
    2
    
    2029—
    
    2
    
    2
    
    2031—
    
    2
    
    2
    
    2032—
    
    2
    
    2
    
    2033Europe
    162
    
    118
    
    280
    
    Indefinitely162
    
    636
    
    798








NOTE 18


CAPITAL STOCK





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

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


(in millions of Canadian dollars)
    2014
    
    2013Cash and cash equivalents
    (29
    )
    (23
    )Bank loans and advances
    46
    
    56Long-term debt, including current portion
    1,596
    
    1,5791,613
    
    1,612Total equity
    1,003
    
    1,194Total capital
    2,616
    
    2,806





The Corporation's objectives when managing capital are:





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

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

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

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




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





The Corporation monitors capital on a monthly and quarterly basis based on different financial ratios and non-financial performance indicators. Also, the Corporation must conform to certain financial ratios under its various credit agreements. These ratios are calculated on an adjusted consolidated basis of restricted subsidiaries only. These are a maximum ratio of funded debt to capitalization of 65% and a minimum interest coverage ratio of 2.25x. The Corporation must also comply with a consolidated interest coverage ratio to incur additional debt. Funded debt is defined as liabilities as per the consolidated balance sheet, including guarantees and liens granted in respect of funded debt of another


43


---

person but excluding other long-term liabilities, trade accounts payable, obligations under finance leases and other accrued obligations ( 2014 - $ 1,561 million; 2013 - $ 1,538 million). The capitalization ratio is calculated as "Shareholders' equity" as shown in the consolidated balance sheet plus the funded debt. Shareholders' equity is adjusted to add back the effect of IFRS adjustments as at December 31, 2010 in the amount of $ 208 million. The interest coverage ratio is defined as OIBD to interest expense. The OIBD is defined as net earnings of the last four quarters plus interest expense, income taxes, amortization and depreciation, expense for stock options and dividends received from a person who is not a credit party ( 2014 - $ 291 million; 2013 - $ 293 million). Excluded from net earnings are share of results of equity investments and gains or losses from non-recurring items. Interest expense is calculated as interest and financial charges determined in accordance with IFRS plus any capitalized interest but excluding the amortization of deferred financing costs, up-front and financing costs and also unrealized gains or losses arising from hedging agreements. It also excludes any gains or losses on the translation of any long-term debt denominated in a foreign currency. The consolidated interest coverage ratio to incur additional debt is calculated as defined in the Senior notes indenture dated December 3, 2009.





As at December 31, 2014 , the funded debt-to-capitalization ratio stood at 58.62 % and the interest coverage ratio was 3.22 x. The Corporation is in compliance with the ratio requirements of its lenders. If cash is available, the Corporation will use it to reduce its revolving credit facility utilization.





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





The unsecured senior notes are subject to customary covenants restricting the Corporation's ability to, among other things, incur additional debt, pay dividends and make other restricted payments as defined in the Indenture dated December 3, 2009.





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





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





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

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


2014
    2013NOTE
    NUMBER OF SHARES
    
    IN MILLIONS OF CANADIAN DOLLARS
    
    NUMBER OF SHARES
    
    IN MILLIONS OF CANADIAN DOLLARSBalance - beginning of year
    
    93,887,849
    
    482
    
    93,882,445
    
    482Shares issued on exercise of stock options
    18(d)
    376,025
    
    1
    
    75,304
    
    —Redemption of common shares
    18(c)
    (77,400
    )
    —
    
    (69,900
    )
    —Balance - end of year
    
    94,186,474
    
    483
    
    93,887,849
    
    482





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

In 2014 , in the normal course of business, the Corporation renewed its redemption program of a maximum of 1,502,206 common shares with the Toronto Stock Exchange, said shares representing approximately 1,6 % of issued and outstanding common shares. The redemption authorization is valid from March 17, 2014 to March 16, 2015 . In 2014 , the Corporation redeemed 77,400 common shares under this program for a consideration of approximately nil ( 2013 - nil).





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

The Corporation issued 376,025 shares upon the exercise of options for an amount of $ 1 million ( 2013 - nil for 75,304 shares issued).




















44


---

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

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


2014
    
    2013Net earnings (loss) available to common shareholders (in millions of Canadian dollars)
    (147
    )
    11Weighted average basic number of common shares outstanding (in millions)
    94
    
    93.9Dilution effect of stock options (in millions)
    —
    
    0.8Adjusted weighted average number of common shares (in millions)
    94
    
    94.7Basic net earnings (loss) per common share (in Canadian dollars)
    $
    (1.57
    )
    $
    0.11Diluted net earnings (loss) per common share (in Canadian dollars)
    $
    (1.57
    )
    $
    0.11





In calculating diluted net earnings (loss) per share for 2014 and 2013 , stock options of 6,432,328 and 3,058,072 respectively were excluded due to their antidilutive effect. As of March 12, 2015 , the Corporation had not redeemed any shares since the beginning of the financial year.





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

2014
    
    2013Dividends declared per share
    $
    0.16
    
    $
    0.16








NOTE 19


STOCK-BASED COMPENSATION





|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a. | Under the terms of a share option plan adopted on December 15, 1998, and amended on March 15, 2013, and approved by Shareholders on May 8, 2013, for officers and key employees of the Corporation, a remaining balance of2,460,973common shares has been specifically reserved for issuance. Each option will expire at a date not to exceed 10 years following the grant date of the option. The exercise price of an option shall not be lower than the market value of the share at the date of grant, determined as the average of the closing price of the share on the Toronto Stock Exchange on the five trading days preceding the date of grant. The terms for exercising the options are 25% of the number of shares under option within 12 months after the first anniversary date of grant, and up to an additional 25% every 12 months after the second, third and fourth anniversaries of grant date. Options cannot be exercised if the market value of the share at exercise date is lower than the book value at the date of grant. Options exercised are settled in shares. The stock-based compensation cost related to these options amounted to $1million (2013- $1million).




Changes in the number of options outstanding as at December 31, 2014 and 2013 are as follows:


2014
    2013NUMBER OF OPTIONS
    
    WEIGHTED AVERAGE EXERCISE PRICE $
    
    NUMBER OF OPTIONS
    
    WEIGHTED AVERAGE EXERCISE PRICE $Beginning of year
    6,656,423
    
    6.22
    
    6,534,700
    
    6.54Granted
    546,155
    
    6.10
    
    560,391
    
    5.18Exercised
    (376,025
    )
    4.56
    
    (75,304
    )
    2.39Expired
    (383,424
    )
    12.11
    
    (331,301
    )
    11.69Forfeited
    (10,801
    )
    5.42
    
    (32,063
    )
    4.46End of year
    6,432,328
    
    5.96
    
    6,656,423
    
    6.22Options exercisable - end of year
    4,728,990
    
    6.18
    
    4,727,343
    
    6.65





The weighted-average share price at the time of exercise of the options was $ 6.35 ( 2013 - $ 4.97 ).



































45


---

The following options were outstanding as at December 31, 2014 :


OPTIONS OUTSTANDING
    OPTIONS EXERCISABLEYEAR GRANTED
    NUMBER OF OPTIONS
    
    WEIGHTED AVERAGE EXERCISE PRICE $
    
    NUMBER OF OPTIONS
    
    WEIGHTED AVERAGE EXERCISE PRICE $
    
    EXPIRATION DATE2005
    219,333
    
    12.73
    
    219,333
    
    12.73
    
    20152006
    260,714
    
    11.49
    
    260,714
    
    11.49
    
    2015-20162007
    285,680
    
    11.83
    
    285,680
    
    11.83
    
    2015-20172008
    431,443
    
    7.81
    
    431,443
    
    7.81
    
    2015-20182009
    321,175
    
    2.28
    
    321,175
    
    2.28
    
    20192009
    1,307,412
    
    3.92
    
    1,307,412
    
    3.92
    
    20192010
    650,517
    
    6.43
    
    650,517
    
    6.43
    
    2015-20202011
    716,074
    
    6.26
    
    538,674
    
    6.26
    
    2015-20212012
    1,141,831
    
    4.46
    
    575,207
    
    4.46
    
    2015-20222013
    555,373
    
    5.18
    
    138,835
    
    5.18
    
    20232014
    542,776
    
    6.10
    
    —
    
    —
    
    20246,432,328
    
    5.96
    
    4,728,990
    
    6.18





FAIR VALUE OF THE SHARE OPTIONS GRANTED


Options were priced using the Black-Scholes option pricing model. Expected volatility is based on the historical share price volatility over the past five years. The following weighted-average assumptions were used to estimate the fair value of $ 2.52 ( 2013 - $ 1.75 ), as at the date of grant, of each option issued to employees:


2014
    
    2013Grant date share price
    $
    6.65
    
    $
    5.15Exercise price
    $
    6.10
    
    $
    5.18Risk-free interest rate
    1.79
    %
    1.75
    %Expected dividend yield
    2.41
    %
    3.11
    %Expected life of options
    6 years
    
    6 yearsExpected volatility
    45
    %
    47
    %





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




The shares are purchased on the market on a predetermined date each month. For the year ended December 31, 2014 , the Corporation's contribution to the plan amounted to $ 1 million ( 2013 - $ 1 million).





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




The DSU expense and the related liability are recorded  at the grant date. The liability is adjusted periodically to reflect any variation in the market value of the common shares. As at December 31, 2014 , the Corporation had a total of 271,581 DSUs outstanding ( 2013 - 227,415 DSUs), representing a long-term liability of $ 2 million ( 2013 - $ 2 million).





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










46


---

The PSUs vest over a period of two years starting on the award date. The expense and the related liability are recorded during the vesting period. The liability is adjusted periodically to reflect any variation in the market value of the common shares, the expected average ROCE and the passage of time.  As at December 31, 2014 , the Corporation had a total of 1,098,149 PSUs outstanding ( 2013 - 560,391 PSUs), representing a liability of $ 2 million ( 2013 - nil).








NOTE 20


ACCUMULATED OTHER COMPREHENSIVE LOSS


(in millions of Canadian dollars)
    2014
    
    2013Foreign currency translation, net of hedging activities and related income tax of $6 million (December 31, 2013 - nil)
    (25
    )
    (29
    )Unrealized loss arising from foreign exchange forward contracts designated as cash flow hedges, net of related income taxes of nil (December 31, 2013 - $1 million)
    (2
    )
    (4
    )Unrealized loss arising from interest rate swap agreements designated as cash flow hedges, net of related income taxes of $14 million (December 31, 2013 - $8 million)
    (20
    )
    (13
    )Unrealized loss arising from commodity derivative financial instruments designated as cash flow hedges, net of related income taxes of $5 million (December 31, 2013 - $5 million)
    (14
    )
    (13
    )Unrealized loss on available-for-sale financial assets, net of related income taxes of nil (December 31, 2013 - nil)
    (1
    )
    (1
    )(62
    )
    (60
    )








NOTE 21


COST OF SALES BY NATURE


(in millions of Canadian dollars)
    2014
    
    2013Raw material
    1,405
    
    1,268Wages and employee benefits expenses
    600
    
    566Energy
    270
    
    261Delivery
    255
    
    240Depreciation and amortization
    174
    
    167Other
    359
    
    361Total cost of sales
    3,063
    
    2,863





SELLING AND ADMINISTRATIVE EXPENSES BY NATURE


(in millions of Canadian dollars)
    2014
    
    2013Wages and employee benefits expenses
    233
    
    231Information technology
    20
    
    17Publicity and marketing
    11
    
    10Other
    70
    
    77Total selling and administrative expenses
    334
    
    335








NOTE 22


EMPLOYEE BENEFITS EXPENSES


(in millions of Canadian dollars)
    NOTE
    
    2014
    
    2013Wages and employee benefits expenses
    21
    
    833
    
    797Share options granted to directors and employees
    19(a)
    
    1
    
    1Pension costs - defined benefit plans
    16
    
    8
    
    11Pension costs - defined contribution benefits
    16
    
    19
    
    18Post-employment benefits other than defined benefit pension plans
    16
    
    6
    
    6867
    
    833














47


---

KEY MANAGEMENT COMPENSATION


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


(in millions of Canadian dollars)
    2014
    
    2013Salaries and other short-term benefits
    9
    
    9Post-employment benefits
    1
    
    1Share-based payments
    4
    
    114
    
    11








NOTE 23


LOSS (GAIN) ON ACQUISITIONS, DISPOSALS AND OTHERS


(in millions of Canadian dollars)
    NOTE
    2014
    
    2013Employment contracts
    
    —
    
    5Gain on disposal of property, plant and equipment
    
    —
    
    (2
    )Class action settlement
    
    5
    
    —Gain on joint-venture contribution
    8(f)
    (5
    )
    ——
    
    3





2014


In the fourth quarter of 2014, the Corporation has settled a class action lawsuit that was filed against it and other North American manufacturers of containerboard. Under the terms of the settlement agreement, the Corporation has agreed to pay US $4.8 million into a settlement fund in return for the release of all claims of the alleged class without any admission of wrong doing on the part of the Corporation.





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





2013


As part of the transition process related to the appointment of a new President and CEO, the Corporation entered into employment contracts with the new President and CEO and its Presidents of the Containerboard, Specialty Products and Tissue Papers business segments. The fair value of the post-employment benefit obligation related to these employment contracts was evaluated at $ 5 million and an equivalent charge has been recorded.





The Containerboard Group sold a piece of land located at its New York City, USA, containerboard plant site and recorded a gain of $ 2 million on the disposal.








NOTE 24


IMPAIRMENT CHARGES (REVERSAL) AND RESTRUCTURING COSTS





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




The Corporation recorded net impairment charges totaling $ 21 million in 2014 and a net impairment reversal of $ 7 million in 2013 . The recoverable amount of CGUs was determined using a fair value less cost of disposal sell model based on the income approach, unless otherwise indicated. Level 2 inputs are used to measure fair value. Impairments are detailed as follows:


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





48


---

2013PACKAGING PRODUCTS(in millions of Canadian dollars)
    CONTAINER-BOARD
    
    BOXBOARD EUROPE
    
    SPECIALTY PRODUCTS
    
    SUB-TOTAL
    
    TISSUE PAPERS
    
    TOTALProperty, plant & equipment
    —
    
    7
    
    —
    
    7
    
    (17
    )
    (10
    )Intangible assets with finite useful life and other assets
    1
    
    —
    
    2
    
    3
    
    —
    
    3Total
    1
    
    7
    
    2
    
    10
    
    (17
    )
    (7
    )





2014


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





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





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





2013


The Containerboard Group recorded an impairment charge of $1 million due to the re-evaluation of a note receivable (in Other assets) from a 2011 business disposal.





The Boxboard Europe Group reviewed the recoverable amount of its Magenta and Marzabotto (both in Italy) as well as its Iberica, Spain, recycled boxboard manufacturing mills, and recorded impairment charges on property, plant and equipment totaling $ 7 million. The slow recovery of the European economic environment since the 2009 financial crisis negatively impacted profitability of these mills and led to the consolidation of our recycled boxboard activities in Europe. Recoverable amount was based on selling price of assets as it was higher than the income approach.





The Specialty Products Group also reviewed the recoverable amount of its honeycomb activities CGU and recorded an impairment charge of $ 2 million  on a client list. Low shipments in this sector does not generate enough profitability to support the carrying value of this intangible assets with a finite life.





The Tissue Papers Group recorded a $ 17 million reversal of impairment on its Memphis, Tennessee, manufacturing mill. We had initially recorded an impairment charge of $ 22 million at transition date to IFRS on January 1, 2010, due to operational challenges. Since then, the Corporation implemented a Group best practices program to maximize efficiency at all of its plants. These actions contributed to solve operating difficulties at the Memphis mill.





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

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





|  |                                                                                    
|- | -----------------------------------------------------------------------------------
|• | Containerboard's goodwill of $277million is allocated to all Containerboard's CGUs.

|  |                                                                                                                                     
|- | ------------------------------------------------------------------------------------------------------------------------------------
|• | Specialty Products' goodwill is allocated to all Cascades Recovery CGUs, $13million, and the partitioning activities CGU, $2million.

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

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




The Corporation tested its Containerboard goodwill for impairment. As a result of this impairment test, the Corporation concluded that the recoverable amount of the CGUs was in excess of $ 458 million over their carrying amount, thus no impairment charge was necessary. With all other variables held constant, a decrease in the terminal growth rate of 11 %; a rise in the discounting rate of 4 %, a decrease in the terminal shipments of 133,000 s.t., or a decrease in the terminal exchange rate of $ 0.09 would reduce the excess of $ 458 million to nil.





49


---

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


2014
    
    2013CONTAINERBOARD
    
    CONTAINERBOARDTerminal growth rate
    2
    %
    2
    %Discounting rate
    9.5
    %
    9.5
    %Terminal exchange rate (CA$/US$)
    $
    1.15
    
    $
    1.10Terminal shipments (manufacturing only)
    888,000 s.t.
    
    903,000 s.t.





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





In 2013 , the Corporation also tested the goodwill allocated to its honeycomb activities CGU. The Corporation used the income approach to determine the recoverable amount and we concluded it was not enough to support the carrying value of the goodwill. Level 2 inputs were used to measure fair value. The Corporation recorded an impairment charge of $ 4 million on the goodwill of this CGU.





|   |                    
|-- | -------------------
|C. | RESTRUCTURING COSTS




Restructuring costs are detailed as follows:


(in millions of Canadian dollars)
    2014
    
    2013Containerboard
    —
    
    2Boxboard Europe
    1
    
    3Tissue Papers
    1
    
    —2
    
    5





2014


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





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





2013


The Containerboard Group recorded a $ 1 million provision relating to an onerous lease contract and additional severances provisions totaling $ 1 million relating to the consolidation of its Ontario converting activities announced in 2012.





The Boxboard Europe Group recorded severances totaling $ 3 million in relation to the consolidation of its recycled boxboard activities in Italy and Spain.








NOTE 25


ADDITIONAL INFORMATION





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

(in millions of Canadian dollars)
    2014
    
    2013Accounts receivable
    18
    
    37Current income tax assets
    (6
    )
    1Inventories
    (7
    )
    (29
    )Trade and other payables
    (19
    )
    1Current income tax liabilities
    1
    
    (5
    )(13
    )
    5





50


---

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

(in millions of Canadian dollars)
    2014
    
    2013Interest on long-term debt
    97
    
    99Interest income
    (5
    )
    (4
    )Amortization of financing costs
    5
    
    5Other interest and banking fees
    4
    
    4Interest on employee future benefits
    6
    
    8Net financing expense
    107
    
    112








NOTE 26


FINANCIAL INSTRUMENTS





26.1 FAIR VALUE OF FINANCIAL INSTRUMENTS


The classification of financial instruments as at December 31, 2014 and 2013 , along with the respective carrying amounts and fair values, is as follows:


2014
    
    2013(in millions of Canadian dollars)
    NOTE
    
    CARRYING AMOUNT
    
    FAIR VALUE
    
    CARRYING AMOUNT
    
    FAIR VALUEFinancial assets at fair value through profit or lossDerivatives
    26.4
    
    25
    
    25
    
    9
    
    9Financial assets available for saleOther investments
    
    3
    
    3
    
    6
    
    6Investments in shares
    
    1
    
    1
    
    1
    
    1Financial liabilities at fair value through profit or lossDerivatives
    26.4
    
    (41
    )
    (41
    )
    (35
    )
    (35
    )Financial liabilities at amortized costLong-term debt
    
    (1,596
    )
    (1,608
    )
    (1,579
    )
    (1,640
    )Derivatives designated as hedgeAsset derivatives
    
    —
    
    —
    
    (9
    )
    (9
    )Liability derivatives
    
    (18
    )
    (18
    )
    (14
    )
    (14
    )





26.2 DETERMINING THE FAIR VALUE OF FINANCIAL INSTRUMENTS


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





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

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

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




26.3 HIERARCHY OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE


The following table presents information about the Corporation's financial assets and financial liabilities measured at fair value on a recurring basis as at December 31, 2014 and 2013 and indicates the fair value hierarchy of the Corporation's valuation techniques to determine such fair value. Three levels of inputs that may be used to measure fair value are:





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


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


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


substantially the full term of the assets or liabilities.


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


use in pricing the asset or liability.


51


---

2014(in millions of Canadian dollars)
    CARRYING AMOUNT
    
    QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL1)
    
    SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)
    
    SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)Financial assetsOther investments
    3
    
    —
    
    3
    
    —Investments in shares held for trading
    1
    
    1
    
    —
    
    —Derivative financial assets
    25
    
    —
    
    25
    
    —Total
    29
    
    1
    
    28
    
    —Financial liabilitiesDerivative financial liabilities
    (59
    )
    —
    
    (59
    )
    —Total
    (59
    )
    —
    
    (59
    )
    —





2013(in millions of Canadian dollars)
    CARRYING AMOUNT
    
    QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL1)
    
    SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)
    
    SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)Financial assetsOther investments
    6
    
    —
    
    6
    
    —Investments in shares held for trading
    1
    
    1
    
    —
    
    —Derivative financial assets
    18
    
    —
    
    18
    
    —Total
    25
    
    1
    
    24
    
    —Financial liabilitiesDerivative financial liabilities
    (49
    )
    —
    
    (49
    )
    —Total
    (49
    )
    —
    
    (49
    )
    —





26.4 FINANCIAL RISK MANAGEMENT


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





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





Summary


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


2013(in millions of Canadian dollars)
    
    ASSETS
    LIABILITIESRISK
    NOTE
    SHORT-TERM
    
    LONG-TERM
    
    TOTAL
    
    SHORT-TERM
    
    LONG-TERM
    
    TOTALCurrency risk
    26.4 A) (i)
    —
    
    9
    
    9
    
    (1
    )
    (28
    )
    (29
    )Price risk
    26.4 A) (ii)
    2
    
    7
    
    9
    
    (8
    )
    (11
    )
    (19
    )Interest risk
    26.4 A) (iii)
    —
    
    —
    
    —
    
    (1
    )
    —
    
    (1
    )Total
    
    2
    
    16
    
    18
    
    (10
    )
    (39
    )
    (49
    )








52


---

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




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

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





The Corporation manages the foreign exchange exposure by entering into various foreign exchange forward contracts and currency option instruments related to anticipated sales, purchases, interest expense and repayment of long-term debt. The Corporation may designate these foreign exchange forward contracts as a cash flow hedge of future anticipated sales, purchases, interest expense and repayment of long-term debt denominated in foreign currencies. Gains or losses from these derivative financial instruments designated as hedges are recorded in Accumulated other comprehensive income (loss) net of related income taxes and are reclassified to earnings as adjustments to sales, cost of sales, interest expense or foreign exchange loss (gain) on long-term debt in the period in which the respective hedged item affected earnings.


Management has implemented a policy for managing foreign exchange risk against its functional currency. The Corporation's risk management policy is to hedge 25 % to 90 % of anticipated cash flows in each major foreign currency for the next 12 months and to hedge 0 % to 75 % for the subsequent 24 months.





In 2014 , approximately 29 % of sales from Canadian operations were made to the United States and 15 % of sales from French and Italian operations were made in countries whose currencies were other than the Euro.The following table summarizes the Corporation's commitments to buy and sell foreign currencies as at December 31, 2014 and 2013 :


2014EXCHANGE RATE
    
    MATURITY
    NOTIONAL AMOUNT (IN MILLIONS)
    
    FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS)Repayment of long-term debtDerivatives designated as held for trading and reclassified in Foreign exchange loss (gain) on long-term debt:Foreign exchange forward contracts to buy (US$ for CAN$)
    0.9965
    
    December 2017
    US$
    150
    
    25Foreign exchange forward contracts to buy (US$ for CAN$)
    1.06
    
    January 2020
    US$
    50
    
    4Currency option sold to sell US$ (US$ for CAN$)
    1.1167
    
    December 2017
    US$
    300
    
    (29
    )Currency option sold to sell US$ (US$ for CAN$)
    1.15
    
    January 2020
    US$
    100
    
    (10
    )Currency option sold to buy US$ (US$ for CAN$)
    1.0225
    
    January 2020
    US$
    200
    
    (8
    )Sub-total
    
    
    
    (18
    )Forecasted salesDerivatives designated as held for trading and reclassified in Loss (gain) on derivative financial instruments:Foreign exchange forward contracts to sell (US$ for CAN$)
    1.1580
    
    0 to 12 months
    US$
    23
    
    —Currency option instruments to sell (US$ for CAN$)
    1.1098
    
    0 to 12 months
    US$
    45
    
    (2
    )Currency option instruments to sell (US$ for CAN$)
    1.1286
    
    13 to 24 months
    US$
    45
    
    (4
    )Sub-total
    
    
    
    (6
    )Total
    
    
    
    (24
    )





In 2014 , the Corporation did offset $ 13 million in derivative assets against $ 34 million in derivative liabilities as we intend to settle the derivatives on a net basis.


53


---

2013EXCHANGE RATE
    
    MATURITY
    NOTIONAL AMOUNT (IN MILLIONS)
    
    FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS)Repayment of long-term debtDerivatives designated as cash flow hedges and reclassified in Foreign exchange gain on long-term debt:Foreign exchange forward contracts to buy (US$ for CAN$)
    0.9965
    
    December 2017
    US$
    150
    
    13Sub-total
    
    
    
    13Derivatives designated as held for trading and reclassified in Foreign exchange loss (gain) on long-term debt:Foreign exchange forward contracts to buy (US$ for CAN$)
    1.06
    
    January 2020
    US$
    50
    
    1Currency option sold to sell US$ (US$ for CAN$)
    1.1167
    
    December 2017
    US$
    300
    
    (17
    )Currency option sold to sell US$ (US$ for CAN$)
    1.15
    
    January 2020
    US$
    100
    
    (6
    )Currency option sold to buy US$ (US$ for CAN$)
    1.0225
    
    January 2020
    US$
    200
    
    (10
    )Sub-total
    
    
    
    (32
    )Forecasted salesDerivatives designated as cash flow hedges and reclassified in Sales:Foreign exchange forward contracts to sell (US$ for CAN$)
    1.0484
    
    0 to 12 months
    US$
    15
    
    —Foreign exchange forward contracts to buy (€ for US$)
    1.3399
    
    0 to 12 months
    US$
    2.4
    
    —Foreign exchange forward contracts to sell (GBP for SEK)
    10.736
    
    0 to 12 months
    £
    2
    
    —Foreign exchange forward contracts to sell (€ for SEK)
    9.0010
    
    0 to 12 months
    €
    2.8
    
    —Sub-total
    
    
    
    —Derivatives designated as held for trading and reclassified in Loss (gain) on derivative financial instruments:Currency option instruments to sell (US$ for CAN$)
    1.0427
    
    0 to 12 months
    US$
    35
    
    —Currency option instruments to sell (US$ for CAN$)
    1.0314
    
    13 to 24 months
    US$
    25
    
    (1
    )Sub-total
    
    
    
    (1
    )Total
    
    
    
    (20
    )





In 2013, the Corporation also paid US$4 million ($4 million) for the settlement of derivative financial instruments related to its 7.25% unsecured senior notes and US$10 million ($10 million) for the settlement of derivative financial instruments related to its 6.75% unsecured senior notes.





In 2013, the Corporation did offset $5 million in derivative assets against $22 million in derivative liabilities as we intend to settle the derivatives on a net basis.





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





In 2014 , if the Canadian dollar had strengthened by $0.01 against the US dollar on average for the year with all other variables held constant, operating income before depreciation for the year would have been approximately $ 4 million lower, based on the net exposure of total US sales less US purchases of the Corporation's Canadian operations and operating income before depreciation of the Corporation's US operations but excluding the effect of this change on the denominated working capital components. The interest expense would have remained relatively stable.





In 2014 , if the Canadian dollar had strengthened by $0.01 against the Euro with all other variables held constant, operating income before depreciation for the year would have been approximately $1 million lower following the translation of operating income of the Corporation's European operations.




















54


---

CURRENCY RISK ON TRANSLATION OF SELF-SUSTAINING FOREIGN SUBSIDIARIES


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





The table below shows the effect on consolidated equity of a 10% change in the value of the Canadian dollar against the US dollar and the Euro as at December 31, 2014 and 2013 . The calculation includes the effect of currency hedges of net investment in US foreign entities and assumes that no changes occurred other than a single currency exchange rate movement.





The exposures used in the calculations are the foreign currency-denominated equity and the hedging level as at December 31, 2014 and 2013 , with the hedging instruments being the long-term debt denominated in US dollars.





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


2014
    
    2013(in millions of Canadian dollars)
    BEFORE HEDGES
    
    HEDGES
    
    NET IMPACT
    
    BEFORE HEDGES
    
    HEDGES
    
    NET IMPACT10% change in the CAN$/US$ rate
    93
    
    52
    
    41
    
    80
    
    67
    
    1310% change in the CAN$/Euro rate
    4
    
    —
    
    4
    
    7
    
    —
    
    7





(ii)     Price risk


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





The fair value of these contracts is as follows:


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





2013QUANTITY
    MATURITY
    FAIR VALUE (IN MILLIONS OF CANADIAN DOLLARS)Forecasted purchasesDerivatives designated as held for trading and reclassified in Cost of salesOld corrugated containers
    10,200 s.t.
    2014
    —Sorted office papers
    12,000 s.t.
    2014
    —Electricity
    375,888 MWh
    2014 to 2017
    —Derivatives designated as cash flow hedges and reclassified in Cost of sales (effective portion)Natural gas:Canadian portfolio
    11,525,060 GJ
    2014 to 2018
    (13
    )US portfolio
    4,776,300 mmBtu
    2014 to 2018
    (5
    )Total
    
    
    (18
    )


55


---

In 2011, as part of the sale of its Versailles boxboard mill, the Corporation also entered into an agreement to sell natural gas to the acquirer. The acquirer went bankrupt in 2014 and the fair value of this agreement has been written down to nil as at December 31, 2014 ( 2013 - $ 1 million asset).





In 2013, the Corporation entered into an agreement to purchase steam. The agreement includes an embedded derivative and the fair value as at December 31, 2014 was $ 8 million ( 2013 - $ 7 million).





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





The table below shows the effect of changes in the price of old corrugated containers, natural gas and electricity as at December 31, 2014 and 2013 . The calculation includes the effect of price hedges of these commodities and assumes that no changes occurred other than a single change in price.





The exposures used in the calculations are the commodity consumption and the hedging level as at December 31, 2014 and 2013 , with the hedging instruments being derivative commodity contracts.





Consolidated commodity consumption: Price change effect before tax.


2014
    
    2013(in millions of Canadian dollars1)
    BEFORE HEDGES
    
    HEDGES
    
    NET IMPACT
    
    BEFORE HEDGES
    
    HEDGES
    
    NET IMPACTUS$15/s.t. change in recycled paper price
    28
    
    —
    
    28
    
    30
    
    —
    
    30US$30/s.t. change in commercial pulp price
    5
    
    —
    
    5
    
    7
    
    —
    
    7US$1/mmBTU. change in natural gas price
    9
    
    5
    
    4
    
    9
    
    5
    
    4US$1/MWh change in electricity price
    2
    
    —
    
    2
    
    2
    
    —
    
    2


|  |                                                                                            
|- | -------------------------------------------------------------------------------------------
|1 | Sensitivity calculated with an exchange rate of1.10CAN$/US$ for2014and1.03CAN$/US$ for2013.




(iii)   Interest rate risk


The Corporation has no significant interest-bearing assets.





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





When appropriate, the Corporation analyzes its interest rate risk exposure. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Corporation calculates the impact on earnings of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions. As at December 31, 2014 , approximately 23 % ( 2013 - 33 %) of the Corporation's long-term debt was at variable rates.





Based on the outstanding long-term debt as at December 31, 2014 the impact on interest expense of a 100-basis point change in rate would be approximately $ 4 million (impact on net earnings is approximately $ 3 million).





The Corporation has swaps maturing in 2015 and up to 2017 on a notional amount up to $ 50 million. As at December 31, 2014 , these agreements are recorded as an asset at a fair value of nil ( 2013 - nil). The Corporation also holds interest rate swaps through RdM. These swaps are contracted to fix the interest rate on a notional amount of € 8 million and are maturing in 2015 and 2016 . Fair value of these agreements is nil as at December 31, 2014 (December 31, 2013 - $ 1 million liability).





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

(in millions of Canadian dollars)
    2014
    
    2013Unrealized loss (gain) on derivative financial instruments
    6
    
    (6
    )Realized loss on derivative financial instruments
    —
    
    16
    
    (5
    )


56


---

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

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





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





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





Loans and notes receivables from business disposals are recognized at fair value. There is no past due amount as at December 31, 2014 .




















































































































57


---

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

Liquidity risk is the risk that the Corporation will not be able to meet its obligations as they fall due. The following are the contractual maturities of financial liabilities as at December 31, 2014 and 2013 :


2014(in millions of Canadian dollars)
    CARRYING AMOUNT
    
    CONTRACTUAL CASH FLOWS
    
    LESS THAN ONE YEAR
    
    BETWEEN ONE AND TWO YEARS
    
    BETWEEN TWO AND FIVE YEARS
    
    MORE THAN FIVE YEARSNon-derivative financial liabilities:Bank loans and advances
    46
    
    46
    
    46
    
    —
    
    —
    
    —Trade and other payables
    557
    
    557
    
    557
    
    —
    
    —
    
    —Revolving credit facility
    332
    
    347
    
    13
    
    334
    
    —
    
    —Unsecured senior notes
    1,175
    
    1,647
    
    72
    
    71
    
    215
    
    1,289Other debts of subsidiaries
    31
    
    37
    
    11
    
    6
    
    11
    
    9Other debts without recourse to the Corporation
    73
    
    77
    
    36
    
    17
    
    19
    
    5Derivative financial liabilities
    59
    
    59
    
    14
    
    8
    
    24
    
    132,273
    
    2,770
    
    749
    
    436
    
    269
    
    1,316


2013(in millions of Canadian dollars)
    CARRYING AMOUNT
    
    CONTRACTUAL CASH FLOWS
    
    LESS THAN ONE YEAR
    
    BETWEEN ONE AND TWO YEARS
    
    BETWEEN TWO AND FIVE YEARS
    
    MORE THAN FIVE YEARSNon-derivative financial liabilities:Bank loans and advances
    56
    
    56
    
    56
    
    —
    
    —
    
    —Trade and other payables
    590
    
    590
    
    590
    
    —
    
    —
    
    —Revolving credit facility
    484
    
    514
    
    14
    
    15
    
    485
    
    —Unsecured senior notes
    989
    
    1,354
    
    78
    
    77
    
    890
    
    309Other debts of subsidiaries
    39
    
    46
    
    17
    
    9
    
    10
    
    10Other debts without recourse to the Corporation
    80
    
    80
    
    25
    
    30
    
    19
    
    6Derivative financial liabilities
    49
    
    49
    
    10
    
    7
    
    18
    
    142,287
    
    2,689
    
    790
    
    138
    
    1,422
    
    339





As at December 31, 2014 , the Corporation had unused credit facilities of $ 495 million (December 31, 2013 - $ 303 million), net of outstanding letters of credit of $ 38 million (December 31, 2013 - $ 56 million).





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




FACTORING OF ACCOUNTS RECEIVABLE


The Corporation sells its accounts receivable from one of its European subsidiaries through a factoring contract with a financial institution. The Corporation uses factoring of receivables as a source of financing by reducing its working capital requirements. When the receivables are sold, the Corporations 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, 2014 , the off-balance sheet impact of the factoring of receivables amounted to $ 27 million (€ 20 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.


58


---

NOTE 27


COMMITMENTS





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




Future minimum payments under operating leases are as follows:


(in millions of Canadian dollars)
    2014
    
    2013No later than one year
    22
    
    21Later than one year but no later than five years
    36
    
    36More than five years
    6
    
    9





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




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


2014
    2013(in millions of Canadian dollars)
    NOTE
    PROPERTY, PLANT AND EQUIPMENT
    
    INTANGIBLE ASSETS
    
    RAW MATERIAL
    
    PROPERTY, PLANT AND EQUIPMENT
    
    INTANGIBLE ASSETS
    
    RAW MATERIALNo later than one year
    28
    6
    
    2
    
    71
    
    13
    
    2
    
    50Later than one year but no later than five years
    28
    —
    
    —
    
    287
    
    1
    
    2
    
    201More than five years
    28
    —
    
    —
    
    107
    
    —
    
    —
    
    1266
    
    2
    
    465
    
    14
    
    4
    
    377








59


---

NOTE 28


RELATED PARTY TRANSACTIONS





The Corporation entered into the following transactions with related parties:


(in millions of Canadian dollars)
    JOINT VENTURES
    
    ASSOCIATES2014Sales to related parties
    52
    
    72Purchases from related parties
    28
    
    1532013Sales to related parties
    52
    
    58Purchases from related parties
    31
    
    79





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





In addition to related party balance presented elsewhere in these consolidated financial statements, the following balances were outstanding at the end of the reporting period:


(in millions of Canadian dollars)
    December 31, 2014
    
    December 31, 2013Receivables from related partiesJoint ventures
    6
    
    11Associates
    13
    
    9Payables to related partiesJoint ventures
    9
    
    10Associates
    18
    
    15





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





Starting in June 2013, the Corporation entered into a take-or-pay agreement with its associate Greenpac. For a period of eight years, the Corporation has the obligation to purchase a minimum quantity of 340,000 short tons per year from Greenpac. If the Corporation fails to purchase the minimum quantity, it must compensate Greenpac for the lost gross margin on those short tons. Included in commitments in Note 27 is the minimum amount to be paid to Greenpac which corresponds to the potential lost gross margin on 340,000 tons.





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








60


---

HISTORICAL FINANCIAL INFORMATION - 10 YEARS


For the years ended December 31,
    IFRS
    
    IFRS(in millions of Canadian dollars, except per share amounts and ratios) (unaudited)
    2014
    
    2013Historical financial information are not adjusted to reclass the impact of discontinued operations and IFRS for years ended prior to 2011.Highlights - Consolidated ResultsSales
    3,953
    
    3,849Cost of sales and expenses
    3,595
    
    3,497Operating income before depreciation and amortization (OIBD) excluding specific items
    358
    
    352Depreciation and amortization
    183
    
    182Operating income excluding specific items
    175
    
    170Financing expense and interest expense on employee future benefits
    108
    
    115Foreign exchange loss (gain) on long-term debt and financial instruments
    30
    
    (2
    )Specific items
    191
    
    28(154
    )
    29Provision for (recovery of) income taxes
    (11
    )
    12Share of results of associates and joint ventures
    —
    
    3Net earnings (loss) attributable to non-controlling interest
    4
    
    3Net earnings (loss)
    (147
    )
    11Net earnings (loss) per common share
    $
    (1.57
    )
    $
    0.11Highlights - Consolidated Cash FlowCash flow generated by operating activities
    250
    
    232Cash flow from operations
    251
    
    226per common share
    $
    2.67
    
    $
    2.41Purchases of property, plant and equipment net of proceeds on disposal
    172
    
    136Business acquisitions and cash from a joint venture
    —
    
    —Proceed from business disposals
    (36
    )
    —Net change in long-term debt
    88
    
    (30
    )Dividends on common shares
    15
    
    15per common share
    $
    0.16
    
    $
    0.16Dividend yield
    2.3
    %
    2.3
    %Highlights - Consolidated Balance Sheet (As at December 31)Current assets less current liabilities
    308
    
    414Property, plant & equipment
    1,592
    
    1,684Total assets
    3,673
    
    3,831Total long-term debt
    1,596
    
    1,579Non-controlling interests
    110
    
    113Shareholders' equity
    893
    
    1,081per common share
    $
    9.48
    
    $
    11.52Stock Market HighlightsShares issued and outstanding (in millions)
    94.2
    
    93.9Trading volume (in millions)
    45.0
    
    25.2Market capitalization
    661
    
    646Closing price
    $
    7.02
    
    $
    6.88High
    $
    7.60
    
    $
    6.92Low
    $
    5.64
    
    $
    4.07Key Financial RatiosNet earnings (loss)/sales
    (3.7
    )%
    0.3
    %Sales/total assets*
    1.1X
    
    1.0XTotal assets/average Shareholders' equity*
    3.7X
    
    3.7XReturn on Shareholder's equity*
    (14.9
    )%
    1.1
    %Return on total assets (OIBD/average total assets)*
    9.5
    %
    9.4
    %OIBD/sales
    9.1
    %
    9.1
    %OIBD/interest
    3.3X
    
    3.1XCurrent assets less current liabilities/sales*
    7.8
    %
    10.8
    %Net debt/OIBD*
    4.5X
    
    4.6XTotal debt/total debt + Shareholders' equity
    64.8
    %
    60.2
    %Price to earnings
    N/A
    
    62.5Price to book value
    0.7X
    
    0.6X* Prior to 2007, ratios are calculated excluding the impact of the Norampac acquisition.





61


---







IFRS
    
    IFRS2012
    
    2011
    
    2010
    
    2009
    
    2008
    
    2007
    
    2006
    
    20053,645
    
    3,760
    
    3,959
    
    3,877
    
    4,025
    
    4,033
    
    3,481
    
    3,8623,341
    
    3,517
    
    3,561
    
    3,412
    
    3,720
    
    3,693
    
    3,167
    
    3,600304
    
    243
    
    398
    
    465
    
    305
    
    340
    
    314
    
    262199
    
    186
    
    212
    
    218
    
    213
    
    208
    
    163
    
    174105
    
    57
    
    186
    
    247
    
    92
    
    132
    
    151
    
    88115
    
    100
    
    112
    
    118
    
    103
    
    106
    
    83
    
    83(8
    )
    (4
    )
    4
    
    31
    
    24
    
    (59
    )
    —
    
    (10
    )33
    
    (148
    )
    65
    
    33
    
    54
    
    7
    
    76
    
    159(35
    )
    109
    
    5
    
    65
    
    (89
    )
    78
    
    (8
    )
    (144
    )(4
    )
    27
    
    —
    
    23
    
    (29
    )
    6
    
    (3
    )
    (40
    )(2
    )
    (14
    )
    (15
    )
    (17
    )
    (8
    )
    (27
    )
    (8
    )
    (7
    )(7
    )
    (3
    )
    3
    
    (1
    )
    2
    
    3
    
    —
    
    —(22
    )
    99
    
    17
    
    60
    
    (54
    )
    96
    
    3
    
    (97
    )$
    (0.23
    )
    $
    1.03
    
    $
    0.18
    
    $
    0.61
    
    $
    (0.55
    )
    $
    0.96
    
    $
    0.04
    
    $
    (1.19
    )199
    
    115
    
    228
    
    355
    
    126
    
    53
    
    191
    
    100154
    
    121
    
    246
    
    303
    
    150
    
    163
    
    174
    
    100$
    1.64
    
    $
    1.26
    
    $
    2.54
    
    $
    3.10
    
    $
    1.52
    
    $
    1.64
    
    $
    2.15
    
    $
    1.23141
    
    110
    
    131
    
    171
    
    184
    
    169
    
    110
    
    12114
    
    60
    
    3
    
    69
    
    (5
    )
    10
    
    572
    
    52—
    
    (292
    )
    —
    
    —
    
    47
    
    37
    
    94
    
    —(54
    )
    143
    
    30
    
    59
    
    149
    
    91
    
    178
    
    9115
    
    15
    
    16
    
    16
    
    16
    
    16
    
    13
    
    13$
    0.16
    
    $
    0.16
    
    $
    0.16
    
    $
    0.16
    
    $
    0.16
    
    $
    0.16
    
    $
    0.16
    
    $
    0.163.9
    %
    3.6
    %
    2.4
    %
    1.8
    %
    4.6
    %
    1.9
    %
    1.2
    %
    1.6
    %295
    
    400
    
    479
    
    484
    
    522
    
    581
    
    574
    
    5301,659
    
    1,703
    
    1,777
    
    1,912
    
    2,030
    
    1,886
    
    2,063
    
    1,5623,694
    
    3,728
    
    3,724
    
    3,792
    
    4,031
    
    3,769
    
    3,911
    
    3,0461,475
    
    1,407
    
    1,395
    
    1,469
    
    1,708
    
    1,574
    
    1,666
    
    1,297116
    
    136
    
    24
    
    21
    
    22
    
    25
    
    19
    
    —978
    
    1,029
    
    1,257
    
    1,304
    
    1,256
    
    1,199
    
    1,157
    
    897$
    10.42
    
    $
    10.87
    
    $
    13.01
    
    $
    13.41
    
    $
    12.74
    
    $
    12.09
    
    $
    11.62
    
    $
    11.1093.9
    
    94.6
    
    96.6
    
    97.2
    
    98.5
    
    99.1
    
    99.5
    
    80.820.2
    
    33.8
    
    57.7
    
    79.8
    
    39.8
    
    63.2
    
    31.7
    
    23.6385
    
    419
    
    647
    
    869
    
    339
    
    837
    
    1,317
    
    812$
    4.10
    
    $
    4.43
    
    $
    6.70
    
    $
    8.94
    
    $
    3.44
    
    $
    8.44
    
    $
    13.23
    
    $
    10.05$
    5.18
    
    $
    7.75
    
    $
    9.80
    
    $
    9.10
    
    $
    8.90
    
    $
    15.80
    
    $
    14.78
    
    $
    13.95$
    3.85
    
    $
    3.51
    
    $
    5.71
    
    $
    1.70
    
    $
    3.00
    
    $
    7.46
    
    $
    9.66
    
    $
    7.35(0.6
    )%
    2.6
    %
    0.4
    %
    1.5
    %
    (1.3
    )%
    2.4
    %
    0.1
    %
    (2.5
    )%1.0X
    1.0
    x
    1.1
    x
    1.0
    x
    1.0
    x
    1.1
    x
    1.2
    x
    1.3
    x3.7X
    3.3
    x
    2.9
    x
    3.0
    x
    3.3
    x
    3.2
    x
    3.2
    x
    3.1
    x(2.2
    )%
    8.7
    %
    1.3
    %
    4.7
    %
    (4.4
    )%
    8.1
    %
    0.3
    %
    (9.9
    )%8.2
    %
    6.5
    %
    10.6
    %
    11.9
    %
    7.8
    %
    8.9
    %
    10.6
    %
    8.4
    %8.3
    %
    6.5
    %
    10.1
    %
    12.0
    %
    7.6
    %
    8.4
    %
    9.0
    %
    6.8
    %2.6X
    2.4
    x
    3.6
    x
    3.9
    x
    3.0
    x
    3.2
    x
    3.8
    x
    3.2
    x8.1
    %
    10.6
    %
    12.1
    %
    12.5
    %
    13.0
    %
    14.4
    %
    13.3
    %
    13.7
    %5.0X
    6.1
    x
    3.6
    x
    3.3
    x
    5.9
    x
    4.7
    x
    3.8
    x
    5.0
    x61.4
    %
    59.3
    %
    53.7
    %
    54.3
    %
    59.1
    %
    57.5
    %
    59.6
    %
    59.9
    %N/A
    
    4.3
    x
    37.2
    x
    14.7
    x
    N/A
    
    8.8
    x
    330.8
    x
    N/A0.4X
    0.4
    x
    0.5
    x
    0.7
    x
    0.3
    x
    0.7
    x
    1.1
    x
    0.9
    x


62