---

Exhibit 99.5









Reconciliation to United States GAAP
  of

TEMBEC INC.

Years ended September 24, 2011 and
September 25, 2010

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| | KPMG LLP                      | Telephone (514) 840-2100             
| | ----------------------------- | -------------------------------------
| | Chartered Accountants         | Fax            
       (514) 840-2187
| | 600 de Maisonneuve Blvd. West | Internet      www.kpmg.ca            
| | Suite 1500                    |                                      
| | Tour KPMG                     |                                      
| | Montréal (Québec) H3A 0A3     |                                      

INDEPENDENT AUDITORS REPORT

To the Shareholders

We have audited the accompanying consolidated financial
statements of Tembec Inc., which comprise the consolidated balance sheets as at
September 24, 2011and September 25, 2010, the consolidated statements of
operations and deficit and cash flows for the years then ended, and notes,
comprising a summary of significant accounting policies and other explanatory
information.

Management's Responsibility for the ConsolidatedFinancial Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, 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.

Auditors 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 our 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, we
consider 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 consolidated financial position of Tembec
Inc.as at September 24, 2011and September 25, 2010 and its
consolidated results of operations and its consolidated cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.

KPMG LLP is a Canadian limited liability
partnership and a member firm of the KPMG 
network of independent member firms
affiliated with KPMG International Cooperative 
(KPMG International), a Swiss
entity. KPMG Canada provides services to KPMG LLP.

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Other Matter

Our audits were made for the purpose of forming an opinion on
the basic consolidatedfinancial statements taken as a whole. The
supplementary information included in Exhibit 99.4 entitled "Reconciliation to
United States GAAP" is presented for purposes of additional analysis and
requirements under securities legislation. Such supplementary information has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.

Chartered Accountants

Montreal, Canada November 29, 2011

* CA Auditor permit no. 14114

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|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of
      Canadian dollars, unless otherwise noted)

|1. | Reconciliation to U.S. GAAP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The consolidated financial statements have been prepared
      in accordance with Canadian GAAP, which differ in certain material
      respects from those principles that the Company would have followed had
      its consolidated financial statements been prepared in accordance with
      U.S. GAAP. This reconciliation of Canadian GAAP to U.S. GAAP should be
      read in conjunction with the consolidated financial statements of the
      Company for the year ended September 24, 2011. Material differences are
      quantified and described below.

| | 1.1 | If U.S. GAAP were applied, the net earnings (loss) would
      be adjusted as follows:
| | --- | --------------------------------------------------------------------------------------

| |                                                                                                       |   | Sept.
      24, |   |   | Sept.
      25, |  
| | ----------------------------------------------------------------------------------------------------- | - | --------------- | - | - | --------------- | -
| |                                                                                                       |   | 2011            |   |   | 2010            |  
| |                                                                                                       |   |                 |   |   |                 |  
| | Net earnings (loss) under Canadian GAAP                                                               | $ | (3              | ) | $ | 52              |  
| |                                                                                                       |   |                 |   |   |                 |  
| | Adjustments:                                                                                          |   |                 |   |   |                 |  
| | Non-controlling interest (f)                                                                          |   | -               |   |   | 2               |  
| | Pension and other benefit plans (b)                                                                   |   | 3               |   |   | 4               |  
| | Warrants (c)                                                                                          |   | 4               |   |   | (3              | )
| | Tax effect on U.S. GAAP adjustments and income tax
      difference (a)                               |   | -               |   |   | -               |  
| |                                                                                                       |   |                 |   |   |                 |  
| | Net earnings under U.S. GAAP                                                                          | $ | 4               |   | $ | 55              |  
| |                                                                                                       |   |                 |   |   |                 |  
| | Net earnings attributable to:                                                                         |   |                 |   |   |                 |  
| | Shareholders of the Company                                                                           | $ | 4               |   | $ | 53              |  
| | Non-controlling interest (f)                                                                          | $ | -               |   | $ | 2               |  
| |                                                                                                       |   |                 |   |   |                 |  
| | Basic and diluted earnings in dollars per share
      attributable to the shareholders of the Company | $ | 0.04            |   | $ | 0.53            |  

| | 1.2 | The effect of the adjustments on the consolidated
      statement of comprehensive income (loss) is as
follows:
| | --- | ---------------------------------------------------------------------------------------------------------------

| |                                                             |   | Sept.
      24, |   |   | Sept.
      25, |  
| | ----------------------------------------------------------- | - | --------------- | - | - | --------------- | -
| |                                                             |   | 2011            |   |   | 2010            |  
| | Net earnings under U.S. GAAP                                | $ | 4               |   | $ | 55              |  
| |                                                             |   |                 |   |   |                 |  
| | Pension and other benefit plans (b)                         |   | (72             | ) |   | (47             | )
| | Income tax on
      pension and other benefit plans (a) (b) |   | (1              | ) |   | -               |  
| |                                                             |   |                 |   |   |                 |  
| | Comprehensive
      income (loss) under U.S. GAAP           | $ | (69             | ) | $ | 8               |  
| | Comprehensive income (loss) attributable
      to:          |   |                 |   |   |                 |  
| | Shareholders of the Company                                 | $ | (69             | ) | $ | 6               |  
| | Non-controlling interest (f)                                | $ | -               |   | $ | 2               |  

- 1 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|1. | Reconciliation to U.S. GAAP
  (continued)
|-- | -----------------------------------------

| | 1.3 | Changes in consolidated shareholders equity under U.S.
      GAAP                                               
| | --- | -----------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                  
| |     | The application of U.S. GAAP would have had the following
      effects on the consolidated shareholders
equity:

| |                                                                                              |   | Sept.
      24, |   |   | Sept.
      25, |  
| | -------------------------------------------------------------------------------------------- | - | --------------- | - | - | --------------- | -
| |                                                                                              |   | 2011            |   |   | 2010            |  
| |                                                                                              |   |                 |   |   |                 |  
| | Total consolidated shareholders' equity
      under Canadian GAAP                            | $ | 362             |   | $ | 365             |  
| |                                                                                              |   |                 |   |   |                 |  
| | Adjustments:                                                                                 |   |                 |   |   |                 |  
| | Current year income adjustments (note 1.1)                                                   |   | 7               |   |   | 1               |  
| | Accumulated other comprehensive
      income adjustments (note 1.4)                          |   | (138            | ) |   | (65             | )
| | Adjustment to contributed surplus for future tax
      benefits (a)                          |   | (5              | ) |   | (5              | )
| | Warrants (c)                                                                                 |   | (6              | ) |   | (6              | )
| | Adjustment resulting from a change in accounting
      policies for defined benefit plan (b) |   | (4              | ) |   | (4              | )
| | Cumulative prior year's net income U.S. GAAP
      adjustments                               |   | 11              |   |   | 10              |  
| | Total consolidated
      shareholders' equity under U.S. GAAP                                | $ | 227             |   | $ | 296             |  

| | 1.4 | Accumulated comprehensive income
(loss)
| | --- | ---------------------------------------

| |                                                                           |   | Sept.
      24, |   |   | Sept.
      25, |  
| | ------------------------------------------------------------------------- | - | --------------- | - | - | --------------- | -
| |                                                                           |   | 2011            |   |   | 2010            |  
| | Accumulated other comprehensive income
      (loss) as per Canadian GAAP  | $ | -               |   | $ | -               |  
| | Pension and other
      post-retirement benefits, net of income taxes (b) |   | (138            | ) |   | (65             | )
| | Accumulated other comprehensive loss per U.S. GAAP                        | $ | (138            | ) | $ | (65             | )

- 2 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|1. | Reconciliation to U.S. GAAP (continued)
|-- | ---------------------------------------
|   |                                        
|   | 1.5                                    

| |                                           |   | September 24, 2011 | 
| | ----------------------------------------- | - | ------------------ | 
| |                                           |   | Canadian           | 
| |                                           |   | GAAP               | 
| |                                           |   |                    | 
| | Current assets                            | $ | 554                | 
| | Fixed assets                              |   | 493                | 
| | Other assets (b) (e)                      |   | 44                 | 
| | Future income tax
      (a)               |   | 16                 | 
| |                                           |   |                    | 
| | Total assets                              | $ | 1,107              | 
| |                                           |   |                    | 
| | Current liabilities                       |   | 286                | 
| | Long-term debt (e)                        |   | 271                | 
| | Other long-term liabilities
      (b) (c) |   | 188                | 
| |                                           |   |                    | 
| | Total liabilities                         | $ | 745                | 
| | Shareholders' equity                      | $ | 362                | 

| |                                           |   | September 25, 2010 | 
| | ----------------------------------------- | - | ------------------ | 
| |                                           |   | Canadian           | 
| |                                           |   | GAAP               | 
| |                                           |   |                    | 
| | Current assets                            | $ | 545                | 
| | Fixed assets                              |   | 498                | 
| | Other assets (b) (e)                      |   | 34                 | 
| | Future income tax
      (a)               |   | 27                 | 
| |                                           |   |                    | 
| | Total assets                              | $ | 1,104              | 
| |                                           |   |                    | 
| | Current liabilities                       |   | 259                | 
| | Long-term debt (e)                        |   | 271                | 
| | Other long-term liabilities
      (b) (c) |   | 209                | 
| |                                           |   |                    | 
| | Total liabilities                         | $ | 739                | 
| | Shareholders' equity                      | $ | 365                | 

- 3 -

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|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|1. | Reconciliation to U.S. GAAP
  (continued)
|-- | -----------------------------------------

| | 1.6 | Explanations of main
adjustments
| | --- | --------------------------------

| | (a) | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Under Canadian GAAP, the benefit of future income tax
      assets that existed at fresh start, and against which a valuation
      allowance is recorded, will be recognized first to reduce to zero any
      remaining intangible assets (on a pro-rata basis) that were recorded under
      fresh start accounting, with any remaining amount as a credit to the
      contributed surplus. Under U. S. GAAP, the unrecognized benefit of future
      income tax assets that existed at fresh start would be recognized first to
      reduce any goodwill and then other intangibles to zero, with any remaining
      amount taken into income. For the year ended September 26, 2009, an amount
      of $5 million that was recorded in contributed surplus under Canadian GAAP
      was reclassified in income tax expense under U.S. GAAP.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | The tax effect of other reconciling items is also
      included under this caption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | (b) | Pension liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | U. S. GAAP requires the recognition in the balance sheet
      of the over or unfunded positions of defined benefit pension plans and
      other future benefit plans, along with a corresponding non- cash
      adjustment, which is recorded in the accumulated other comprehensive
      income (loss) at each measurement date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Under Canadian GAAP, a company does not recognize the
      over or unfunded positions; thus, creating differences in the amount of
      pension and other benefit plan liabilities and accumulated other
      comprehensive income (loss) reported in the balance sheets at the various
      reporting dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | For the year ended September 26, 2009, the Company
      adopted the measurement date provisions of ASC 715,
      Compensation-Retirement Benefits, which requires measuring defined
      benefit pension plans and other employee future defined benefit plans as
      of the date of our fiscal year end instead of the June 30 measurement date
      the Company had used historically. The Company elected to use the second
      alternative method of transition and recorded an increase of $4 million in
      the opening balance of the deficit, representing the estimated periodic
      pension and other benefit plans covering the period from July 1, 2008 to
      September 27, 2008.                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |     | Under Canadian GAAP, the Company continued to use June 30
      as its measurement date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

- 4 -

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|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|1. | Reconciliation to U.S. GAAP (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | 1.6                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | Supplemental condensed consolidating financial
      information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The following supplemental condensed consolidating
      financial information, which has been prepared in accordance with U.S.
      GAAP, reflects the investments of the Parent Company in the Subsidiary
      Issuer using the equity method. Investments of the Subsidiary Issuer in
      the Guarantor Subsidiaries and Other Subsidiaries are also accounted for
      using this method. The supplemental condensed consolidating financial
      information would differ from that disclosed under Canadian GAAP by the
      amounts described previously.

- 5 -

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|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|2. | Supplemental condensed consolidating financial
      information (continued)
|-- | ----------------------------------------------------------------------------

| | 2.1 | Condensed consolidated balance sheet under U.S.
    GAAP
| | --- | --------------------------------------------------------

| |                                               |   |         |   |   |            |   |   |              |   |   | September 24, 2011 |  
| | --------------------------------------------- | - | ------- | - | - | ---------- | - | - | ------------ | - | - | ------------------ | -
| |                                               |   | Parent  |   |   | Subsidiary |   |   | Guarantor    |   |   | Other              |  
| |                                               |   | Company |   |   | Issuer     |   |   | Subsidiaries |   |   | Subsidiaries       |  
| | Assets                                        |   |         |   |   |            |   |   |              |   |   |                    |  
| | Current assets:                               |   |         |   |   |            |   |   |              |   |   |                    |  
| | Cash and cash equivalents                     | $ | -       |   | $ | -          |   | $ | 40           |   | $ | 59                 |  
| | Cash held in trust                            |   | -       |   |   | -          |   |   | -            |   |   | 6                  |  
| | Accounts receivable                           |   | 35      |   |   | 299        |   |   | 140          |   |   | 49                 |  
| | Inventories                                   |   | -       |   |   | -          |   |   | 232          |   |   | 29                 |  
| | Prepaid expenses                              |   | -       |   |   | 1          |   |   | 5            |   |   | -                  |  
| |                                               |   | 35      |   |   | 300        |   |   | 417          |   |   | 143                |  
| | Investments                                   |   | 198     |   |   | 562        |   |   | -            |   |   | -                  |  
| | Fixed assets                                  |   | -       |   |   | 5          |   |   | 389          |   |   | 99                 |  
| | Other assets                                  |   | -       |   |   | 38         |   |   | 1            |   |   | 3                  |  
| | Future income taxes                           |   | 1       |   |   | -          |   |   | -            |   |   | 14                 |  
| |                                               | $ | 234     |   | $ | 905        |   | $ | 807          |   | $ | 259                |  
| |                                               |   |         |   |   |            |   |   |              |   |   |                    |  
| | Liabilities and Shareholders' Equity          |   |         |   |   |            |   |   |              |   |   |                    |  
| | Current liabilities:                          |   |         |   |   |            |   |   |              |   |   |                    |  
| | Operating bank loans                          | $ | -       |   | $ | -          |   | $ | -            |   | $ | 6                  |  
| | Accounts payable and accrued charges          |   | -       |   |   | 194        |   |   | 319          |   |   | 88                 |  
| | Interest payable                              |   | -       |   |   | 8          |   |   | -            |   |   | -                  |  
| | Current portion
      of long-term debt       |   | 5       |   |   | -          |   |   | -            |   |   | 13                 |  
| |                                               |   | 5       |   |   | 202        |   |   | 319          |   |   | 107                |  
| | Long-term debt                                |   | 2       |   |   | 262        |   |   | -            |   |   | 26                 |  
| | Other long-term liabilities and credits       |   | -       |   |   | 173        |   |   | 92           |   |   | 42                 |  
| | Future income taxes                           |   | -       |   |   | 61         |   |   | (60          | ) |   | (1                 | )
| |                                               |   |         |   |   |            |   |   |              |   |   |                    |  
| | Shareholders' equity:                         |   |         |   |   |            |   |   |              |   |   |                    |  
| | Share capital                                 |   | 564     |   |   | 555        |   |   | 668          |   |   | 34                 |  
| | Accumulated other comprehensive income (loss) |   | (138    | ) |   | (138       | ) |   | (59          | ) |   | (30                | )
| | Retained earnings (deficit)                   |   | (199    | ) |   | (210       | ) |   | (153         | ) |   | 81                 |  
| |                                               |   | 227     |   |   | 207        |   |   | 456          |   |   | 85                 |  
| |                                               | $ | 234     |   | $ | 905        |   | $ | 807          |   | $ | 259                |  

- 6 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|2. | Supplemental condensed consolidating financial
      information (continued)
|-- | ----------------------------------------------------------------------------

| | 2.1 | Condensed consolidated balance sheet under U.S. GAAP
      (continued)
| | --- | ----------------------------------------------------------------------

| |                                               |   |         |   |   |            |   |   |              |   |   | September 25, 2010 |  
| | --------------------------------------------- | - | ------- | - | - | ---------- | - | - | ------------ | - | - | ------------------ | -
| |                                               |   | Parent  |   |   | Subsidiary |   |   | Guarantor    |   |   | Other              |  
| |                                               |   | Company |   |   | Issuer     |   |   | Subsidiaries |   |   | Subsidiaries       |  
| | Assets                                        |   |         |   |   |            |   |   |              |   |   |                    |  
| | Current assets:                               |   |         |   |   |            |   |   |              |   |   |                    |  
| | Cash and cash equivalents                     | $ | -       |   | $ | 1          |   | $ | 24           |   | $ | 43                 |  
| | Cash held in trust                            |   | -       |   |   | -          |   |   | -            |   |   | 6                  |  
| | Accounts receivable                           |   | 38      |   |   | 350        |   |   | 175          |   |   | 41                 |  
| | Inventories                                   |   | -       |   |   | -          |   |   | 231          |   |   | 24                 |  
| | Prepaid expenses                              |   | -       |   |   | 1          |   |   | 5            |   |   | 1                  |  
| |                                               |   | 38      |   |   | 352        |   |   | 435          |   |   | 115                |  
| | Investments                                   |   | 272     |   |   | 515        |   |   | -            |   |   | -                  |  
| | Fixed assets                                  |   | -       |   |   | 5          |   |   | 404          |   |   | 89                 |  
| | Other assets                                  |   | -       |   |   | 39         |   |   | 2            |   |   | 1                  |  
| | Future income taxes                           |   | 1       |   |   | -          |   |   | -            |   |   | 26                 |  
| |                                               | $ | 311     |   | $ | 911        |   | $ | 841          |   | $ | 231                |  
| |                                               |   |         |   |   |            |   |   |              |   |   |                    |  
| | Liabilities and Shareholders' Equity          |   |         |   |   |            |   |   |              |   |   |                    |  
| | Current liabilities:                          |   |         |   |   |            |   |   |              |   |   |                    |  
| | Operating bank loans                          | $ | -       |   | $ | -          |   | $ | -            |   | $ | 1                  |  
| | Accounts payable and accrued charges          |   | -       |   |   | 173        |   |   | 305          |   |   | 157                |  
| | Interest payable                              |   | -       |   |   | -          |   |   | -            |   |   | -                  |  
| | Current portion
      of long-term debt       |   | 5       |   |   | -          |   |   | -            |   |   | 12                 |  
| |                                               |   | 5       |   |   | 173        |   |   | 305          |   |   | 170                |  
| | Long-term debt                                |   | 6       |   |   | 261        |   |   | -            |   |   | 23                 |  
| | Other long-term liabilities and credits       |   | 4       |   |   | 147        |   |   | 77           |   |   | 45                 |  
| | Future income taxes                           |   | -       |   |   | 54         |   |   | (53          | ) |   | (1                 | )
| |                                               |   |         |   |   |            |   |   |              |   |   |                    |  
| | Shareholders' equity:                         |   |         |   |   |            |   |   |              |   |   |                    |  
| | Share capital                                 |   | 564     |   |   | 551        |   |   | 669          |   |   | (27                | )
| | Accumulated other comprehensive income (loss) |   | (65     | ) |   | (65        | ) |   | (33          | ) |   | (19                | )
| | Retained earnings (deficit)                   |   | (203    | ) |   | (210       | ) |   | (124         | ) |   | 40                 |  
| |                                               |   | 296     |   |   | 276        |   |   | 512          |   |   | (6                 | )
| |                                               | $ | 311     |   | $ | 911        |   | $ | 841          |   | $ | 231                |  

- 7 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|2. | Supplemental condensed consolidating financial
      information (continued)
|-- | ----------------------------------------------------------------------------

| | 2.2 | Condensed consolidated statements of operations and
      deficit under U.S. GAAP
| | --- | ---------------------------------------------------------------------------------

| |                                                           |   |         |   |   |            |   |   |              |   |   | Year ended September 24, 2011 |  
| | --------------------------------------------------------- | - | ------- | - | - | ---------- | - | - | ------------ | - | - | ----------------------------- | -
| |                                                           |   | Parent  |   |   | Subsidiary |   |   | Guarantor    |   |   | Other                         |  
| |                                                           |   | Company |   |   | Issuer     |   |   | Subsidiaries |   |   | Subsidiaries                  |  
| |                                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Sales                                                     | $ | -       |   | $ | 3          |   | $ | 1,503        |   | $ | 255                           |  
| | Freight and other deductions                              |   | -       |   |   | -          |   |   | 224          |   |   | 19                            |  
| | Lumber export taxes                                       |   | -       |   |   | -          |   |   | 13           |   |   | -                             |  
| | Cost of sales                                             |   | -       |   |   | -          |   |   | 1,175        |   |   | 159                           |  
| | Selling, general and administrative                       |   | (1      | ) |   | 9          |   |   | 56           |   |   | 7                             |  
| | Share-based compensation                                  |   | -       |   |   | 2          |   |   | -            |   |   | -                             |  
| | Depreciation and amortization                             |   | -       |   |   | 1          |   |   | 38           |   |   | 6                             |  
| | Other items                                               |   | -       |   |   | 4          |   |   | 4            |   |   | (7                            | )
| | Operating earnings (loss)                                 |   | 1       |   |   | (13        | ) |   | (7           | ) |   | 71                            |  
| |                                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Interest, foreign exchange and other                      |   | (4      | ) |   | 1          |   |   | 29           |   |   | 2                             |  
| | Exchange loss (gain) on long-term debt                    |   | -       |   |   | 1          |   |   | -            |   |   | -                             |  
| | Earnings (loss) before income taxe                        |   | 5       |   |   | (15        | ) |   | (36          | ) |   | 69                            |  
| | Income tax expense (recovery)                             |   | -       |   |   | 7          |   |   | (7           | ) |   | 19                            |  
| | Share of results of significantly influenced companies    |   | 1       |   |   | (22        | ) |   | -            |   |   | -                             |  
| | Net earnings (loss)                                       |   | 4       |   |   | -          |   |   | (29          | ) |   | 50                            |  
| | Net earnings attributable to non-controlling interest     |   | -       |   |   | -          |   |   | -            |   |   | -                             |  
| | Net earnings (loss) attributable to the Company           |   | 4       |   |   | -          |   |   | (29          | ) |   | 50                            |  
| |                                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Wind-up of subsidiary                                     |   | -       |   |   | -          |   |   | -            |   |   | (9                            | )
| | Retained earnings (deficit),
    
    beginning of period |   | (203    | ) |   | (210       | ) |   | (124         | ) |   | 40                            |  
| |                                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Retained earnings (deficit), 
    end of period           | $ | (199    | ) | $ | (210       | ) | $ | (153         | ) | $ | 81                            |  
| |                                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Basic and diluted earnings (loss) in dollars per share    |   |         |   |   |            |   |   |              |   |   |                               |  

- 8 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|2. | Supplemental condensed consolidating financial
      information (continued)
|-- | ----------------------------------------------------------------------------

| | 2.2 | Condensed consolidated statements of operations and
      deficit under U.S. GAAP (continued)
| | --- | ---------------------------------------------------------------------------------------------

| |                                                               |   |         |   |   |            |   |   |              |   |   | Year ended September 25, 2010 |  
| | ------------------------------------------------------------- | - | ------- | - | - | ---------- | - | - | ------------ | - | - | ----------------------------- | -
| |                                                               |   | Parent  |   |   | Subsidiary |   |   | Guarantor    |   |   | Other                         |  
| |                                                               |   | Company |   |   | Issuer     |   |   | Subsidiaries |   |   | Subsidiaries                  |  
| |                                                               |   |         |   |   |            |   |   |              |   |   |                               |  
| | Sales                                                         | $ | -       |   | $ | 1          |   | $ | 1,484        |   | $ | 409                           |  
| | Freight and other deductions                                  |   | -       |   |   | -          |   |   | 210          |   |   | 30                            |  
| | Lumber export taxes                                           |   | -       |   |   | -          |   |   | 10           |   |   | -                             |  
| | Cost of sales                                                 |   | -       |   |   | (2         | ) |   | 1,131        |   |   | 305                           |  
| | Selling, general and administrative                           |   | -       |   |   | 7          |   |   | 58           |   |   | 10                            |  
| | Share-based compensation                                      |   | -       |   |   | -          |   |   | -            |   |   | -                             |  
| | Depreciation and amortization                                 |   | -       |   |   | -          |   |   | 43           |   |   | 13                            |  
| | Other items                                                   |   | -       |   |   | 19         |   |   | 6            |   |   | (13                           | )
| | Operating earnings (loss)                                     |   | -       |   |   | (23        | ) |   | 26           |   |   | 64                            |  
| |                                                               |   |         |   |   |            |   |   |              |   |   |                               |  
| | Interest, foreign exchange and
      other                    |   | 4       |   |   | 35         |   |   | 31           |   |   | (16                           | )
| | Exchange loss (gain) on long-term debt                        |   | -       |   |   | (19        | ) |   | -            |   |   | (8                            | )
| | Earnings (loss) before income taxe                            |   | (4      | ) |   | (39        | ) |   | (5           | ) |   | 88                            |  
| | Income tax expense (recovery)                                 |   | (1      | ) |   | 15         |   |   | (15          | ) |   | (14                           | )
| | Share of results of significantly  influenced
      companies |   | (56     | ) |   | (102       | ) |   | -            |   |   | -                             |  
| | Net earnings (loss)                                           |   | 53      |   |   | 48         |   |   | 10           |   |   | 102                           |  
| | Net earnings attributable to non-controlling
      interest   |   | -       |   |   | -          |   |   | -            |   |   | 2                             |  
| | Net earnings (loss) attributable to
      the Company         |   | 53      |   |   | 48         |   |   | 10           |   |   | 100                           |  
| |                                                               |   |         |   |   |            |   |   |              |   |   |                               |  
| | Wind-up of subsidiary                                         |   | -       |   |   | -          |   |   | -            |   |   | -                             |  
| | Deficit, 
    beginning of period                             |   | (256    | ) |   | (258       | ) |   | (134         | ) |   | (60                           | )
| |                                                               |   |         |   |   |            |   |   |              |   |   |                               |  
| | Retained earnings (deficit), 
    end
      of period         | $ | (203    | ) | $ | (210       | ) | $ | (124         | ) | $ | 40                            |  
| |                                                               |   |         |   |   |            |   |   |              |   |   |                               |  
| | Basic and diluted earnings (loss) in dollars per share        |   |         |   |   |            |   |   |              |   |   |                               |  

- 9 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|2. | Supplemental condensed consolidating financial
      information (continued)
|-- | ----------------------------------------------------------------------------

| | 2.3 | Condensed consolidated statements of cash flows under
      U.S. GAAP
| | --- | ---------------------------------------------------------------------

| |                                                            |   |         |   |   |            |   |   |              |   |   | Year ended September 24, 2011 |  
| | ---------------------------------------------------------- | - | ------- | - | - | ---------- | - | - | ------------ | - | - | ----------------------------- | -
| |                                                            |   | Parent  |   |   | Subsidiary |   |   | Guarantor    |   |   | Other                         |  
| |                                                            |   | Company |   |   | Issuer     |   |   | Subsidiaries |   |   | Subsidiaries                  |  
| | Cash flow s from operating activities:                     |   |         |   |   |            |   |   |              |   |   |                               |  
| | Net earnings (loss)                                        | $ | 4       |   | $ | -          |   | $ | (29          | ) | $ | 50                            |  
| | Adjustments for:                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Depreciation and amortization                              |   | -       |   |   | 1          |   |   | 38           |   |   | 6                             |  
| | Unrealized foreign exchange and
      other                |   | (4      | ) |   | -          |   |   | -            |   |   | (2                            | )
| | Exchange loss (gain) on long-term debt                     |   | -       |   |   | 1          |   |   | -            |   |   | -                             |  
| | Future income tax expense (recovery)                       |   | -       |   |   | 7          |   |   | (7           | ) |   | 11                            |  
| | Other items                                                |   | -       |   |   | -          |   |   | (3           | ) |   | (8                            | )
| | Excess cash contributions
      over pension expense       |   | -       |   |   | (9         | ) |   | (9           | ) |   | (5                            | )
| | Share of results of significantly influenced companies     |   | 1       |   |   | (22        | ) |   | -            |   |   | -                             |  
| | Other                                                      |   | -       |   |   | 1          |   |   | (2           | ) |   | -                             |  
| |                                                            |   | 1       |   |   | (21        | ) |   | (12          | ) |   | 52                            |  
| | Changes in non-cash working capital:                       |   |         |   |   |            |   |   |              |   |   |                               |  
| | Accounts receivable                                        |   | 3       |   |   | 25         |   |   | 43           |   |   | (38                           | )
| | Inventories                                                |   | -       |   |   | -          |   |   | (2           | ) |   | (4                            | )
| | Prepaid expenses                                           |   | -       |   |   | -          |   |   | -            |   |   | 1                             |  
| | Accounts payable, accrued charges and interest payable     |   | -       |   |   | (8         | ) |   | 12           |   |   | 17                            |  
| |                                                            |   | 3       |   |   | 17         |   |   | 53           |   |   | (24                           | )
| |                                                            |   | 4       |   |   | (4         | ) |   | 41           |   |   | 28                            |  
| | Cash flow s from investing activities:                     |   |         |   |   |            |   |   |              |   |   |                               |  
| | Additions to fixed assets                                  |   | -       |   |   | -          |   |   | (37          | ) |   | (18                           | )
| | Proceeds on land sales and other                           |   | -       |   |   | -          |   |   | 17           |   |   | -                             |  
| | Proceeds on sale of French mills                           |   | -       |   |   | -          |   |   | -            |   |   | -                             |  
| | Other                                                      |   | -       |   |   | 4          |   |   | (5           | ) |   | (4                            | )
| |                                                            |   | -       |   |   | 4          |   |   | (25          | ) |   | (22                           | )
| | Cash flow s from financing activities:                     |   |         |   |   |            |   |   |              |   |   |                               |  
| | Change in operating bank loans                             |   | -       |   |   | -          |   |   | -            |   |   | 5                             |  
| | Cash held in trust                                         |   | -       |   |   | -          |   |   | -            |   |   | -                             |  
| | Increase in long-term debt                                 |   | -       |   |   | -          |   |   | -            |   |   | 8                             |  
| | Repayments of long-term debt                               |   | (4      | ) |   | -          |   |   | -            |   |   | (4                            | )
| | Change in other long-term liabilities                      |   | -       |   |   | (2         | ) |   | -            |   |   | 1                             |  
| | Other                                                      |   | -       |   |   | 1          |   |   | -            |   |   | -                             |  
| |                                                            |   | (4      | ) |   | (1         | ) |   | -            |   |   | 10                            |  
| | Net increase (decrease) in cash and
      cash equivalents |   | -       |   |   | (1         | ) |   | 16           |   |   | 16                            |  
| | Cash and cash equivalents, beginning of period             |   | -       |   |   | 1          |   |   | 24           |   |   | 43                            |  
| |                                                            |   |         |   |   |            |   |   |              |   |   |                               |  
| | Cash and cash equivalents, end of period                   | $ | -       |   | $ | -          |   | $ | 40           |   | $ | 59                            |  
| |                                                            |   |         |   |   |            |   |   |              |   |   |                               |  
| | Supplemental information:                                  |   |         |   |   |            |   |   |              |   |   |                               |  
| | Interest paid                                              |   |         |   |   |            |   |   |              |   |   |                               |  
| | Income tax paid                                            |   |         |   |   |            |   |   |              |   |   |                               |  

- 10 -

---

|TEMBEC INC.                                                    
|---------------------------------------------------------------
|Reconciliation to United States GAAP                           
|                                                               
|Years ended September 24, 2011 and September 25, 2010          
|(in millions of Canadian
      dollars, unless otherwise noted)

|2. | Supplemental condensed consolidating financial
      information (continued)
|-- | ----------------------------------------------------------------------------

| | 2.3 | Condensed consolidated statements of cash flows under
      U.S. GAAP (continued)
| | --- | ---------------------------------------------------------------------------------

| |                                                            |   |         |   |   |            |   |   |              |   |   | Year ended September 25, 2010 |  
| | ---------------------------------------------------------- | - | ------- | - | - | ---------- | - | - | ------------ | - | - | ----------------------------- | -
| |                                                            |   | Parent  |   |   | Subsidiary |   |   | Guarantor    |   |   | Other                         |  
| |                                                            |   | Company |   |   | Issuer     |   |   | Subsidiaries |   |   | Subsidiaries                  |  
| | Cash flows from operating activities:                      |   |         |   |   |            |   |   |              |   |   |                               |  
| | Net earnings (loss)                                        | $ | 53      |   | $ | 48         |   | $ | 10           |   | $ | 100                           |  
| | Adjustments for:                                           |   |         |   |   |            |   |   |              |   |   |                               |  
| | Depreciation and amortization                              |   | -       |   |   | -          |   |   | 43           |   |   | 13                            |  
| | Unrealized foreign exchange and
      other                |   | 3       |   |   | 1          |   |   | -            |   |   | (2                            | )
| | Exchange loss (gain) on long-term debt                     |   | -       |   |   | (19        | ) |   | -            |   |   | (8                            | )
| | Future income tax expense (recovery)                       |   | -       |   |   | 15         |   |   | (15          | ) |   | (15                           | )
| | Other items                                                |   | -       |   |   | 19         |   |   | 6            |   |   | (13                           | )
| | Excess cash contributions
      over pension expense       |   | -       |   |   | (11        | ) |   | (4           | ) |   | (9                            | )
| | Share of results of significantly influenced companies     |   | (56     | ) |   | (102       | ) |   | -            |   |   | -                             |  
| | Other                                                      |   | -       |   |   | (1         | ) |   | (1           | ) |   | 3                             |  
| |                                                            |   | -       |   |   | (50        | ) |   | 39           |   |   | 69                            |  
| | Changes in non-cash working capital:                       |   |         |   |   |            |   |   |              |   |   |                               |  
| | Accounts receivable                                        |   | 4       |   |   | 97         |   |   | (37          | ) |   | (105                          | )
| | Inventories                                                |   | -       |   |   | -          |   |   | 12           |   |   | 4                             |  
| | Prepaid expenses                                           |   | -       |   |   | -          |   |   | 5            |   |   | -                             |  
| | Accounts payable, accrued charges and interest payable     |   | -       |   |   | (3         | ) |   | 34           |   |   | 9                             |  
| |                                                            |   | 4       |   |   | 94         |   |   | 14           |   |   | (92                           | )
| |                                                            |   | 4       |   |   | 44         |   |   | 53           |   |   | (23                           | )
| | Cash flow s from investing activities:                     |   |         |   |   |            |   |   |              |   |   |                               |  
| | Additions to fixed assets                                  |   | -       |   |   | -          |   |   | (18          | ) |   | (7                            | )
| | Proceeds on land sales and other                           |   | -       |   |   | 3          |   |   | 2            |   |   | 2                             |  
| | Proceeds on sale of French mills                           |   | -       |   |   | -          |   |   | -            |   |   | 86                            |  
| | Other                                                      |   | -       |   |   | -          |   |   | 2            |   |   | (3                            | )
| |                                                            |   | -       |   |   | 3          |   |   | (14          | ) |   | 78                            |  
| | Cash flow s from financing activities:                     |   |         |   |   |            |   |   |              |   |   |                               |  
| | Change in operating bank loans                             |   | -       |   |   | -          |   |   | (96          | ) |   | (21                           | )
| | Cash held in trust                                         |   | -       |   |   | -          |   |   | -            |   |   | (6                            | )
| | Increase in long-term debt                                 |   | -       |   |   | 263        |   |   | -            |   |   | 9                             |  
| | Repayments of long-term debt                               |   | (4      | ) |   | (309       | ) |   | -            |   |   | (5                            | )
| | Change in other long-term liabilities                      |   | -       |   |   | -          |   |   | 1            |   |   | 1                             |  
| | Other                                                      |   | -       |   |   | (14        | ) |   | (3           | ) |   | 2                             |  
| |                                                            |   | (4      | ) |   | (60        | ) |   | (98          | ) |   | (20                           | )
| | Net increase (decrease) in cash and
      cash equivalents |   | -       |   |   | (13        | ) |   | (59          | ) |   | 35                            |  
| | Cash and cash equivalents, beginning of
      period       |   | -       |   |   | 14         |   |   | 83           |   |   | 8                             |  
| |                                                            |   |         |   |   |            |   |   |              |   |   |                               |  
| | Cash and cash equivalents, end of period                   | $ | -       |   | $ | 1          |   | $ | 24           |   | $ | 43                            |  
| |                                                            |   |         |   |   |            |   |   |              |   |   |                               |  
| | Supplemental information:                                  |   |         |   |   |            |   |   |              |   |   |                               |  
| | Interest paid                                              |   |         |   |   |            |   |   |              |   |   |                               |  
| | Income tax paid                                            |   |         |   |   |            |   |   |              |   |   |                               |  

- 11 -

---