Tembec 6-K Current report (foreign)

Unaudited supplemental condensed consolidating financial information of

TEMBEC INC.

Quarters ended December 24, 2011 and December 25, 2010

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

The following condensed consolidating financial information is prepared in compliance with National Instrument 51-102 –Continuous Disclosure Obligations, under Canadian securities laws.

The senior secured notes (the “Notes”) of Tembec Industries Inc. (the "Subsidiary Issuer") are fully and unconditionally guaranteed on a joint and several basis by Tembec Inc. (the "Parent Company") and most of the Subsidiary Issuer’s subsidiaries located in Canada (the “Guarantor Subsidiaries”). The Subsidiary Issuer and each of the Guarantor Subsidiaries are 100% owned by the Parent Company. The Notes are not guaranteed by the Company’s other subsidiaries (the “Other Subsidiaries”).

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the balance sheets as at December 24, 2011, September 24, 2011 and December 25, 2010, and the statements of comprehensive earnings (loss) and cash flows for the quarters ended December 24, 2011 and December 25, 2010, for the Parent Company and for the Subsidiary Issuer. It also provides the same information on a combined basis for the Guarantor Subsidiaries and the Other Subsidiaries.

The supplemental condensed consolidating financial information, which has been prepared in accordance with International Financial Reporting Standards (IFRS), 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.

More information on the Company and its significant accounting policies are included in the unaudited interim consolidated financial statements for the quarter ended December 24, 2011.

TEMBECSupplemental Information for first quarter 2012 1

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated balance sheets

(unaudited)(in millions of Canadian dollars)

											Quarter ended December 24, 2011
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	3		$	16		$	60		$	-		$	79
Cash held in trust		-			-			2			5			-			7
Trade and other receivables		36			345			252			50			(525	)		158
Inventories		-			-			233			28			-			261
Prepaid expenses		-			1			2			1			-			4
Assets held for sale		-			-			56			-			-			56
		36			349			561			144			(525	)		565
Investments		183			452			-			-			(635	)		-
Property, plant and equipment		-			5			375			91			-			471
Biological assets		-			-			5			-			-			5
Employee future benefits		-			-			-			1			-			1
Other long-term receivables		-			25			1			2			-			28
Deferred tax assets		-			(1	)		-			13			-			12
	$	219		$	830		$	942		$	251		$	(1,160	)	$	1,082
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	46		$	2		$	-		$	48
Trade, other payables          and accrued charges		2			206			458			77			(525	)		218
Interest payable		-			1			-			-			-			1
Provisions		-			1			1			-			-			2
Current portion of long-term debt		4			-			-			14			-			18
Liabilities held for sale		-			-			22			-			-			22
		6			208			527			93			(525	)		309
Long-term debt		1			248			-			26			(6	)		269
Provisions		-			5			10			-			-			15
Employee future benefits		-			177			57			41			-			275
Other long-term liabilities		-			-			2			-			-			2
		7			638			596			160			(531	)		870
Shareholders' equity:
Share capital		564			555			668			40			(1,263	)		564
Retained earnings (deficit)		(349	)		(360	)		(322	)		54			628			(349	)
Accumulated other comprehensive        earnings (loss)		(3	)		(3	)		-			(3	)		6			(3	)
		212			192			346			91			(629	)		212
	$	219		$	830		$	942		$	251		$	(1,160	)	$	1,082

TEMBECSupplemental Information for first quarter 2012 2

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated balance sheets (continued)

(unaudited)(in millions of Canadian dollars)

													Year ended September 24, 2011
		Parent			Subsidiary			Guarantor			Other		Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries		Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	-		$	40		$	59	$	-		$	99
Cash held in trust		-			-			-			6		-			6
Trade and other receivables		35			339			100			49		(341	)		182
Inventories		-			-			232			29		-			261
Prepaid expenses		-			1			5			-		-			6
Assets held for sale		-			-			-			-		-			-
		35			340			377			143		(341	)		554
Investments		205			473			-			-		(678	)		-
Property, plant and equipment		-			5			393			93		-			491
Biological assets		-			-			4			-		-			4
Employee future benefits		-			-			-			1		-			1
Other long-term receivables		-			25			1			2		-			28
Deferred tax assets		-			-			-			15		-			15
	$	240		$	843		$	775		$	254	$	(1,019	)	$	1,093
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	-		$	6	$	-		$	6
Trade, other payables and       accrued charges		-			191			313			83		(341	)		246
Interest payable		-			8			-			-		-			8
Provisions		-			-			8			-		-			8
Current portion of long-term debt		5			-			-			13		-			18
Liabilities held for sale		-			-			-			-		-			-
		5			199			321			102		(341	)		286
Long-term debt		2			249			-			26		(6	)		271
Provisions		-			-			16			-		-			16
Employee future benefits		-			181			62			42		-			285
Other long-term liabilities		-			-			2			-		-			2
		7			629			401			170		(347	)		860
Shareholders' equity:
Share capital		564			555			668			40		(1,263	)		564
Retained earnings (deficit)		(333	)		(343	)		(294	)		42		595			(333	)
Accumulated other comprehensive        earnings (loss)		2			2			-			2		(4	)		2
		233			214			374			84		(672	)		233
	$	240		$	843		$	775		$	254	$	(1,019	)	$	1,093

TEMBECSupplemental Information for first quarter 2012 3

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated balance sheets (continued)

(unaudited)(in millions of Canadian dollars)

											Quarter ended December 25, 2010
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	-		$	2		$	12		$	42		$	-		$	56
Cash held in trust		-			-			-			5			-			5
Trade and other receivables		36			301			137			38			(344	)		168
Inventories		-			-			245			21			-			266
Prepaid expenses		-			1			5			1			-			7
Assets held for sale		-			-			-			-			-			-
		36			304			399			107			(344	)		502
Investments		263			504			-			-			(767	)		-
Property, plant and equipment		-			5			403			80			-			488
Biological assets		-			-			7			-			-			7
Other long-term receivables		-			26			2			1			-			29
Deferred tax assets		-			-			-			25			-			25
	$	299		$	839		$	811		$	213		$	(1,111	)	$	1,051
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating bank loans	$	-		$	-		$	-		$	3		$	-		$	3
Trade, other payables        and accrued charges		-			180			285			87			(344	)		208
Interest payable		-			1			-			-			-			1
Provisions		-			-			6			-			-			6
Current portion of long-term debt		5			-			-			12			-			17
Liabilities held for sale		-			-			-			-			-			-
		5			181			291			102			(344	)		235
Long-term debt		4			243			-			22			(6	)		263
Provisions		-			-			18			-			-			18
Employee future benefits		-			145			53			43			-			241
Other long-term liabilities		3			2			2			-			-			7
		12			571			364			167			(350	)		764
Shareholders' equity:
Share capital		564			551			668			34			(1,253	)		564
Retained earnings (deficit)		(275	)		(281	)		(221	)		14			488			(275	)
Accumulated other comprehensive       earnings (loss)		(2	)		(2	)		-			(2	)		4			(2	)
		287			268			447			46			(761	)		287
	$	299		$	839		$	811		$	213		$	(1,111	)	$	1,051

TEMBECSupplemental Information for first quarter 2012 4

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated statements of comprehensive earnings (loss)

(unaudited)(in millions of Canadian dollars, unless otherwise noted)

											Quarter ended December 24, 2011
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Sales	$	-		$	-		$	339		$	66		$	(4	)	$	401
Freight and other deductions		-			-			49			5			(1	)		53
Lumber export taxes		-			-			2			-			-			2
Cost of sales (excluding depreciation    and amortization)		-			-			279			40			(3	)		316
Selling, general and administrative		-			1			16			1			-			18
Share-based compensation		-			-			-			-			-			-
Depreciation and amortization		-			-			11			1			-			12
Other items		(1	)		1			2			-			-			2
Operating earnings (loss)		1			(2	)		(20	)		19			-			(2	)
Interest, foreign exchange and other		-			1			8			1			-			10
Exchange loss on long-term debt		-			(2	)		-			-			-			(2	)
Net finance costs (income)		-			(1	)		8			1			-			8
Earnings (loss) before income taxes and share    of results significantly influenced companies		1			(1	)		(28	)		18			-			(10	)
Income tax expense		-			-			-			6			-			6
Share of results significantly     influenced companies		(17	)		(16	)		-			-			33			-
Net earnings (loss)		(16	)		(17	)		(28	)		12			33			(16	)
Other comprehensive earnings:
Foreign currency translation differences    for foreign operations		(5	)		(5	)		-			(5	)		10			(5	)
Total comprehensive earnings (loss)	$	(21	)	$	(22	)	$	(28	)	$	7		$	43		$	(21	)
Basic and diluted net loss in dollars per share																$	(0.16	)

TEMBECSupplemental Information for first quarter 2012 5

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated statements of comprehensive earnings (loss) (continued)

(unaudited)(in millions of Canadian dollars, unless otherwise noted)

											Quarter ended December 25, 2010
		Parent			Subsidiary			Guarantor			Other			Consolidation
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidation
Sales	$	-		$	1		$	378		$	47		$	(4	)	$	422
Freight and other deductions		-			-			55			4			(2	)		57
Lumber export taxes		-			-			3			-			-			3
Cost of sales (excluding depreciation    and amortization)		-			-			293			37			(2	)		328
Selling, general and administrative		-			2			15			1			-			18
Share-based compensation		-			4			-			-			-			4
Depreciation and amortization		-			-			11			2			-			13
Other items		-			1			1			-			-			2
Operating earnings (loss)		-			(6	)		-			3			-			(3	)
Interest, foreign exchange and other		(1	)		3			9			1			-			12
Exchange loss on long-term debt		-			(5	)		-			-			-			(5	)
Net finance costs (income)		(1	)		(2	)		9			1			-			7
Earnings (loss) before income taxes and share    of results significantly influenced companies		1			(4	)		(9	)		2			-			(10	)
Income tax expense		-			-			-			1			-			1
Share of results significantly    influenced companies		(11	)		(7	)		-			-			18			-
Net earnings (loss)		(10	)		(11	)		(9	)		1			18			(11	)
Other comprehensive earnings:
Foreign currency translation differences           for foreign operations		(2	)		(2	)		-			(2	)		4			(2	)
Total comprehensive earnings (loss)	$	(12	)	$	(13	)	$	(9	)	$	(1	)	$	22		$	(13	)
Basic and diluted net loss in dollars per share																$	(0.11	)

TEMBECSupplemental Information for first quarter 2012 6

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated statements of cash flows

(unaudited)(in millions of Canadian dollars)

											Quarter ended December 24, 2011
		Parent			Subsidiary			Guarantor			Other			Consolidated
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(16	)	$	(17	)	$	(28	)	$	12		$	33		$	(16	)
Adjustments for:
Depreciation and amortization		-			-			11			1			-			12
Net finance costs		-			(1	)		8			1			-			8
Income tax expense		-			-			-			6			-			6
Excess cash contributions over            employee future benefits expense		-			(5	)		(4	)		(1	)		-			(10	)
Share of results of significantly            influenced companies		17			16			-			-			(33	)		-
Other		(1	)		11			(8	)		-			-			2
		-			4			(21	)		19			-			2
Change in non-cash working capital:
Trade and other receivables		-			(6	)		(9	)		(1	)		30			14
Inventories		-			-			(34	)		-			-			(34	)
Prepaid expenses		-			-			3			(1	)		-			2
Trade, other payables and accrued charges		1			17			3			(8	)		(30	)		(17	)
		1			11			(37	)		(10	)		-			(35	)
		1			15			(58	)		9			-			(33	)
Cash flows from investing activities:
Additions to property, plant and equipment		-			-			(19	)		(4	)		-			(23	)
Proceeds on sale of assets		1			3			13			-			-			17
Other		-			-			(3	)		-			-			(3	)
		1			3			(9	)		(4	)		-			(9	)
Cash flow from financing activities:
Change in operating bank loans		-			-			46			(4	)		-			42
Cash held in trust		-						(2	)		-			-			(2	)
Increase in long-term debt		-			-			-			4			-			4
Repayments of long-term debt		(2	)		-			-			(1	)		-			(3	)
Interest paid		-			(15	)		-			-			-			(15	)
Other		-			-			(1	)		-			-			(1	)
		(2	)		(15	)		43			(1	)		-			25
		-			3			(24	)		4			-			(17	)
Foreign exchange gain on cash and         cash equivalents held in foreign currencies		-			-			-			(3	)		-			(3	)
Net decrease in cash and cash equivalents		-			3			(24	)		1			-			(20	)
Cash and cash equivalents,         beginning of period		-			-			40			59			-			99
Cash and cash equivalents, end of period	$	-		$	3		$	16		$	60		$	-		$	79

TEMBECSupplemental Information for first quarter 2012 7

TEMBEC INC.

SUPPLEMENTAL INFORMATION

Quarter ended December 24, 2011

Supplemental condensed consolidating financial information

Condensed consolidated statements of cash flows (continued)

(unaudited)(in millions of Canadian dollars)

											Quarter ended December 25, 2010
		Parent			Subsidiary			Guarantor			Other			Consolidated
		Company			Issuer			Subsidiaries			Subsidiaries			Adjustments			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(10	)	$	(11	)	$	(9	)	$	1		$	18		$	(11	)
Adjustments for:
Depreciation and amortization		-			-			11			2			-			13
Net finance costs		(1	)		(2	)		9			1			-			7
Income tax expense		-			-			-			1			-			1
Excess cash contributions over            employee future benefits expense		-			(1	)		(2	)		(1	)		-			(4	)
Share of results of significantly            influenced companies		11			7			-			-			(18	)		-
Other		-			4			(9	)		2			-			(3	)
		-			(3	)		-			6			-			3
Change in non-cash working capital:
Trade and other receivables		2			(12	)		36			2			10			38
Inventories		-			-			(14	)		2			-			(12	)
Prepaid expenses		-			-			1			-			-			1
Trade, other payables and accrued charges		-			26			(32	)		(6	)		(10	)		(22	)
		2			14			(9	)		(2	)		-			5
		2			11			(9	)		4			-			8
Cash flows from investing activities:
Additions to property, plant and equipment		-			-			(4	)		(4	)		-			(8	)
Proceeds on sale of assets		-			-			-			-			-			-
Other		-			-			1			-			-			1
		-			-			(3	)		(4	)		-			(7	)
Cash flow from financing activities:
Change in operating bank loans		-			-			-			2			-			2
Cash held in trust		-			-			-			-			-			-
Increase in long-term debt		-			-			-			-			-			-
Repayments of long-term debt		(2	)		-			-			-			-			(2	)
Interest paid		-			(9	)		-			-			-			(9	)
Other		-			-			-			(2	)		-			(2	)
		(2	)		(9	)		-			-			-			(11	)
		-			2			(12	)		-			-			(10	)
Foreign exchange gain on cash and cash    equivalents held in foreign currencies		-			-			-			(2	)		-			(2	)
Net decrease in cash and cash equivalents		-			2			(12	)		(2	)		-			(12	)
Cash and cash equivalents, beginning of period		-			-			24			44			-			68
Cash and cash equivalents, end of period	$	-		$	2		$	12		$	42		$	-		$	56

TEMBECSupplemental Information for first quarter 2012 8