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kpmg



> Reconciliation to United States GAAP of

TEMBEC INDUSTRIES INC.

Years ended September 30, 2006 and September 24, 2005



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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              |               
|                              |          | Montréal Québec H3A 03A |               

AUDITORS' REPORT ON RECONCILIATION TO UNITED STATES GAAP

To the Board of Directors of Tembec Industries Inc.

On November 15, 2006, we reported on the consolidated balance
sheets of Tembec Industries Inc. (the "Company") as at September 30, 2006 and
September 24, 2005 and on the consolidated statements of operations, retained
earnings (deficit) and cash flows for each of the years in the two-year period
ended September 30, 2006 which are included in the annual report on Form 40-F.
In connection with our audits conducted in accordance with Canadian generally
accepted auditing standards of the aforementioned consolidated financial
statements, we also have audited the related supplemental note entitled
"Reconciliation to United States GAAP" included in the annual report on Form
40-F. This supplemental note is the responsibility of the Company's management.
Our responsibility is to express an opinion on this supplemental note based on
our audits.

In our opinion, such supplemental note, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.



Chartered Accountants

Montréal, Canada

November 15, 2006

KPMG LLP, a Canadian limited liability partnership is the
Canadian 
member firm of KPMG International, a Swiss cooperative.

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|TEMBEC INDUSTRIES INC.                                   
|---------------------------------------------------------
|Reconciliation to United States GAAP                     
|                                                         
|Years ended September 30, 2006 and September
    24, 2005
|(in millions of dollars, unless otherwise
    noted)     
|                                                         

Summary of material differences between Canadian and United States generally
accepted accounting principles (GAAP):

The consolidated financial statements of the Company have
been prepared in accordance with Canadian Generally Accepted Accounting
Principles (GAAP). The following adjustments would be required to reconcile the
financial statements to U.S. GAAP and with practices prescribed by the United
States Securities and Exchange Commission (SEC) for the two years ended
September 30, 2006 and September 24, 2005.

If U.S. GAAP were employed, the net loss would be adjusted as
follows:

|                                                                    |   | 2006  |   | 2005 
|------------------------------------------------------------------- | - | ----- | - | -----
|                                                                    |   |       |   |      
|Net loss under Canadian GAAP                                        | $ | (300) | $ | (309)
|                                                                    |   |       |   |      
|Adjustments:                                                        |   |       |   |      
|Amortization of deferred gain on foreign exchange
    contracts (a) |   | (38)  |   | (118)
|Income taxes (b), (c) and (i)                                       |   | 22    |   | 57   
|Share in loss of affiliated companies (a), (d)                      |   | (1)   |   | (2)  
|Goodwill impairment charge (c)                                      |   |      |   | (9)  
|Cost of sales (h)                                                   |   | (10)  |   | (18) 
|Amortization of pre-operating costs (d)                             |   | 5     |   | 4    
|Development and pre-operating costs (d)                             |   |      |   | (1)  
|Pension (f)                                                         |   |      |   | 1    
|                                                                    |   |       |   |      
|Net loss under U.S. GAAP                                            | $ | (322) | $ | (395)

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|TEMBEC INDUSTRIES INC.                                   
|---------------------------------------------------------
|Reconciliation to United States GAAP                     
|                                                         
|Years ended September 30, 2006 and September
    24, 2005
|(in millions of dollars, unless otherwise
    noted)     
|                                                         

Summary of material differences between Canadian and United
States generally accepted accounting principles (GAAP) (continued):

The cumulative effect of the adjustments on the consolidated
assets, liabilities and shareholders' equity is as follows:

|                                                   |                                                     | 2006  |       | 2005 
|-------------------------------------------------- | --------------------------------------------------- | ----- | ----- | -----
|                                                   |                                                     |       |       |      
|Total assets under Canadian GAAP                   | $                                                   | 2,997 | $     | 3,441
|Adjustments:                                       |                                                     |       |       |      
|Fixed assets (c)                                   |                                                     | (7)   |       | (7)  
|Investments (a), (d), (e)                          |                                                     | 98    |       | 109  
|Proportionate consolidation (e)                    |                                                     | (225) |       | (229)
|Other assets:                                      |                                                     |       |       |      
|                                                   | Deferred development and pre-operating costs (d)    |       | (7)   |      
|                                                   | Deferred pension costs (f)                          |       | 11    |      
|                                                   | Future income taxes (b), (c)                        |       | 15    |      
|                                                   |                                                     | (115) |       | (107)
|                                                   |                                                     |       |       |      
|Total assets under U.S. GAAP                       | $                                                   | 2,882 | $     | 3,334
|                                                   |                                                     |       |       |      
|                                                   |                                                     |       |       |      
|                                                   |                                                     | 2006  |       | 2005 
|                                                   |                                                     |       |       |      
|Total liabilities under Canadian
    GAAP          | $                                                   | 2,471 | $     | 2,615
|Adjustments:                                       |                                                     |       |       |      
|                                                   | Deferred gain on foreign exchange contracts
    (a) |       |      |      
|                                                   | Proportionate consolidation (e)                     |       | (127) |      
|                                                   | Future income taxes (b), (c)                        |       | (16)  |      
|                                                   | Pension liabilities (f)                             |       | 99    |      
|                                                   |                                                     | (44)  |       | 4    
|                                                   |                                                     |       |       |      
|Total liabilities under U.S. GAAP                  | $                                                   | 2,427 | $     | 2,619
|                                                   |                                                     |       |       |      
|Total shareholders' equity under
    Canadian GAAP | $                                                   | 526   | $     | 826  
|                                                   |                                                     |       |       |      
|Total asset adjustments                            |                                                     | (115) |       | (107)
|                                                   |                                                     |       |       |      
|Total liability adjustments                        |                                                     | 44    |       | (4)  
|                                                   |                                                     |       |       |      
|Total shareholders' equity under U.S. GAAP         | $                                                   | 455   | $     | 715  

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|TEMBEC INDUSTRIES INC.                                   
|---------------------------------------------------------
|Reconciliation to United States GAAP                     
|                                                         
|Years ended September 30, 2006 and September
    24, 2005
|(in millions of dollars, unless otherwise
    noted)     
|                                                         

Summary of material differences between Canadian and United
States generally accepted accounting principles (GAAP) (continued):

(a)    
Derivative financial instruments:

Prior to September 28, 2003, under
Canadian GAAP, the Company applied hedge accounting for derivative financial
instruments, which mainly consisted of foreign exchange contracts, which were
used to hedge future revenue stream.

Effective September 28, 2003, as a
result of the adoption in Canada of the Accounting guideline AcG-13 of the CICA
Handbook, the Company began to account for its derivative financial instruments
using the fair value basis. As a result, a deferred gain was recognized at the
beginning of the fiscal year 2004 and was amortized into earnings in 2004, 2005
and 2006 based on the original maturity dates of the then outstanding foreign
exchange contracts.

Under U.S. GAAP, such derivative
financial instruments did not meet the requirements allowing hedge accounting
and, consequently, periodic changes in unrealized gains and losses on these
derivative financial instruments were included in earnings based on the change
in their current fair value. Accordingly, the only difference remaining between
Canadian and U.S. GAAP in respect of these derivative financial instruments was
the amount of the deferred gain either recognized in each year or not yet
recognized in earnings under Canadian GAAP. The outstanding balance of the
deferred gain and the amount recognized in earnings during these years on such
derivative financial instruments were reversed out of earnings and shareholders'
equity under U.S. GAAP. At September 30, 2006, all the deferred gains have been
recognized into income.

(b)     Income taxes:

On October 1, 2000, Tembec adopted
the Canadian accounting recommendations for income taxes (CICA Handbook Section
3465). The Canadian accounting recommendations essentially harmonize Canadian
GAAP with U.S. GAAP. For Canadian GAAP, the new standard was applied
prospectively. For U.S. GAAP, the statement is deemed to be applied since 1992.
Prior to 2000, under Canadian GAAP, Tembec accounted for income taxes using the
deferral method. Under U.S. GAAP, income taxes are being provided for by the
liability method. The tax effect of other reconciling items is also included
under this caption.

(c)     Income taxes related to purchase
accounting and goodwill:

(i)     Prior to adoption of CICA Handbook Section 3465, deferred tax assets or
liabilities resulting from temporary differences between the value allocated to
acquired fixed assets and the tax bases of such assets were not recorded under
Canadian GAAP. Consequently, purchase price allocation under U.S. GAAP related
to acquisitions before October 1, 2000 was different and this results in
continuous differences because Tembec has adopted CICA Handbook Section 3465
prospectively rather than retroactively.

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|TEMBEC INDUSTRIES INC.                                   
|---------------------------------------------------------
|Reconciliation to United States GAAP                     
|                                                         
|Years ended September 30, 2006 and September
    24, 2005
|(in millions of dollars, unless otherwise
    noted)     
|                                                         

Summary of material differences between Canadian and United States generally
accepted accounting principles (GAAP) (continued):

(c)     Income taxes related to purchase accounting and
goodwill (continued):

(ii)    Furthermore, under US GAAP, additional goodwill resulted from purchase price
allocation and, subsequently, was found to be impaired as a result of the annual
impairment test.

(d)     Deferred development and
pre-operating costs:

Under U.S. GAAP, certain development
and pre-operating costs, capitalized under Canadian GAAP, would have been
expensed as incurred.

(e)     Joint ventures:

Interest in joint ventures is
accounted for using the proportionate consolidation method under Canadian GAAP.
Under U.S. GAAP, joint ventures are accounted for using the equity method.

Earnings recognized by each of the
two methods are the same. However, a reconciliation to U.S. GAAP of the
financial statements of the joint ventures may result in additional adjustments.

(f)     Pension liabilities:

At September 30, 2006, $88 million
(2005 - $171 million) was recognized as an additional minimum pension liability
on the balance sheet and in other comprehensive income. The amount was
recognized under SFAS No. 87 due to an actuarially valued minimum accumulated
benefit obligation in excess of the fair value of the plans' assets.

(g)     Comprehensive income:

Under U.S. GAAP, the Company is
required to disclose certain information about comprehensive income. This
information would be as follows for the years ended September 30, 2006 and
September 24, 2005:

| |                                                          |   | 2006  |   | 2005 
| | -------------------------------------------------------- | - | ----- | - | -----
| |                                                          |   |       |   |      
| | Loss under U.S. GAAP                                     | $ | (322) | $ | (395)
| |                                                          |   |       |   |      
| | Other comprehensive (loss) income:                       |   |       |   |      
| | Minimum pension liabilities, net
    of income taxes (f) |   | 62    |   | (85) 
| |                                                          |   |       |   |      
| | Comprehensive loss                                       | $ | (260) | $ | (480)

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|TEMBEC INDUSTRIES INC.                                   
|---------------------------------------------------------
|Reconciliation to United States GAAP                     
|                                                         
|Years ended September 30, 2006 and September
    24, 2005
|(in millions of dollars, unless otherwise
    noted)     
|                                                         

Summary of material differences between Canadian and United States generally
accepted accounting principles (GAAP) (continued):

(g)     Comprehensive income (continued):

At September 30, 2006 and September
24, 2005, accumulated other comprehensive loss amounts to $68 million and $130
million, respectively.

(h)     Research and development tax
credits:

Tax credits relating to research and
development are recognized as a reduction of the related expenses, which are
part of cost of goods sold. Under US GAAP, those tax credits would have been
recorded as a reduction of the income tax expense or an increase of the income
tax recovery. The tax credits relating to research and development for the year
ended September 30, 2006 amounted to $10 million (2005 - $18 million).

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