EXHIBIT 99.2
                                                                    ------------

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                                  MARCH 6, 2007


OVERVIEW AND HIGHLIGHTS OF 2006

The  Company's  consolidated  financial  statements  are  expressed in Canadian
dollars and prepared in accordance with Canadian Generally Accepted  Accounting
Principles (GAAP).  These financial  statements differ in certain respects from
those  prepared in  accordance  with United States GAAP and are not intended to
provide  certain  disclosures  which  would  be  found in  United  States  GAAP
financial  statements.   These  measurement  and  disclosure   differences  are
described in Note 29 of the consolidated financial statements.

Abitibi-Consolidated  is a global leader in newsprint  and uncoated  groundwood
(commercial  printing)  papers as well as a major  producer  of wood  products,
generating  sales of $4.9 billion in 2006.  The Company owns or is a partner in
19 paper mills, 20 sawmills, 4 remanufacturing facilities and 2 engineered wood
facilities   in   Canada,   the  United   States   and  the   United   Kingdom.
Abitibi-Consolidated  supplies  customers in  approximately  70  countries  and
employs  approximately 12,500 people.  Responsible for the forest management of
approximately  15.8 million  hectares of  woodlands  in Canada,  the Company is
committed  to  the  sustainability  of  the  natural  resources  in  its  care.
Abitibi-Consolidated  is also  amongst  North  America's  largest  recyclers of
newspapers and magazines, serving 21 metropolitan areas in Canada and the U.S.,
and 13 regions in the U.K., with more than 28,000 Paper  Retriever(R) and paper
bank containers.

Abitibi-Consolidated  is one of the  lowest-cost  global  newsprint  producers,
annually  marketing  approximately  4 million  tonnes of  newsprint,  including
third-party  volumes,  2 million  tonnes of  commercial  printing  papers and 2
billion board feet of lumber.

KEY  EVENT

ABITIBI-CONSOLIDATED  INC.  AND  BOWATER  INCORPORATED  TO MERGE

On  January  29,  2007,  Abitibi-Consolidated  Inc.  and  Bowater  Incorporated
announced a definitive  agreement to combine in an all-stock  merger of equals.
The combination  will create a new leader in publication  papers.  The combined
company,  which will be called  AbitibiBowater Inc., will have pro forma annual
revenues of  approximately  US$7.9  billion ($9.3  billion),  making it the 3rd
largest  publicly traded paper and forest products company in North America and
the  8th  largest  in the  world.  The  combined  enterprise  value  of the two
companies at the time of the  announcement  was in excess of US$8 billion ($9.4
billion).

John W. Weaver,  President and Chief Executive Officer of Abitibi-Consolidated,
will be Executive Chairman of AbitibiBowater,  and David J. Paterson, Chairman,
President and Chief Executive  Officer of Bowater,  will be President and Chief
Executive Officer of AbitibiBowater. The AbitibiBowater Board of Directors will
consist of 14 directors, 7 from each company.


                                                                               1
<PAGE>

AbitibiBowater's headquarters and executive office will be located in Montreal,
Quebec,  with a U.S.  regional  manufacturing  and sales office in  Greenville,
South Carolina.  The company, which will be incorporated in Delaware as the new
parent company, will apply to list its shares on the New York and Toronto stock
exchanges.

Under the terms of the transaction,  each common share of  Abitibi-Consolidated
will be exchanged for 0.06261 common share of AbitibiBowater,  and each Bowater
common share will be exchanged  for 0.52 common  share of  AbitibiBowater.  The
exchange  ratio  will  result in 48% of  AbitibiBowater  being  owned by former
Abitibi-Consolidated  shareholders  and 52% of  AbitibiBowater  being  owned by
former Bowater shareholders.

The  combination  is expected to generate  approximately  US$250  million ($295
million) of annualized cost synergies from improved  efficiencies in such areas
as production,  selling, general and administrative (SG&A) costs,  distribution
and  procurement.  These  synergies are in addition to cost saving  initiatives
already in process at both companies.

The  combination  has been approved  unanimously  by the Boards of Directors of
both  companies,   which  received  fairness  opinions  from  their  respective
financial advisors.  The combination is subject to approval by the shareholders
of both companies,  regulatory approvals, and customary closing conditions.  It
is expected to be completed in the third quarter of 2007.  Abitibi-Consolidated
and Bowater will continue to operate separately until the transaction closes.

$54 MILLION NET EARNINGS

Abitibi-Consolidated  reported  net  earnings of $54  million,  or 12 cents per
share,  in 2006 compared to a loss of $350 million,  or 80 cents per share,  in
the previous year. Before the impact of foreign currency  translation and other
specific items, net earnings would have been a loss of $180 million or 41 cents
per share in 2006,  compared to a loss of $176 million or 40 cents per share in
2005.

The Company's  operating  profit from  continuing  operations  amounted to $327
million on sales of $4,851  million in 2006,  compared to an operating  loss of
$276  million on sales of $5,342  million in 2005.  Excluding  specific  items,
operating profit from continuing operations,  in 2006, amounted to $136 million
compared to $141 million in 2005.



                                                                               2
<PAGE>

                               [GRAPHICS OMITTED]


Table 1: Summary of financial information (in millions of dollars,
         except per share amounts)

                                       AS PER                     BEFORE
                                FINANCIAL STATEMENTS        SPECIFIC ITEMS (1)
                              ------------------------   ----------------------
                                2006            2005        2006         2005
                                ----            ----        ----         ----
Sales                         $4,851          $5,342      $4,851       $5,342
EBITDA                           N/A             N/A         576          649
Operating profit (loss) from
 continuing operations           327            (276)        136          141
Net earnings (loss)               54            (350)       (180)        (176)
 $ per share                    0.12           (0.80)      (0.41)       (0.40)

Note (1) Non-GAAP measures


The  decrease in sales shown in Table 1 is mainly  attributable  to lower sales
volume in the Company's three business segments,  particularly in the Newsprint
segment where the Company permanently closed two mills in December of 2005, and
to a stronger  Canadian dollar compared to the U.S.  currency.  This was partly
offset by higher prices in the Company's paper business segments.

IN-DEPTH OPERATIONS REVIEW

On January 26, 2005, the Company announced an in-depth  operations review to be
implemented over a two-year period.  The plan initially targeted an improvement
of  $175  million  in  earnings  before  interest,   taxes,   depreciation  and
amortization  (EBITDA) related to cost reduction,  productivity and market mix,
while it  targeted  $75  million  from  increased  revenue  related  to  future
ALTERNATIVE OFFSET(R) and EQUAL OFFSET(R) conversions,  and the relaunch of the
Lufkin,  Texas mill. As a result of this review, the Company took the following
actions:

     o    The restructuring of the Newfoundland operations, which led to labour
          reductions,  the permanent closure of the Stephenville paper mill and
          the  announcement  of the permanent  closure of paper machine  number
          seven at Grand  Falls.  The  Stephenville  paper  mill had an  annual
          production capacity of approximately 194,000 tonnes of newsprint. The
          machine  at  Grand  Falls  has  an  annual  production   capacity  of
          approximately 60,000 tonnes of newsprint.

     o    The  permanent  closure of the  Kenora,  Ontario  paper  mill,  which
          resulted  in the  permanent  removal of 240,000  tonnes of  newsprint
          capacity annually.


                                                                               3
<PAGE>

     o    The permanent  closure of one paper machine at the Bridgewater  mill,
          in the U.K., which resulted in the permanent removal of 60,000 tonnes
          of annual capacity.

     o    The sale of the Company's  196,000  hectares (or about 485,000 acres)
          of privately owned timberlands located near Thunder Bay, Ontario.

     o    Other initiatives focusing on cost and productivity improvements.

By the  end  of  2006,  the  Company  achieved  over  $200  million  in  EBITDA
improvement, exceeding the $175 million target. However, none of the additional
$75 million  target,  from increased  revenue,  has been realized,  the Company
having  delayed  both the  future  ALTERNATIVE  OFFSET(R)  and EQUAL  OFFSET(R)
conversions and the relaunch of the Lufkin mill.

SG&A INITIATIVE

In April of 2006,  the Company began a review of its SG&A costs to reduce these
expenses  at Head  Office,  as well as the  general  and  administrative  costs
incurred  at the  mills,  where  these  expenses  are  included  in the cost of
products sold. The objective was to remove $35 million of cost annually, by the
middle of 2007, through process improvements, regionalization or centralization
of certain functions, as well as eliminating some expenses.

At the end of 2006, the Company had realized $40 million in cost  improvements.
The savings  occurred  faster than  anticipated and the Company is confident it
will maintain that level of savings on an ongoing basis.

LUMBER DISPUTE SETTLEMENT

With  respect to the softwood  lumber  dispute,  as of December  12, 2005,  the
Company's  softwood  lumber  exports  to the  United  States  were  subject  to
estimated  duties  of 8.7%  for  countervailing  duties  (CVD)  and of 3.2% for
anti-dumping  duties (AD).  The duty deposit  rates  originally  imposed on the
Company by the U.S. government in 2002 were 18.79% for CVD and 12.44% for AD.

In April  2006,  the  governments  of Canada  and the United  States  reached a
framework  agreement for a settlement of the dispute (the Agreement)  which was
implemented  on October  12,  2006.  Under the  Agreement,  the  United  States
terminated the AD and CVD orders and ceased  collecting cash deposits of AD and
CVD duties as of that date. The two  governments  also have taken steps to seek
to terminate all related  litigation,  including all cases to which the Company
was a party.

Under the terms of the  Agreement,  all but US$1  billion of duty  deposits  by
Canadian producers was to be returned. According to the terms of the Agreement,
the Company sold the right to its refunds to Export  Development  Canada (EDC),
pursuant  to which  the  Company  received  an  amount  equal to the CVD and AD
deposits  it had  paid,  less its  share of the US$1  billion  that will not be
reimbursed.  As of October 12, 2006,  Abitibi-Consolidated  had paid a total of
approximately  US$258 million in AD and CVD deposits.  In December of 2006, the


                                                                               4
<PAGE>

Agreement  received final  approval by the Canadian  Parliament and the Company
received  US$239  million  from EDC  representing  approximately  81.94% of the
deposit amounts, plus interest accruing from the date of deposit to the date of
liquidation.  This amount  represents  the total of the refunds the Company was
entitled to receive.

Since  October 12, 2006,  exports of softwood  lumber to the United  States are
subject to either a three-tiered  export tax or a combination of a lower-tiered
export tax and volume restrictions, as elected region by region. These measures
will be effective during periods when a U.S. market  benchmark  composite price
for lumber is at or below  US$355 per  thousand  board feet.  Since  January 1,
2007,  all Quebec  mills are subject to monthly  quotas and a tax which  ranges
between 0 and 5% depending on the Framing Lumber  Composite  Price (FLCP).  For
the  operations  in  British-Columbia,  the volume is not limited,  but the tax
could range from 0 to 15% depending on the FLCP, and if volumes exported exceed
the allocation for this region, the tax will be increased by 50%. The agreement
is for a  minimum  seven-year  term,  but could be  terminated  after two years
(although the U.S.  lumber  coalition  could not file new AD or CVD cases for a
minimum three-year period).

SALE OF PANASIA

On November 17, 2005,  Abitibi-Consolidated announced that it had completed the
sale of its 50% share  ownership in Pan Asia Paper Company Pte Ltd (PanAsia) to
Norske  Skogindustrier ASA (Norske Skog) of Norway.  Therefore,  effective with
the third quarter of 2005 financial  reporting,  the information  pertaining to
PanAsia was no longer  proportionally  included in the  Company's  consolidated
financial  statements  but  presented as  discontinued  operations.  Also,  the
Company  has  reclassified  its  historical  information  to exclude  PanAsia's
results from continuing operations.

As a result  of this  transaction,  Abitibi-Consolidated  reduced  its net debt
level by  approximately  $1 billion when compared to the second  quarter of the
2005 financial report,  improving its balance sheet and liquidity position,  as
well as providing financial flexibility for the future.

DIVIDENDS AND SHARES OUTSTANDING

Dividends paid in 2006 amounted to $22 million compared to $44 million in 2005.
On July 25, 2006, the Company's Board of Directors suspended dividend payments.

The weighted  average  number of shares  outstanding  remained  constant at 440
million  during  both years in 2006 and 2005,  while  there  were 14.5  million
options  outstanding  at the end of 2006 compared to 13.6 million at the end of
2005.

SPECIFIC ITEMS IMPACTING RESULTS AND NON-GAAP MEASURES

The Company's  operating results include specific items that are not related to
normal operating  activities and make the comparison of results  difficult from
period to period.  Abitibi-Consolidated  compares  its  performance  as well as
those of its business segments before specific items based on EBITDA, operating
profit (loss) from continuing  operations,  net earnings  (loss),  net earnings


                                                                               5
<PAGE>

(loss) per share and other such  measures.  Specific items include gain or loss
on translation of foreign  currencies,  mill closure and other elements,  asset
write offs or write downs,  income tax adjustments  related to the finalization
of prior-year  audits,  impact of changes in income tax  legislation  and other
items  that do not  relate to normal  operating  activities.  Operating  profit
(loss) from continuing  operations  before specific items,  net earnings (loss)
before specific items,  net earnings (loss) per share before specific items and
other such  measures  before  specific  items  such as EBITDA are not  measures
prescribed by the Canadian GAAP.

Management  uses  both  GAAP and  non-GAAP  measures  to  evaluate  results  of
operations  and believes that  investors  and other readers  should be aware of
both measures in order to more meaningfully  evaluate  operations.  Some of the
key  users of the  Company's  financial  information,  including  analysts  and
creditors, request that these measures be made publicly available.

The use of operating  profit (loss) from  continuing  operations and EBITDA has
certain material limitations because they exclude the recurring expenditures of
financing expenses and income taxes. These expenses are necessary components of
the Company's costs because  Abitibi-Consolidated  is required over time to pay
cash  income  taxes  and  to  pay  interest  on  its  indebtedness.  Management
compensates  for these  limitations to the use of operating  profit (loss) from
continuing  operations and EBITDA by using them as only supplementary  measures
of profitability.

The Company believes that the impact of the key business drivers (price, volume
and  foreign  exchange)  on its  results is more  readily  understandable  when
isolated  from the  specific  items.  The  specific  items are then  separately
identifiable  and  discussed in detail so that the impact of those items on the
results may be understood.  Abitibi-Consolidated believes this gives the reader
an easy to follow  format  where  specific  items are brought to the  forefront
immediately, allowing the reader to focus on these points separately.

Measures  excluding  specific items have no standardized  meaning prescribed by
GAAP and are not necessarily  comparable to similar measures presented by other
companies, and therefore should not be considered in isolation. It is important
for readers to  understand  that  certain  items may be  presented in different
lines on the financial  statements  thereby  leading to different  measures for
different companies.  However, the Company believes this is useful supplemental
information as it provides an indication of performance and comparative  trends
excluding these specific items. Readers should be cautioned, however, that this
information  should not be confused with or used as an  alternative to measures
prescribed by the Canadian GAAP.

SPECIFIC ITEMS IMPACTING OPERATING PROFIT (LOSS) FROM CONTINUING OPERATIONS

In 2006,  the  Company's  operating  results were  positively  impacted by $191
million of specific  items.  In December of 2006,  following the lumber dispute
settlement,  the Company  recorded income of $171 million mainly related to the
unrecognized portion of the CVD and AD deposits that were refunded. In December
of 2004, the Company recognized US$52 million of CVD and AD in its consolidated
financial  statements.  Also,  following  the  sale of the  permanently  closed


                                                                               6
<PAGE>

Sheldon,  Texas mill,  Abitibi-Consolidated  recorded  an $18  million  gain on
disposal of assets under mill  closure and other  elements.  During  2006,  the
Company  recorded  $9  million  in  mill  closure  and  other  elements  mainly
attributable to  restructuring  charges related to the SG&A review announced in
the second  quarter of 2006,  partly offset by a reduction of the provision for
mill closures.  In the second  quarter of 2006,  the Company  recognized in its
SG&A  expenses a credit of $11 million  related to  prior-years  provisions  of
capital tax, which impacted the Newsprint,  Commercial Printing Papers and Wood
Products segments by $6 million, $3 million and $2 million, respectively.

In 2005,  Newsprint  operating results were negatively impacted by $292 million
due to asset write downs of $203 million and  provisions for mill closure costs
of $89  million  mainly  related  to the  permanent  closure  of the Kenora and
Stephenville paper mills as well as one paper machine in Bridgewater. Also, the
Newsprint  segment was negatively  impacted by $44 million due to impairment of
the  long-lived  assets of the Lufkin mill and the  recognition  of a liability
related to an early  retirement  program  and labour  force  reductions  for $9
million.  Commercial Printing Papers operating results were negatively impacted
by $71 million due to  impairment  of the  long-lived  assets of the Lufkin and
Thunder Bay (Fort  William)  paper mills for $124  million,  partly offset by a
gain of $53 million on the sale of timberlands.  Operating  results in the Wood
Products  segment were  negatively  impacted by $1 million,  mainly due to mill
closure costs of the Champneuf, Quebec sawmill.

Table 2 highlights the impact of the above specific items on operating  results
from continuing operations by segment.

Table 2: Operating profit (loss) from continuing operations

                                          IN MILLIONS OF DOLLARS

                                       AS PER                     BEFORE
                               FINANCIAL STATEMENTS         SPECIFIC ITEMS (1)
                              ----------------------      ---------------------
                               2006            2005         2006         2005
                               ----            ----         ----         ----
Newsprint                      $215           ($228)        $192         $117
Commercial Printing Papers      (32)            (89)         (28)         (18)
Wood Products                   144              41          (28)          42
                               ----            ----         ----         ----
                               $327           ($276)        $136         $141

Note (1) Not in accordance with GAAP


OTHER SPECIFIC ITEMS IMPACTING NET EARNINGS (LOSS)

Other  than   specific   items  already   covered  in  the  previous   section,
Abitibi-Consolidated  recorded in 2006 positive  income tax  adjustments of $79
million,  mainly related to the prospective  reduction in the Canadian  federal
income tax rate, an after-tax interest income of $22 million, which represented
the  interest  portion  of the CVD and AD  refunds,  and an  after-tax  gain on
translation of foreign currencies of $6 million.

In 2005,  the Company  recorded an  after-tax  gain on  translation  of foreign
currencies of $90 million,  mainly from the stronger  Canadian  currency at the
end  of  the  year   compared   to  the   U.S.   dollar,   in  which   most  of
Abitibi-Consolidated's   long-term  debt  is  denominated.  Also,  the  Company


                                                                               7
<PAGE>

recorded  favourable  income tax  adjustments  of $27 million  attributable  to
positive  income  tax  adjustments   mainly  related  to  the  finalization  of
prior-year  audits,  partly offset by negative income tax adjustments due to an
increase in tax rate. The Company recorded an unfavourable  after-tax amount of
$17 million in its financial expenses,  mainly due to the premium paid on early
debt repayment.  The $10 million  after-tax loss recorded by the Company on the
sale of its  interest in PanAsia is  attributable  to a fiscal gain higher than
the accounting gain.

<TABLE>
<CAPTION>
Table 3: Impact of  specific  items (1) (in  millions  of dollars,  except per
share amounts)

                                                                           2006                    2005
                                                                ----------------------    ----------------------
                                                                BEFORE TAX   AFTER TAX    BEFORE TAX   AFTER TAX
                                                                ----------   ---------    ----------   ---------
<S>                                                             <C>          <C>          <C>          <C>
Net earnings (loss) as reported in the financial statements                        $54                     ($350)
  $ per share                                                                     0.12                     (0.80)
Specific items:
  Impacting operating profit (loss) from continuing operations
   (included in Table 2)                                              (191)       (127)          417         264
  Loss (gain) on translation of foreign currencies                     (10)         (6)         (101)        (90)
  Loss (gain) on sale of PanAsia                                        --          --            (3)         10
  Financial expenses (income)                                          (32)        (22)           24          17
  Income tax expense (recovery)                                                    (79)                      (27)
                                                                                 -----                     -----
Net earnings (loss) excluding specific items(1)                                  ($180)                    ($176)
   $ per share(1)                                                                (0.41)                    (0.40)

Note (1) Non-GAAP measures
</TABLE>


RESULTS BEFORE SPECIFIC ITEMS

As specific  items have  already  been  covered in the  previous  section,  the
following comparison and analysis will focus on the Company's  performance only
related to normal operating activities.

CONSOLIDATED RESULTS BEFORE SPECIFIC ITEMS

Before  specific  items,  the $5 million  reduction  in  operating  profit from
continuing  operations,  in 2006, is mainly attributable to the strength of the
Canadian  dollar,  higher cost of products sold and lower sales  volume.  These
were  partially  offset by higher prices in the  Company's  two paper  business
segments,  lower  amortization  expense,  lower CVD and AD and lower SG&A costs
mainly attributable to the SG&A initiative.

In 2006, EBITDA was $576 million, or 11.9% of sales,  compared to $649 million,
or 12.1% of sales in 2005.




                                                                               8
<PAGE>

Table 4:  Consolidated  results  before  specific items (1) (in millions of
dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                        FAV/(UNFAV) VARIANCE DUE TO:
                                               -------------------------------------
                                                         FOREIGN
                                       2006    VOLUME    EXCHANGE   PRICES    COSTS       2005
                                    -------    ------    --------   ------    -----    -------
<S>                                 <C>         <C>        <C>       <C>       <C>     <C>
Sales                               $ 4,851     ($432)     ($295)    $ 236     $ --    $ 5,342
Cost of products sold                 3,612       309         43        --      (98)     3,866
Distribution costs                      517        48         13        --       13        591
CVD, AD and other duties                  2         4          2        --       59         67
SG&A                                    144        --          1        --       24        169
                                   --------    ------    --------   ------    -----    -------
EBITDA (1)                             $576      ($71)     ($236)      236      ($2)      $649
Amortization                            440        --          5        --       63        508
                                    -------    ------    --------   ------    -----    -------
Operating profit (loss) from
  continuing operations                $136      ($71)     ($231)     $236      $61      $ 141
Financial expenses                      339                                                388
Other expenses                           28                                                 10
Income tax expense (recovery)           (84)                                               (95)
Share of earnings from investments
  subject to significant influence        4                                                  2
Non-controlling interests               (37)                                               (29)
Earnings from discontinued
  operations                             --                                                 13
                                    =======    ======    ========   ======    =====    =======
Net earnings (loss)                   ($180)                                             ($176)
  $ per share                         (0.41)                                             (0.40)

Note (1) Not in accordance with GAAP
</TABLE>


Sales were  $4,851  million in 2006,  compared to $5,342  million in 2005.  The
decrease  in sales  was  mainly  attributable  to  lower  sales  volume  in the
Company's  three  business  segments  and most  specifically  in the  Newsprint
segment where the Company permanently closed two mills in December 2005, and by
a stronger  Canadian  dollar  compared  to the U.S.  currency.  This was partly
offset by higher prices in the Company's paper business segments.

Cost of products sold was $3,612 million in 2006, compared to $3,866 million in
2005. This decrease was mainly  attributable to lower sales volume particularly
in the Newsprint  segment and the strength of the Canadian dollar  reflected in
the  costs of the  Company's  U.S.  newsprint  mills,  partly  offset by higher
operating  costs per unit.  The increase in the Company's  operating  costs per
unit is mainly  due to higher  input  prices  for  energy  and fibre as well as
pension and other employee future benefits.  These increases were partly offset
by productivity improvements and by reducing input usage.

Distribution costs were $517 million in 2006, compared to $591 million in 2005.
Cost  decreases  were mainly due to  improvements  in  transportation  mode and
logistics as well as the strength of the Canadian dollar and lower sales volume
particularly in the Newsprint segment.

In 2006,  following the lumber dispute settlement,  the Company recorded no CVD
or AD,  before  specific  items,  but $2 million of export  tax.  In 2005,  the
Company recorded $67 million of CVD and AD deposits.  More details are provided
in the WOOD PRODUCTS section.


                                                                               9
<PAGE>

SG&A expenses before specific items amounted to $144 million in 2006,  compared
to $169 million in 2005.  The  reduction  was mainly  attributable  to the SG&A
initiative.

In 2006,  total  amortization  before  specific items decreased to $440 million
compared to $508 million the previous  year.  In 2005,  the Company  wrote down
assets for an amount of $203 million mainly due to the permanent closure of the
Kenora and  Stephenville  paper mills.  Also in the fourth quarter of 2005, the
Company  recorded  an  impairment  charge  of $125  million  as a result of the
impairment  test of  long-lived  assets of the Lufkin paper mill.  Furthermore,
following the sale of timberlands in the Thunder Bay area, Abitibi-Consolidated
assessed its Fort William paper mill to net realizable  value and recognized an
impairment charge of $43 million.

When  comparing  the average  exchange rate in 2006 to the same period in 2005,
the Canadian  dollar  strengthened  by 6.8%  compared to the U.S.  dollar.  The
Company estimates that the Canadian dollar appreciation against the U.S. dollar
had an  unfavourable  impact,  net of  hedging,  on its  operating  results  of
approximately  $221  million  compared to the  previous  year.  Other  currency
exchange rates had a negative impact, net of hedging, of $10 million.

Financial  expenses  before  specific  items  totalled  $339  million  in 2006,
compared to $388 million in 2005. This decrease was mainly due to the reduction
in the Company's  long-term debt,  largely  attributable to debt repayment made
with the proceeds from the sale of PanAsia and the sale of Ontario  timberlands
in 2005, partly offset by higher interest costs on the Company's  floating rate
debt.

Other  expenses in 2006  increased  to $28 million  compared to $10 million the
previous  year.  This  increase  is mainly due to higher  discounts  on sale of
accounts  receivable  in 2006 and to other income  recorded in 2005 mainly from
the price  adjustment  related  to the sale of  Voyageur  Panel and the sale of
other assets.

Income tax  recovery  before  specific  items  during the year  amounted to $84
million or an average effective tax rate of approximately  36%, compared to $95
million or an average effective tax rate of approximately 37% in 2005.  Average
effective tax rates are impacted mainly by the mix and level of earnings (loss)
subject to different tax rates applicable to the various jurisdictions.

Earnings from  discontinued  operations of $13 million in 2005  represented net
earnings of PanAsia for the year until closing of the sale.

NEWSPRINT

OPERATING RESULTS BEFORE SPECIFIC ITEMS

In the Newsprint segment,  the $75 million improvement in operating profit from
continuing operations before specific items is mainly due to higher U.S. dollar
selling  prices and lower  amortization  expense,  partly  offset by a stronger
Canadian dollar, lower sales volume and higher manufacturing costs per tonne.


                                       10
<PAGE>

                              [GRAPHICS OMITTED]


Table 5: Newsprint  operating  results before specific items(1) (in millions of
dollars)

                                          FAV/(UNFAV) VARIANCE DUE TO:
                                       --------------------------------
                                                FOREIGN
                                2006   VOLUME  EXCHANGE   PRICES  COSTS    2005
                                ----   ------  --------   ------  -----    ----

Sales                        $ 2,607    ($354)    ($174)    $243  $  --  $2,892
EBITDA(1)                        429      (61)     (122)     243    (32)    401
Amortization                     237       --         4       --     43     284
Operating profit (loss) from
  continuing operations          192      (61)     (118)     243     11     117

Note (1) Not in accordance with GAAP


Sales of newsprint  were $2,607  million in 2006 compared to $2,892  million in
2005. Operating profit from continuing operations before specific items in 2006
was $192 million, or 7.4% of sales, compared to $117 million, or 4% of sales in
2005.

The  decrease  in sales is mainly  attributable  to lower  sales  volume  and a
stronger average Canadian dollar compared with the U.S. currency, partly offset
by higher  average  prices  year-over-year.  The Company's  shipments  totalled
3,486,000  tonnes  compared to 3,972,000  tonnes sold in 2005. The reduction in
shipments  was  mainly  due  to  the   elimination  of  the  least   profitable
destinations,  resulting  in the closure of the Kenora and  Stephenville  paper
mills in December of 2005. The average newsprint realized price rose by $20 per
tonne in 2006, an increase of 3% from the previous year, primarily due to price
improvements  of US$62 per tonne on average for all markets,  largely offset by
the strengthening of the Canadian dollar.

On a per tonne basis, the Company's newsprint cost of products sold in 2006 was
$3 higher  than in 2005.  This was mainly  due to $17 per tonne of input  price
increases,  primarily  energy  and higher  pension  and other  employee  future
benefits, combined with lower production, mainly attributable to a reduction of
1.3% in basis  weight.  However,  cost  increases  were mostly  offset by lower
usage,  the closure of the high-cost  Kenora and  Stephenville  paper mills, as
well as the stronger  Canadian  dollar,  reducing  production costs in Canadian
dollars of the Company's U.S. mills.

DISTRIBUTION OF NEWSPRINT SALES:

2006
UNITED STATES 58%
EUROPE 12%


                                       11
<PAGE>

CANADA 10%
LATIN AMERICA 12%
ASIA 3%
OTHER COUNTRIES 5%

2005
United States 57%
Europe 16%
Canada 9%
Latin America 10%
Asia 3%
Other countries 5%

NEWSPRINT MARKET

According  to the  Pulp and  Paper  Products  Council  (PPPC),  North  American
newsprint  demand  declined by 6% in 2006 compared to 2005.  The North American
domestic  shipments' share of lighter basis weight newsprint increased from 36%
in 2005 to 51% in 2006,  contributing to  approximately  1.3% of the decline in
U.S.  consumption.  This translated to an average basis weight in North America
of 46.9 grams per square  metre  (Gsm) in 2006,  compared  to 47.4 Gsm in 2005.
Other key drivers  include the continued  decline in newspaper  circulation and
advertising  volume.  Compared to the previous  year,  North  American  imports
declined  by  25.2%  to  142,000  tonnes,  while  exports  declined  by 9.8% to
2,242,000 tonnes, mainly due to lower exports to Japan and Western Europe.

The average North American operating rate remained high at 94%, compared to 96%
in 2005. The preservation of high operating rate is mainly  attributable to the
reduction in production capacity.  North American newsprint production declined
by 6.3% in 2006  compared  to 2005.  At the end of  2006,  total  producer  and
customer  newsprint  inventories  were 105,000 tonnes lower than in December of
2005. The Company continued to employ disciplined  inventory management in 2006
to match output with its order book.  At year-end,  the  Company's  inventories
stood at the same record low level as at the end of December 2005.

In 2005, the Company  announced three price increases in the U.S. that were put
into  effect  on March 1,  June 1 and  October  1. The 2005  year-end  industry
published  transaction price stood at US$635 per tonne, 11.4% above December of
2004. In 2006,  the Company  announced two price  increases  that were put into
effect on  February 1 and  August 1.  During  the third  quarter  of 2006,  the
Company  reduced to US$20 the initial US$40 per tonne  newsprint price increase
announced for the U.S. market  effective  August 1, 2006. In the fourth quarter
of 2006,  newsprint  prices  started to decline  and at year-end  the  industry
published  transaction  price stood at US$646 per tonne, 1.7% above December of
2005. Newsprint prices in international markets, with the exception of European
countries,  increased  between 10% and 14% during the year. In 2006,  published
transaction  prices in continental  Europe were  approximately  4% to 7% higher
than in 2005 in local currency basis.


                                                                              12
<PAGE>

MARKET OUTLOOK

The Company expects global demand to increase  slightly in 2007, with continued
positive  growth in Europe and Latin America as well as higher growth levels in
certain  countries  in Asia,  such as China and  India.  However,  the  Company
expects  demand in North  America to  decline  by 5% to 6% on a tonnage  basis,
resulting mainly from continued decline in newspaper circulation and a sluggish
advertising  environment.  Key risk factors to the Company's demand expectation
include  cost-control  measures by the newspaper publishers as well as economic
factors.

CHANGE IN CAPACITY

As announced in the fourth  quarter of 2005,  Abitibi-Consolidated  permanently
closed one paper machine at the  Bridgewater  mill,  on February 28, 2006.  The
closure of the machine removed 60,000 tonnes of annual newsprint capacity.

In 2006,  newsprint  production  capacity  changed due to the conversion of one
paper  machine  from  newsprint  to  commercial  printing  paper  grades at the
Shawinigan  (Belgo),  Quebec  mill,  the  allocation  of the  capacity  between
newsprint and commercial  printing papers, as well as the production of lighter
basis weight paper.  Considering  the above,  the  Company's  capacity for 2007
stands at 3,709,000  tonnes of  newsprint,  including  150,000  tonnes of idled
capacity at the Lufkin paper mill.

COMMERCIAL PRINTING PAPERS

OPERATING RESULTS BEFORE SPECIFIC ITEMS

In the  Commercial  Printing  Papers  segment,  the  $10  million  increase  in
operating loss from continuing  operations  before specific items is mainly due
to a stronger  Canadian  dollar,  partly offset by higher U.S.  dollar  selling
prices and lower amortization expense.


                              [GRAPHICS OMITTED]


Table 6: Commercial Printing Papers operating results before specific items (1)
(in millions of dollars)

                                        FAV/(UNFAV) VARIANCE DUE TO:
                                      --------------------------------
                                               FOREIGN
                                2006  VOLUME  EXCHANGE   PRICES  COSTS     2005
                                ----  ------  --------   ------  -----     ----
Sales                         $1,511    ($29)    ($101)     $89  $  --  $ 1,552
EBITDA (1)                       128      (4)      (99)      89    (13)     155
Amortization                     156      --         1       --     16      173
Operating profit (loss) from
  continuing operations          (28)     (4)      (98)      89      3      (18)

Note (1) Not in accordance with GAAP


                                                                              13
<PAGE>

Sales of  commercial  printing  papers were $1,511  million in 2006 compared to
$1,552  million  in 2005.  Operating  loss from  continuing  operations  before
specific  items  was $28  million,  or 1.9% of sales in 2006,  compared  to $18
million, or 1.2% of sales in 2005.

The decrease in sales is mainly  attributable  to a stronger  average  Canadian
dollar,  compared with the U.S. currency and lower sales volume,  partly offset
by  higher  average  prices  year-over-year.  The  average  realized  price for
commercial  printing papers  decreased from the previous year by 1% to $864 per
tonne.  This  reduction is primarily due to the  strengthening  of the Canadian
dollar,  largely offset by an average price improvement of US$45 per tonne. The
Company's  shipments of commercial printing papers totalled 1,748,000 tonnes in
2006,  compared to 1,782,000 tonnes in 2005,  mainly due to the Company exiting
the  Rotonews  grades.  In  the  fourth  quarter  of  2006,  the  Company  took
approximately  50,000  tonnes  of  market-related   downtime  at  four  of  its
commercial printing paper mills.

On a per tonne basis, the Company's commercial printing papers cost of products
sold in 2006 was $18 higher than in 2005.  The cost  increase was mainly due to
$23 per tonne of input price increases,  primarily energy and pension and other
employee future  benefits,  as well as an unfavourable  product mix. These were
partly offset by productivity improvements and labour cost reductions.


Table 7: Shipments of commercial printing papers

                                   IN THOUSANDS OF TONNES
                                   ----------------------
                                         2006        2005
                                         ----        ----

 SC, Soft-Nip papers                      599         611
 ABIoffset(TM) papers                     471         422
 Hi-Brite papers                          267         306
 Directory papers                         138         135
 Other papers                             185         233
                                        -----       -----
 Total papers                           1,660       1,707
 Market pulp                               88          75
                                        =====       =====
 Total segment                          1,748       1,782


ABICAL(R) GRADES (SUPERCALENDERED ("SC") AND SOFT-NIP)

North American demand for SC grades decreased by 3.6% in 2006 compared to 2005.
SC grades are mainly used in retail  inserts,  catalogues  and  magazines.  The
largest SC paper machine in North America, which is owned by a competitor,  was
idled from  December  2005 to October  2006 due to labour  disruptions.  As the
increase in imports only partially  compensated  for the reduction in capacity,
this resulted in a lower availability of SC papers in North America.  Shipments
of the Company's ABICAL(R) grades declined by 2% compared to 2005 mainly due to
less production in the low-end of the grades in 2006.



                                                                             14
<PAGE>

According to an industry  publication,  prices for supercalendered (SCA) grades
rose by 2.5% on average in 2006 compared to 2005. In 2005,  prices increased in
January,  April and July ending the year 6.8% higher than in December  2004. In
2006, prices increased in April and July but began to decline in November.  The
December 2006  industry-published  transaction  price stood at US$775 per short
ton, 0.6% below December of 2005.

DISTRIBUTION OF COMMERCIAL PRINTING PAPERS SALES:

2006
UNITED STATES 83%
CANADA 11%
OTHER COUNTRIES 6%

2005
United States 86%
Canada 9%
Other countries 5%

ABIOFFSET(TM)GRADES

North American demand for superbrite grades increased by 10.1% in 2006 compared
to 2005.  Superbrite  grades are mainly used as a  substitute  for  traditional
uncoated freesheet grade applications.  Demand growth was largely driven by the
Company's  continued success in penetrating the uncoated  freesheet market with
its  ABIOFFSET  (TM)grades.  Shipments of the  Company's  ABIOFFSET  (TM)grades
increased by 11.6% in 2006 compared to 2005.  ABIOFFSET  (TM) grades consist of
ALTERNATIVE OFFSET(R), EQUAL OFFSET(R) and INNOVATIVE OFFSETTM.

According to an industry  publication,  prices for uncoated  freesheet  grades,
against which ABIOFFSET(TM)  grades are benchmarked,  rose by 15% on average in
2006 compared to 2005. In 2005, prices  fluctuated  throughout the year, ending
the year 4.8% lower than in December  2004.  In 2006,  prices had strong upward
momentum and ended up at US$830 per short ton, 19.4% above December of 2005.

UNCOATED GROUNDWOOD PAPERS MARKET

According to the PPPC, North American demand for uncoated groundwood papers was
almost flat,  decreasing by 0.3% in 2006 compared to 2005.  The demand  decline
for  supercalendered  grades was almost totally offset by growth in lightweight
and superbrite grades.

MARKET OUTLOOK

The Company expects the outlook for 2007 to be positive for uncoated groundwood
grades  with  demand to grow by 2% to 3%. The main  drivers of this  growth are
expected  to be a rebound in  supercalendered  demand as well as the  continued
uncoated    freesheet     substitution     strategy    with    the    Company's
ABIOFFSET(TM)grades.


                                                                              15
<PAGE>

CHANGE IN CAPACITY

On February 25, 2007,  Abitibi-Consolidated  idled for an indefinite period its
Fort William  paper mill located in Thunder Bay, due to market  conditions  and
high  production  costs.  The  mill  has  an  annual  production   capacity  of
approximately 145,000 tonnes of commercial printing papers.

In 2006, the commercial  printing papers production capacity changed due to the
conversion of one paper machine from  newsprint to  commercial  printing  paper
grades at the Belgo mill and the allocation of the capacity  between  newsprint
and commercial  printing papers.  Considering the above, the Company's capacity
for 2007 stands at 2,111,000 tonnes of commercial  printing  papers,  including
375,000 tonnes of idled capacity at the Fort William and Lufkin paper mills.

WOOD PRODUCTS

OPERATING RESULTS BEFORE SPECIFIC ITEMS

In the Wood Products segment, the $70 million reduction in operating results
from continuing operations before specific items is mainly due to lower selling
prices and a stronger Canadian dollar, partly offset by a reduction in CVD, AD
and other duty expenses.


                              [GRAPHICS OMITTED]


Table 8: Wood products operating results before specific items (1) (in millions
of dollars)

                                        FAV/(UNFAV) VARIANCE DUE TO:
                                      --------------------------------
                                               FOREIGN
                                2006  VOLUME  EXCHANGE   PRICES  COSTS     2005
                                ----  ------  --------   ------  -----     ----
Sales                         $  733   ($49)     ($20)    ($96)  $  --     $898
EBITDA (1)                        19     (6)      (15)     (96)     43       93
Amortization                      47     --        --       --       4       51
Operating profit (loss) from
  continuing operations          (28)    (6)      (15)     (96)     47       42

Note (1) Not in accordance with GAAP


Sales of wood  products  declined  to $733  million in 2006,  compared  to $898
million in 2005.  Operating loss from  continuing  operations  before  specific
items  was $28  million,  or 3.8% of sales in 2006,  compared  to an  operating
profit from continuing operations before specific items of $42 million, or 4.7%
of sales in 2005.

The reduction in sales is mainly attributable to lower selling price and volume
as well as a stronger average  Canadian dollar.  The average realized price for
wood products  decreased to $394 per thousand  board feet in 2006,  compared to
$457 per thousand  board feet in 2005. The Company's  shipments  totalled 1,858


                                                                              16
<PAGE>

million board feet in 2006,  compared to 1,965 million board feet in 2005.  The
reduction in sales volume is mainly  attributable to the reduction in allowable
cut in the province of Quebec and lower production due to deteriorating  market
conditions.

On a per thousand  board feet basis,  the Company's  cost of goods sold in 2006
was $9 higher than in 2005. This was mainly due to higher fuel prices and lower
production.

In the fourth quarter of 2006, the Company  announced the idling of five Quebec
sawmills,  including a sawmill owned by Produits  Forestiers  Saguenay  Inc., a
subsidiary  of   Abitibi-Consolidated.   The  temporary  closures  were  mainly
attributable to deteriorating  market conditions as well as high production and
fibre costs. At this time, three of the five sawmills are still idled.

CVD, AD and other duties before  specific  items  decreased from $67 million in
2005 to $2 million in 2006.  The  Company  expensed an amount of $2 million for
export tax in the fourth quarter of 2006,  while it paid $67 million of CVD and
AD deposits in 2005.

DISTRIBUTION OF WOOD PRODUCTS SALES:

2006
UNITED STATES 56%
CANADA 44%

2005
United States 63%
Canada 37%

LUMBER MARKET

Demand in the United States slowed down throughout the year with housing starts
decreasing  by  12.9%,  from an  average  of 2.1  million  units in 2005 to 1.8
million units in 2006.  This  reduction  occurred  mainly in the second half of
2006 with housing starts ending the year at 1.6 million units. Demand in Canada
continued to be very strong with housing starts  remaining  above an annualized
rate of 200,000  units for all of the year for the fifth  consecutive  year. In
Japan,  housing starts increased by approximately 10% in 2006, improving demand
for the Company's 2 X 4 "J grade" products sold through Canadian distributors.

In 2006, yearly average  published lumber prices (f.o.b.  Great Lakes) in North
America dropped  significantly  compared to 2005. Prices for 2 X 4 Stud dropped
by approximately 17% and 2 X 4 Random Length dropped by approximately 12%. This
is mainly due to the declining  demand and the  capacity/demand  ratio in North
America.

MARKET OUTLOOK

The Company  expects  U.S.  housing  starts to remain low for the first half of
2007 and then increase for the second half of the year. In Canada,  the Company
expects housing starts to slightly decrease from 2006.


                                                                              17
<PAGE>

SUMMARY OF QUARTERLY RESULTS

<TABLE>
<CAPTION>
Table 9: Summary of quarterly results

                                             IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS
                                     -----------------------------------------------------------------
                                                    2006                            2005
                                     -------------------------------  --------------------------------
                                        Q-4      Q-3     Q-2     Q-1     Q-4     Q-3     Q-2      Q-l
                                     ------   ------  ------  ------  ------  ------  ------  -------
<S>                                  <C>      <C>     <C>     <C>     <C>     <C>     <C>     <C>
Sales                                $1,180   $1,181  $1,253  $1,237  $1,310  $1,355  $1,354  $ 1,323
Operating profit (loss) from
  continuing operations                 236        2      48      41    (352)      8      57       11
Operating profit (loss) from
  continuing operations
  before specific items (1)              17       10      57      52      15      49      58       19
Earnings (loss) from
  continuing operations                 (22)     (48)    157     (33)   (345)     95     (49)     (54)
Earnings (loss) from continuing
  operations per share                (0.05)   (0.11)   0.36   (0.08)  (0.79)   0.22   (0.11)   (0.13)
Net earnings (loss)                     (22)     (48)    157     (33)   (355)     99     (43)     (51)
Net earnings (loss) per share         (0.05)   (0.11)   0.36   (0.08)  (0.81)   0.23   (0.10)   (0.12)
Net earnings (loss) before
  specific items (1)                    (61)     (54)    (29)    (36)    (51)    (40)    (26)     (59)
Net earnings (loss) before specific
  items (1) per share                 (0.14)   (0.12)  (0.07)  (0.08)  (0.12)  (0.09)  (0.06)   (0.13)
Exchange rates (CDN$1= US$):
  Average noon rate                   0.878    0.892   0.891   0.866   0.852   0.832   0.804    0.815

Note (1) Not in accordance with GAAP
</TABLE>


On a quarterly  basis,  sales were  negatively  impacted by lower sales  volume
related to the  newsprint  closures  in the  fourth  quarter of 2005 and in the
first quarter of 2006. The strength of the Canadian dollar compared to the U.S.
currency  also  contributed  to the  negative  trend,  going from an average of
US$0.815 in the first quarter of 2005 to US$0.852 in the fourth quarter of 2005
and  to  US$0.878  in  the  fourth  quarter  of  2006.  This  represents  an 8%
strengthening  of the  Canadian  dollar  from the first  quarter of 2005 to the
fourth  quarter of 2006.  These were partly  offset by price  increases  in the
Company's two paper segments.

The Company's  operating results before specific items are negatively  impacted
by winter months in the first and fourth  quarters of each year,  mainly due to
higher energy costs.  In the first quarter of 2006, the Company  benefited from
price increases mainly in the Newsprint segment.  In the third quarter of 2006,
the  reduction in operating  results was mainly due to lower prices in the Wood
Products  segment and higher costs mainly in the  Newsprint  and Wood  Products
segments.

Other than the elements  mentioned above, major factors impacting the Company's
net earnings (loss) were the major specific  items,  principally the CVD and AD
refunds in the fourth quarter of 2006, asset write downs and impairments in the
fourth  quarter  of  2005,  as  well  as the  gain on  translation  of  foreign
currencies,  mainly due to the strengthening  Canadian dollar and its effect on
the Company's U.S. dollar denominated debt. The reduction in financial expenses
related to the lower debt level in 2006 also impacted net earnings (loss).


                                                                              18
<PAGE>

The weighted  average  number of shares  outstanding  remained  constant at 440
million during these periods.

FINANCIAL POSITION AND LIQUIDITY

The major cash  requirements for the Company are to fund its operating  working
capital, capital expenditures, debt and interest payment obligations. Also, due
to the current  underfunded  situation of the employee  future  benefits plans,
additional funding is required. Over time, the funding of these requirements is
expected to be generated from  continuing  operating  activities and the use of
the  Company's  revolving  credit  facility  if  necessary.  Subject to certain
restrictions,  related  to  the  merger  of  Abitibi-Consolidated  and  Bowater
discussed  in the KEY EVENT  section,  the  Company  could  also  increase  its
liquidity  by  issuing  new  debt  or  equity  depending  on  financial  market
conditions and availability. In 2006, the main cash transaction other than cash
from continuing operating activities and capital  expenditures,  was the refund
of the CVD and AD deposits  received  following the lumber dispute  settlement.
For  2007,  the  Company  believes  its  liquidity  generated  from  continuing
operating  activities,  its cash on hand and the use, from time to time, of its
revolving  credit  facility,  will be sufficient to satisfy its requirements in
operating  working capital,  capital  expenditures as well as debt and interest
payment  obligations.  Excluding  any  amount  drawn  on its  revolving  credit
facility,  the Company has US$61 million and US$346 million of debt maturing in
2007 and 2008, respectively.

The Company's cash and cash equivalents related to continuing operations at the
end of 2006 amounted to $203 million, an increase of $136 million,  compared to
$67 million at the end of 2005. In 2006,  Abitibi-Consolidated  generated  $232
million of cash from  continuing  operating  activities and $22 million of cash
from financing activities of continuing operations,  while it used $123 million
of cash for investing activities of continuing operations.

CONTINUING OPERATING ACTIVITIES

Cash generated from continuing  operating  activities  totalled $232 million in
2006,  compared to $164 million in 2005.  The  improvement in cash generated by
operating  activities  was mainly due to an increase in operating  results from
continuing  activities  excluding the non-cash  items mainly related to the CVD
and AD  refunds,  partly  offset by an  increase  of $167  million in  non-cash
operating  working  capital in 2006,  compared to a reduction of $33 million in
2005. In 2006,  non-cash  operating  working capital was higher by $167 million
mainly due to a reduction in accounts  payable,  in large part  attributable to
the closure of some  newsprint  operations  and to higher  inventories,  mostly
wood,  partly  offset by a reduction in accounts  receivable.  The reduction in
non-cash  operating  working  capital in 2005 was mainly due to an  increase in
accounts payable, partly offset by an increase in accounts receivable.

FINANCING ACTIVITIES OF CONTINUING OPERATIONS

Cash generated by financing activities from continuing  operations totalled $22
million in 2006,  compared to cash used of $797 million in 2005. Cash generated


                                                                              19
<PAGE>

in 2006 was mainly  due to the  utilisation  of part of the credit  facilities.
Cash used in 2005 was mainly due to the  reduction  of  long-term  U.S.  dollar
debt.

Long-term debt, including the current portion, amounted to $3,864 million as at
December 31, 2006,  representing a ratio of net debt to total capitalization of
0.592, compared to $3,762 million and a ratio of 0.598 as at December 31, 2005.
The increase in long-term  debt is mainly  attributable  to additional  working
capital requirements.

On December 15, 2006,  the Company  repaid the  remaining  US$15 million of the
US$300 million of 6.95% notes due on December 15, 2006. At the end of 2006, the
current portion of the long-term debt was $72 million,  compared to $18 million
at the end of the previous  year.  The  remaining  US$61  million of the US$200
million of 7.625% notes comes to maturity on May 15, 2007.

In the third  quarter of 2006,  the  Company  increased  its  revolving  credit
facilities  from $700  million  to $750  million,  as a new  lender  joined the
banking  syndicate.  The  facilities  require the  Company to maintain  certain
financial  ratios,  namely an interest coverage ratio of not less than 1.5x for
the life of the agreement and a net funded debt to capitalization  ratio of not
more  than 70% until  December  31,  2007 and of not more than 65%  thereafter.
Exempt from the calculation of the net funded debt to capitalization  ratio are
up to $500 million of non-cash asset write downs on an after-tax  basis. At the
end of 2006,  $479 million of the $500 million  exemption was used.  Net funded
debt  to  capitalization  ratio,  calculated  as per  the  requirements  of the
Company's  revolving  credit  facilities,  amounted  to 58.3% at the end of the
year,  and the interest  coverage  ratio was 2.6x for the  twelve-month  period
ended  December 31, 2006.  At the end of December  2006,  the Company had drawn
$180 million on these credit facilities.

On January 29, 2007,  following the  announcement by  Abitibi-Consolidated  and
Bowater of a definitive  agreement to combine in an all-stock merger of equals,
DBRS placed the Company under review with positive implications,  Fitch put the
Company on rating watch with positive implication and Moody's Investors Service
(Moody's)  affirmed  Abitibi-Consolidated's  ratings and changed the outlook to
developing from stable. On January 30, 2007, Standard & Poor's Ratings Services
(Standard & Poor's) affirmed the rating and the outlook.

On November 15, 2006,  Standard & Poor's  revised its outlook on the Company to
negative from stable.  At the same time, the long-term  corporate credit rating
was affirmed at B+. On September 21, 2006, Moody's announced the implementation
of its new rating  methodology.  As a result,  the corporate  family rating was
maintained  at B1, and the rating for the senior  unsecured  notes was  changed
from B1 to B2. The liquidity rating was SGL-2 and the outlook was stable.  Both
DBRS (BB (low), trend negative) and Fitch (B+, stable outlook) maintained their
respective ratings in 2006.


                                                                              20
<PAGE>

Table 10: Credit ratings

-------------------------------------------------------------------------------
Rating Agencies      Corporate        Outlook       Security Rating
                     Family Rating
-------------------------------------------------------------------------------
DBRS                 BB (low)                 --    Unsecured Notes: BB (low)
Fitch                B+                       --    Unsecured Notes: B+
                                                    Secured Bank debt: BB-
Moody 's             Bl               Developing    Unsecured Notes: B2
Standard & Poor's    B+               Negative      Unsecured Notes: B+
-------------------------------------------------------------------------------


INVESTING ACTIVITIES OF CONTINUING OPERATIONS

The Company used $123 million of cash for  investing  activities  of continuing
operations  in 2006,  compared to cash  generated of $566 million last year. In
2006,  Abitibi-Consolidated used $165 million for capital expenditures compared
to $177  million in 2005.  In 2006,  the  Company  received  $28 million of net
proceeds from the sale of the Sheldon paper mill. This compares to $693 million
from the sale of the Company's  interest in PanAsia and $64 million mainly from
the sale of the timberlands in Ontario in 2005.

In August of 2006,  the  Company  completed  the  upgrade  project of one paper
machine at its  Snowflake,  Arizona paper mill. The main objective of the US$15
million  project was to reduce  production  cost.  The $16  million  project to
increase hydro power  generation at the Company's  Hydro-Saguenay  facility was
operational in June of 2006, on schedule and within budget. This new station is
adding 18 Megawatts (MW) of hydro-generation  capacity.  The Company also spent
approximately  US$6 million for the  expansion  of its US recycling  collection
centers in 2006.

The  Company  intends  to limit  its  capital  expenditure  program  in 2007 to
approximately  $165  million,  and to continue to apply free cash flows towards
the reduction of the long-term debt.

2005 COMPARED TO 2004

SPECIFIC ITEMS

During 2005,  the Company  recorded an after-tax gain on translation of foreign
currencies of $90 million,  as well as favourable income tax adjustments of $27
million  attributable to positive income tax adjustments  mainly related to the
finalization  of prior-year  audits.  This was partly offset by negative income
tax  adjustments due to increases in the Quebec  provincial tax rates.  The $10
million  after-tax  loss recorded by the Company on the sale of its interest in
PanAsia is attributable to a fiscal gain higher than the accounting gain. Asset
write downs and impairment  charges of $244 million after-tax are mainly due to
the permanent  closure of the Kenora and  Stephenville  paper mills, as well as
impairment of the long-lived assets of the Lufkin and Fort William paper mills.
Mill closure and other elements  comprise  provisions for mill closure costs of
$62 million  after-tax,  mainly related to the permanent  closure of the Kenora
and  Stephenville  paper  mills  and  the  Champneuf  sawmill,  as  well as the
announced  closure of one paper  machine in  Bridgewater,  partly  offset by an


                                                                              21
<PAGE>

after-tax  gain of $48 million on the sale of  timberlands.  Also,  the Company
recognized an unfavourable  after-tax  amount of $6 million in mill closure and
other  elements  due to the  recognition  of a  liability  related  to an early
retirement program and labour force reductions,  as well as an after-tax amount
of $17 million in its  financial  expenses,  mainly due to the premium  paid on
early debt repayment.

During 2004,  the Company  recorded an after-tax gain on translation of foreign
currencies of $260 million, an after-tax credit of $22 million representing the
prior-period  adjustments  related to the lumber CVD and AD  estimated  revised
rates  determined  in the fourth  quarter  of 2004,  an  after-tax  gain of $73
million from the sale of its remaining interest in the  Saint-Felicien,  Quebec
pulp mill,  an after-tax  gain of $19 million from the sale of its 21% interest
in Voyageur Panel, as well as favourable  income tax adjustments of $2 million.
The Company  recorded a provision  for mill  closure and other  elements of $20
million  after-tax and asset write downs of $235 million after-tax with respect
to the  permanent  closure  of two  previously  idled  paper  mills  located in
Port-Alfred, Quebec and Sheldon. Also, the Company recorded in mill closure and
other elements $4 million after-tax related to the start-up of the Alma, Quebec
paper machine.

RESULTS BEFORE SPECIFIC ITEMS

Table 11: 2005/2004  Consolidated results before specific item (1) (in millions
of dollars, except per share amounts)

                                        FAV/(UNFAV) VARIANCE DUE TO:
                                      --------------------------------
                                               FOREIGN
                                 2005  VOLUME  EXCHANGE  PRICES  COSTS     2004
                               ------  ------  --------  ------  -----     ----
Sales                          $5,342    ($58)    ($343)  $ 444  $  --  $ 5,299
Cost of products sold           3,866      32        55      --   (183)   3,770
Distribution costs                591       3        17      --    (19)     592
CVD, AD and other duties           67       8         5      --      2       82
SG&A                              169      --         1      --     (1)     169
                               ------    ----     -----   -----  ----   -------
EBITDA (1)                       $649    ($15)    ($265)  $ 444  ($201) $   686
Amortization                      508      --        13      --     50      571
                               ======    ====     =====   =====  ====   =======
Operating profit (loss) from
  continuing operations          $141    ($15)    ($252)   $444  ($151) $   115
Financial expenses                388                                       375
Other expenses                     10                                         9
Income tax expense (recovery)     (95)                                     (103)
Share of earnings from
  investments subject to
  significant influence             2                                         6
Non-controlling interests         (29)                                      (10)
Earnings (loss) from
  discontinued operations          13                                        17
                               ======                                   =======
Net earnings (loss)             ($176)                                    ($153)
  $ per share                   (0.40)                                    (0.35)

Note (1) Not in accordance with GAAP


Sales totalled $5,342 million in 2005,  compared to $5,299 million in 2004. The
Company's  increase in sales was mainly  attributable  to higher prices in both
the Newsprint and Commercial  Printing Papers business segments.  These factors
were partly offset by a stronger  Canadian dollar compared to the U.S. currency
and lower sales volume in the Wood Products segment.


                                                                              22
<PAGE>

Loss  before  specific  items  amounted to $176  million in 2005,  or $0.40 per
share,  compared to $153 million in 2004,  or $0.35 per share.  The increase of
$23 million in loss before  specific items resulted mainly from a higher amount
of non-controlling  interests of $19 million,  higher financial expenses of $13
million and lower income tax recovery of $8 million.  This was partly offset by
an  improvement  in operating  results  from  continuing  operations  excluding
specific items of $26 million.

Improvement in operating  results from  continuing  operations  before specific
items  resulted  mainly  from higher  prices in the  Company's  paper  segments
totalling $444 million and a lower amortization  expense of $50 million.  These
elements were largely offset by the effect of a stronger Canadian dollar for an
amount of $252 million, higher cost of products sold of $183 million and higher
distribution costs of $19 million.

The  Company's  cash and cash  equivalents  at the end of 2005  amounted to $67
million,  a  reduction  of $48 million  compared to $115  million at the end of
2004.  In  2005,  Abitibi-Consolidated  generated  $164  million  of cash  from
continuing  operating  activities  and  $566  million  of cash  from  investing
activities  of  continuing  operations,  while it used $797 million of cash for
financing activities of continuing  operations.  In 2004,  Abitibi-Consolidated
used $3 million of cash for continuing  operating activities and $86 million of
cash for investing activities of continuing operations, while it generated $161
million of cash from financing  activities of continuing  operations.  In 2005,
major  cash  transactions  other  than cash from  operations,  debt  reduction,
payment of  dividends  and  capital  expenditures  were  related to the sale of
PanAsia  and the  Ontario  timberlands  as well as the  excess  of the  pension
funding over expense.  In 2004,  major cash  transactions  other than cash from
operations,  debt increase,  payment of dividends and capital expenditures were
related to the sale of the remaining 25% of the  Saint-Felicien  pulp mill, the
sale of the  Company's  share in  Voyageur  Panel and the excess of the pension
funding over expense.



                                                                             23
<PAGE>

SELECTED ANNUAL INFORMATION

Table 12: Selected Annual Information

                                  IN MILLIONS OF DOLLARS, EXCEPT OTHERWISE NOTED
                                  ----------------------------------------------
                                          2006          2005         2004
                                  ----------------------------------------------
Sales                                   $4,851        $5,342       $5,299
Operating profit (loss)
  from continuing operations               327          (276)        (256)
Operating profit (loss) from
  continuing operations before
  specific items (1)                       136           141          115
Earnings (loss) from continuing
  operations                                54          (353)        (126)
Earnings (loss) from continuing
  operations per share                    0.12         (0.81)       (0.29)
Net earnings (loss)                         54          (350)         (36)
Net earnings (loss) per share             0.12         (0.80)       (0.08)
Net earnings (loss) before
  specific items (1)                      (180)         (176)        (153)
Net earnings (loss) before
  specific items (1) per share           (0.41)        (0.40)       (0.35)
Total assets                             7,962         8,044        9,787
Total long-term liabilities              4,583         4,614        5,124
Dividends declared per share             0.050         0.100        0.100
Exchange rates (CDN$1=US$):
  Closing exchange rate at year-end      0.858         0.860        0.832
  Average noon rate for the year         0.882         0.826        0.769

Note (1) Not in accordance with GAAP


Higher  sales in 2005 when  compared to 2004 were mainly due to higher  average
prices in the Company's paper segments for $444 million,  largely offset by the
strength of the Canadian dollar for $343 million.  Lower sales in 2006 compared
to 2005 were mainly  attributable  to $432 million of lower sales volume mostly
in the  Newsprint  segment  and the  strength of the  Canadian  dollar for $295
million.  This was partly  offset by a $236  million  positive  impact of price
increases,  mainly in the Company's paper  segments.  The Canadian dollar value
compared to the U.S. currency  increased from an average of US$0.769 in 2004 to
US$0.882 in 2006, which represents a 14.7% strengthening.

Operating  results from  continuing  operations  before specific items improved
from 2004 to 2005 and were slightly down in 2006.  The  improvement in 2005 was
mainly due to price  increases  largely  offset by the strength of the Canadian
dollar  compared to the U.S.  currency  and higher  input prices for energy and
fibre,  as well as  pension  and  other  employee  future  benefits.  In  2006,
operating results were negatively impacted by lower prices in the Wood Products
segment and by higher cost of products sold.


                                                                              24
<PAGE>

Other than the elements  mentioned above, major factors impacting the Company's
net earnings (loss) were the major specific  items,  principally the CVD and AD
refunds at the end of 2006,  asset  write downs and  impairments  at the end of
2005 as well as the gain on  translation of foreign  currencies,  mainly due to
the  strengthening  Canadian dollar and its effect on the Company's U.S. dollar
denominated debt in 2005 and 2004. The reduction in financial  expenses related
to the lower debt level in 2006 also impacted net earnings (loss).

The downward  trend in total assets and total  long-term  liabilities is mainly
caused by the sale of the Company's  interest in PanAsia and the  strengthening
of the Canadian  dollar  compared to the U.S.  currency,  rising from a rate of
US$0.832 at the end of 2004 to US$0.86 at the end of 2005 and remaining  stable
at the end of 2006.  Total  assets  were also  impacted by asset write downs of
$371 million in 2005 and $364 million in 2004.

On July 25, 2006, the Company's Board of Directors suspended dividend payments.
The weighted  average  number of shares  outstanding  remained  constant at 440
million during these periods.


OTHER NOTEWORTHY EVENTS

On January 26, 2007,  Abitibi-Consolidated announced that it had entered into a
binding  letter  of intent  with the  Caisse  de depot et  placement  du Quebec
(Caisse)  to  create a  partnership  for the  Company's  Ontario  hydroelectric
assets,  consisting of approximately 137 MW of installed capacity.  The Company
will retain a 75% interest in the partnership,  called ACH Limited Partnership,
while the Caisse will acquire a 25%  interest.  The Caisse has also  provided a
commitment to ACH Limited Partnership for a 10-year unsecured term loan of $250
million,  non recourse to the Company, to partially fund the acquisition of the
facilities.  The  transaction,  on a consolidated  basis,  is expected to yield
gross  proceeds  of  $297.5  million  to   Abitibi-Consolidated.   ACH  Limited
Partnership is intended to be  Abitibi-Consolidated's  growth vehicle in energy
generation.  Closing of the  transaction is expected to take place in the first
half of 2007 and is subject to execution of definitive  agreements  and certain
other conditions and approvals.

On July 25, 2006,  the Company  announced  its intent to exercise its option to
acquire the remaining  47.5%  interest in Augusta  Newsprint  Company  (ANC), a
company  operating  a  newsprint  mill  located  in  Augusta,  Georgia  and  to
concurrently  sell the 55,000 acres of ANC's  timberlands.  In January of 2007,
the   Company   and  its  partner   decided  to  delay  the   acquisition,   by
Abitibi-Consolidated,  of the remaining  47.5%  interest to a later date and to
proceed with the sale of 55,000 acres of  timberlands,  with all proceeds  from
the sale going to the Company.  Final terms of the agreement are expected to be
concluded in the first quarter of 2007.



                                                                              25
<PAGE>

RISKS AND UNCERTAINTIES

GLOBAL MARKETS AND COMPETITION

The Company competes on a global basis with numerous forest products companies,
some of which have greater financial resources than the Company does. There has
been a continued trend towards consolidation,  leading to new global producers.
These global producers are typically large, well-capitalized companies that may
have greater  flexibility  in pricing and financial  resources  for  marketing,
investment  and  expansion  than  Abitibi-Consolidated.  The  Company's  lumber
business also competes  indirectly with firms that manufacture  substitutes for
wood building  materials.  While the principal  basis for competition is price,
the Company also competes on the basis of customer service, quality and product
type.  There has also  been an  increasing  trend  toward  consolidation  among
Abitibi-Consolidated's  customers.  With fewer  customers in the market for the
Company's  products,  the  strength  of its  negotiating  position  with  these
customers could be weakened.

Newsprint  sales in North America  represented 37% of the Company's total sales
in 2006. The Company  assesses demand for newsprint in North America to be at a
mature stage.  Between 2000 and 2001, North American  newsprint demand declined
by 1,417,000 tonnes or 11%. Since then, demand has declined by 1,868,000 tonnes
over five years, or an average of 3.2% annually.  Concurrently,  North American
newsprint  production capacity has declined by 3,659,000 tonnes, or 22.5% since
2000. As a result of this reduction in demand,  the Company  proceeded with the
permanent  closure of the Sheldon and  Port-Alfred  newsprint mills in 2004 and
the  Kenora  and   Stephenville   newsprint   mills  in  2005  to  improve  its
competitiveness.

Paper  prices  are tied to the  health  of the  economies  of North  and  South
America,  Asia  and  Europe,  as well as to  paper  inventory  levels  in these
regions.  In 2006,  continued  trend towards  lower basis weight  substitution,
conservation   measures  and  limited  North  American  growth  in  advertising
spending,  reduced newsprint consumption in North America. Although lower basis
weight  substitution  reduced  consumption  volume, it also reduced  production
capacity, eliminating the impact on supply/demand.

The Company expects 2007 worldwide  newsprint demand to increase  slightly with
growth in most regions of the world,  mostly offset by North  American  demand,
which is anticipated to decrease by approximately 5-6%, compared to 2006. Gains
in  circulation  and ad spending  are expected in several  regions,  especially
Latin America and Asia.

FIBRE SUPPLY

Fibre  represents  the Company's  major raw material in the  production of wood
products,  paper and pulp.  The Company  uses both virgin fibre (wood chips and
logs) and recycled  fibre (old  newspapers  and magazines) as fibre sources for
its paper mills.

The virgin fibre supply  required by the Company in Canada is mostly assured by
cutting right  agreements  with  provincial  governments.  The  agreements  are
granted for various  terms,  from 5 to 25 years,  and are generally  subject to
regular renewal every 5 years.  They  incorporate  commitments  with respect to
sustainable forest management,  silvicultural work, forest and soil renewal, as
well as cooperation with other forest users. The Company believes that it is in
material compliance with all forest regulations.


                                                                             26
<PAGE>

Wood chips supplied from the Company's sawmills,  together with fibre exchanges
with independent  sawmills and long-term contracts with third parties conducted
at market prices,  represent  approximately 93% of the Company's  Canadian pulp
and paper  mill  requirements  for  virgin  fibre.  For its  operations  in the
provinces of British Columbia, Ontario and Newfoundland,  the Company relies on
internal sources,  in the most part, and the open market to supply in fibre its
wood  products,  paper and pulp  production  requirements,  and such sources of
supply are more than adequate to meet its requirements.

On April 1, 2005,  the Annual  Allowable  Cut (AAC) on Crown land in Quebec was
reduced  by 20% in all  regions,  for a period of three  years as a result of a
recommendation  of the Coulombe  Commission.  The impact of this measure on the
Company's sawmills, and those of its partnerships, was a net reduction of 17.4%
of the  timber  supply  originating  from  Quebec  Crown  land  for the  period
comprised between April 1, 2005 and March 31, 2008.

On December 8, 2006, new AAC calculations  were announced by the Chief Forester
of Quebec.  The reduction for the province in AAC for spruce,  pine and fir was
revised to 23.8% from the initial  20%, but  regional  reductions  vary greatly
from  one  region  to the  other.  This  reduction  is the  result  of  several
governmental initiatives, including the creation of new protected areas and the
introduction  of a series of  measures  to  enhance  biodiversity.  The new AAC
levels will be effective on April 1, 2008.

The  Company  estimates  that  these  new AAC  calculations  will  result  in a
reduction  of 19.7%  of its  allowable  cuts,  and  those of its  partnerships,
compared  to the 17.4%  reduction  imposed  for the  period of April 1, 2005 to
March 31, 2008.  Mitigating  measures  proposed by the Chief Forester of Quebec
could  partially  offset these  reductions.  As a result of these  measures,  a
tightening of the supply of virgin fibre to the Company's Quebec paper mills is
expected.

Virgin fibre in the United States is obtained mainly through  long-term  supply
contracts.

The Company is amongst the largest North  American  recyclers of old newspapers
and  magazines.  The Company is  involved in the  recovery of old paper and has
contracts with numerous municipalities,  cities,  recyclers,  waste haulers and
brokers in countries  where its mills are located.  The  Company's own recovery
network in North  America and the U.K.  accounts for 40% of its recycled  fibre
needs.

The Company  believes  that the balance of fibre  supply  between its  internal
sources and the open market is adequate to support its current  wood  products,
paper and pulp production requirements.

ENERGY

In its manufacturing  processes, the Company consumes a large volume of energy.
Expressed in Gigajoules (Gj), the Company  self-generates  approximately 35% of
the steam and power  required in its paper mills.  Another 35% of its energy is


                                                                              27
<PAGE>

comprised of electricity bought in regulated  jurisdictions.  For the remaining
30%, the Company is exposed to  fluctuations  in energy  commodity  prices.  In
2006, the evolution of North American energy  commodities  was mixed,  with oil
product prices increasing and natural gas price decreasing.

Crude oil price  increased by 17% compared to 2005,  and it had a direct impact
on the price of residual oil consumed by the Company, which increased by 26% in
2006. For the same period,  natural gas price decreased by 17%, mainly impacted
by favourable weather conditions.

In Ontario,  the average  hourly  electricity  price was $46 per  megawatt-hour
(MWh) in 2006  compared  to $68 in 2005.  However,  the Company did not benefit
from the full price  reduction,  due to the introduction of several measures by
the provincial  Government,  fixing electricity prices for approximately 70% of
the Ontario generation.

While  prices  for  electricity  have  been more  stable in the main  regulated
jurisdictions where the Company has operations,  they also increased by between
5% and 18% in 2006.

In order to reduce the impact of these  increases,  the  Company  continues  to
invest  in  its  energy  assets.  In  2006,  the  Company  completed  the  Besy
hydroelectric station. This project, combined with the return in service of the
Murdock-Wilson  unit,  increased  the Quebec  hydroelectricity  generation.  In
Kenogami, Quebec, the Company is currently building a heat-recovery system that
will reduce  energy  costs by  displacing  approximately  18 million  litres of
bunker oil per year.

In 2006, the Company  completed its detailed  energy  benchmarking  study.  The
results  of the  study  will be used to  implement  an energy  usage  reduction
program in 2007.

The Company's ability to continue to internally generate hydroelectric power in
some cases is conditional  upon its ability to maintain and renew its rights to
utilize and manage  provincial  waterways.  These rights are subject to certain
conditions and their renewal is subject to government discretion.

ENVIRONMENT

The Company is subject to environmental laws and regulations relating to forest
management,  air  emissions,   wastewater  discharge,  waste  management,  site
operations  and landfill  sites.  The Company  believes  that it is in material
compliance with all laws and regulations governing its activities.

The Company conducts  environmental  compliance audits,  generally performed by
internal auditors,  which cover all the Company's paper and wood products sites
over a defined  schedule of time. The Company has implemented an  Environmental
Management System in all of its operations.

The  Company  has  implemented  a  certification  process of its  Environmental
Management Systems,  under the International  Standards Organization (ISO), for
its pulp and paper mills, sawmills and woodlands operations.  All the Company's
operations are certified ISO 14001.


                                                                              28
<PAGE>

The Company also met its  commitment to obtain  sustainable  forest  management
(SFM) certification for its North American operations.  All of the 15.8 million
hectares of forest entrusted to the Company are certified under a SFM standard.
Abitibi-Consolidated uses the CSA SFM standard for most of these forests.

After implementing the Chain of Custody in two paper mills in 2005, the Company
continued  its  effort  on  fibre  source   traceability   and  in  2006  began
implementation in three additional paper mills.

The Company's  greenhouse gas (GHG) emission reduction strategy is based on the
reduction  of its  reliance  on fossil  fuel,  energy  efficiency  improvements
through technological innovation as well as continuous improvement. The Company
also  takes  advantage  of  opportunities  related to the GHG offset and carbon
credit market.  Since 2000,  Abitibi-Consolidated  has reduced its company-wide
GHG emissions by 42% in absolute terms and 22% in terms of intensity.  In 2006,
the Company  sold,  for a nominal  amount,  27,000  tonnes of its excess carbon
credits to the Chicago Climate Exchange.

The Environmental,  Health and Safety Committee,  which reports to the Board of
Directors,  oversees global performance and orientation related to environment,
health and safety. It evaluates risks associated with the Company's  activities
and actions to address those risks. This Committee also reviews the adequacy of
programs and assesses the performance of the Company on such programs.

FOREIGN EXCHANGE

The Company realizes most of its sales outside Canada and, therefore,  exposure
to the U.S. dollar is a risk to its business. Approximately 78% of revenues and
14% of manufacturing costs of the Company's operations are in U.S. dollars. The
U.S.  dollar  exposure may therefore  cause  volatility  in the Company's  cash
flows, earnings and debt.

The Company's  foreign exchange program includes partial hedging of U.S. dollar
and other  currency cash flows.  The Company also borrows most of its long-term
debt in U.S.  dollars and this debt  constitutes an effective  partial economic
hedge on future U.S. dollar cash flows.

PENSION FUNDS

Abitibi-Consolidated  maintains both defined  benefit and defined  contribution
pension plans.  As discussed  further in the CRITICAL  ACCOUNTING  POLICIES AND
ESTIMATES section, in 2007, Abitibi-Consolidated expects to make a contribution
in excess of its annual  pension  expense,  in a similar range when compared to


                                                                              29
<PAGE>

the  corresponding $73 million in 2006, to satisfy a portion of the underfunded
liability of its defined  benefit pension plans, as required by law. Over time,
the  Company  will  continue  to make  contributions  until the  legal  funding
obligations of its pension plans are satisfied.

CHANGES IN BANKING AND CAPITAL MARKETS AND CHANGES IN INTEREST RATES

Abitibi-Consolidated  requires both short-term and long-term  financing to fund
its operations,  including capital  expenditures.  Changes in banking,  capital
markets  and/or its credit  rating  could  affect the cost or  availability  of
financing.  In  addition,  the Company is exposed to changes in interest  rates
with respect to floating rate debt, and in determining the interest rate of any
new debt issues.

PRICE, COSTS AND EXCHANGE RATE SENSITIVITY

The  Company's  pre-tax  earnings,  net  earnings  and  earnings  per share are
impacted by fluctuations in selling prices, input costs and foreign exchange to
the extent shown in the following table:




                                                                              30
<PAGE>

Table 13: Sensitivity analysis

Based on 2007 estimated volumes, prices, exchange rates and financial hedges in
place as at December 31, 2006.

                                                    In millions of dollars,
                                                    except per share amounts

                                                          IMPACT ON
                                                --------------------------------
                                                                             NET
                                                 PRE-TAX        NET     EARNINGS
                                                EARNINGS   EARNINGS    PER SHARE
                                                --------   --------    ---------
US$25 CHANGE IN TRANSACTION PRICE - PER UNIT
Newsprint(1)                                        $100       $ 68       $0.153
Commercial printing papers (l)                        52         35        0.080
Wood products (2)                                     54         36        0.083


FOREIGN EXCHANGE (3)
US$0.01 change in relative value to the Canadian dollar
Cash impact                                           28         19        0.043
Non-cash impact                                       43         34        0.078


MANUFACTURING COSTS
 Virgin fibre (2% on external source)                  3          2        0.005
 Recycled fibre (2% on external source)                3          2        0.005
 Energy
   Natural Gas (US$l/Gj)                              11          8        0.018
   Bunker "C" (US$1/Barrel)                            1          1        0.002
   Electricity ($l/MWh)
     Regulated markets                                 9          6        0.014
     Deregulated markets                               2          1        0.002


(1) Per tonne
(2) Per thousand board feet
(3) Cash impact partly offsets non-cash impact mainly attributable to
    translation of foreign currencies


OUTLOOK

The Company is a major  global  leader in  newsprint  and  commercial  printing
papers with interests in operations in Canada, the United States and the United
Kingdom. It is also one of the major lumber producers in North America.

Taking into  consideration  machine closures and conversions  completed in 2006
and those  anticipated  for 2007 as well as product mix  planned for 2007,  the
Company's production capacity for 2007 is as follows:


                                                                             31
<PAGE>

Table 14: Production capacity

   Newsprint                                       3,709   Thousand tonnes
   Commercial printing papers (1)                  2,111   Thousand tonnes
   Market pulp                                        93   Thousand tonnes
   Lumber and other wood products(1)               1,975   Million board feet
   I-joist                                            73   Million linear feet

(1) Includes currently idled capacity


The Company  expects 2007 worldwide  newsprint  demand to be slightly  positive
with  growth in most  regions of the  world,  mostly  offset by North  American
demand,  which is anticipated to decrease by  approximately  5-6%,  compared to
2006.  Gains in  circulation  and ad spending are expected in several  regions,
especially Latin America and Asia.

The outlook for uncoated  groundwood papers demand remains positive.  Continued
uncoated freesheet substitution and growth in print advertising are expected to
increase uncoated groundwood papers demand in 2007.

The  Company  intends  to limit  its  capital  expenditure  program  in 2007 to
approximately  $165 million.  The Company also intends to apply free cash flows
towards the reduction of long-term debt.

FORWARD-LOOKING STATEMENTS

Certain  statements  contained in this MD&A and in  particular  the  statements
contained in various outlook sections,  constitute forward-looking  statements.
These  forward-looking  statements  relate to the future  financial  condition,
results of  operations  or business of the  Company.  These  statements  may be
current    expectations    and   estimates   about   the   markets   in   which
Abitibi-Consolidated   operates  and   management's   beliefs  and  assumptions
regarding  these markets.  These  statements are subject to important risks and
uncertainties which are difficult to predict and assumptions which may prove to
be  inaccurate.   The  results  or  events  predicted  in  the  forward-looking
statements  contained in this MD&A may differ materially from actual results or
events.  Some of the  factors,  which could  cause  results or events to differ
materially  from current  expectations,  are discussed above under the RISK AND
UNCERTAINTIES  section and other cautionary  factors are outlined  elsewhere in
this MD&A.  The Company  disclaims  any  intention or  obligation  to update or
revise any forward-looking statements,  whether as a result of new information,
future events, or otherwise. In particular,  forward-looking  statements do not
reflect the potential  impact of any mergers,  acquisitions  or other  business
combinations  or  divestitures  that may be announced  or completed  after such
statements are made.


                                                                              32
<PAGE>

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

In the normal course of business,  the Company is exposed to certain  financial
risks. The Company does not hold financial instruments for speculative purposes
but only to reduce the  volatility  of its results  from its  exposure to these
risks.  The market value of  financial  instruments  contracted  by the Company
arises mostly from changes in interest and exchange rates between the inception
dates of these  contracts  and the balance  sheet  date.  More  information  on
financial  instruments  is presented in Note 26 of the  consolidated  financial
statements.

FOREIGN EXCHANGE

The Company uses various  financial  instruments  such as U.S.  dollar  forward
contracts  as well as U.S.  dollar and Euro zero cost option  tunnels to reduce
its exposure to foreign  currency  exchange risk. In 2006, the Company's  sales
denominated  in U.S.  dollar and Euro  represented  78% and 2% of total  sales,
respectively.  The foreign exchange financial contracts only hedge a portion of
the sales. This portion declines as the hedge horizon  increases.  These hedges
are all due to mature  within  the next two  years.  The  gains  and  losses on
foreign  exchange  contracts are recognized in earnings when the related hedged
revenue is recorded.

Furthermore,  the long-term debt denominated in U.S. dollars is also considered
an effective  economic  hedge  against the exchange  risk related to the future
revenue streams originating from sales denominated in U.S. dollars.

INTEREST RATE

At year-end,  66% of the Company's recourse debt was at fixed rates taking into
account interest rate swap agreements  designated as hedges.  The interest rate
contracts are only for a portion of the Company's  bond portfolio and mature in
the years 2008 through 2011.

Interest  expense on the debt is adjusted to include  payments made or received
under these  agreements.  The net related  amount  receivable  or payable  from
counterparts is included in the accounts receivable or accounts payable.

CREDIT RISK

The  Company is  exposed to credit  risk on the  accounts  receivable  from its
customers.  In order to  manage  its  credit  risk,  the  Company  has  adopted
policies, which include the analysis of the financial position of its customers
and the regular review of their credit limits.  The Company also  subscribes to
credit  insurance  and, in some cases,  requires  bank letters of credit.  As a
result,  the  Company  does not have  significant  exposure  to any  individual
customer.  Its  customers are mainly in the  newspaper  publishing,  commercial
printing,  advertising and paper converting,  as well as lumber wholesaling and
retailing businesses.


                                                                              33
<PAGE>

The  Company  is  exposed to credit  risk on the  favourable  fair value of its
derivative financial  instruments.  In order to mitigate this risk, the Company
contracts its derivative  financial  instruments with  credit-worthy  financial
institutions  and sets a limit on a percentage  basis that it can contract with
any given financial institution.

CONTRACTUAL OBLIGATIONS

The Company has operating  leases,  purchase  obligations and other commitments
entered into in the normal course of business. These commitments, which are not
accounted for on the Company's  consolidated  balance sheets,  are described in
Note 27 of the consolidated financial statements.

<TABLE>
<CAPTION>
Table 15: Summary of contractual obligations
In millions of dollars

                                      ------------------------------------------------
                                                  TOTAL COMMITMENTS BY PERIOD
                                      ------------------------------------------------
                                             TOTAL   WITHIN    1-3      4-5     AFTER
                                       COMMITMENTS   1 YEAR  YEARS    YEARS   5 YEARS
                                      ------------------------------------------------
<S>                                         <C>         <C>   <C>    <C>       <C>
Long-term debt                              $3,864      $72   $756   $  936    $2,100
Operating leases                                70       27     27       11         5
Purchase obligations                           281       51     62       62       106
Employee future benefits contributions         220      220     --       --        --
TOTAL CONTRACTUAL OBLIGATIONS                4,435      370    845    1,009     2,211
                                      ------------------------------------------------
</TABLE>


Table 15 presents  contractual  agreements that are enforceable and are legally
binding on the Company.  For the foreseeable  future,  the Company expects cash
flows  generated  from  operations  and from other  sources of  financing to be
sufficient to meet its commitments.

Abitibi-Consolidated   has  long-term  debt  with  contractual   maturities  as
described in Note 20 of the consolidated financial statements.

Purchase  obligations  are  mainly  related to  contracts  signed in the normal
course of the Company's operations.

The Company's  contributions  to employee future benefits are estimated at $220
million in 2007.  Beyond 2007,  contributions  to employee  future benefits are
unknown and could vary significantly  depending on return on plan assets or any
other assumptions as detailed in the EMPLOYEE FUTURE BENEFITS PLANS section.

OFF-BALANCE SHEET ARRANGEMENTS

As described in Note 26 of the consolidated financial statements,  in 2006, the
Company had two  securitization  programs  with major  international  financial
institutions.  The  first  program  is  committed  until  October  of 2008  for
aggregate  proceeds  of up to  US$300  million  from  North  American  accounts


                                                                             34
<PAGE>

receivable.  The second program is uncommitted for aggregate  proceeds of up to
US$125  million from  international  accounts  receivable.  The programs do not
require the Company to maintain a specific  credit  rating or  company-specific
financial covenants.  Under these programs, the outstanding balance in Canadian
dollars,  as at December 31, 2006,  was $433 million,  compared to $459 million
the previous year.

CHANGES IN ACCOUNTING POLICIES

ADOPTED DURING THE 2006 FISCAL YEAR
No new accounting policies were adopted in 2006.

EXPECTED TO BE ADOPTED IN SUBSEQUENT YEARS
FINANCIAL INSTRUMENTS, HEDGES AND COMPREHENSIVE INCOME

In January 2005,  the CICA  published  the following  three new sections of the
CICA  Handbook:   Section  3855,   FINANCIAL   INSTRUMENTS  -  RECOGNITION  AND
MEASUREMENT,  Section 3865,  HEDGES,  and Section 1530,  COMPREHENSIVE  INCOME.
Together,  these standards  introduce new  requirements for the recognition and
measurement of financial instruments, hedge accounting and comprehensive income
that are,  for the most  part,  harmonized  with  standards  issued by the U.S.
Financial Accounting Standards Board. These new recommendations must be adopted
by the Company for the fiscal year beginning on January 1, 2007.

The Company expects that the implementation of these new  recommendations  will
have an impact consistent with the adjustments described under Note 29 d) 1 and
2 and e) of its consolidated financial statements. The application of these new
recommendations  is not expected to have a significant  effect on the Company's
financial  position,  earnings  or cash flows but will  require  the Company to
present a new statement entitled "Comprehensive Income".

ACCOUNTING CHANGES

In 2006, the CICA issued  Section 1506,  ACCOUNTING  CHANGES,  of the Handbook.
This standard establishes  criteria for changing accounting policies,  together
with the accounting  treatment and disclosure of changes in accounting policies
and estimates,  and correction of errors.  The Company will apply this standard
as of January 1, 2007.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

On  January  29,  2007,  Abitibi-Consolidated  Inc.  and  Bowater  Incorporated
announced a definitive  agreement to combine in an all-stock  merger of equals.
The  combination  has been approved  unanimously  by the Boards of Directors of
both  companies,   which  received  fairness  opinions  from  their  respective
financial advisors.  The combination is subject to approval by the shareholders
of both companies,  regulatory approvals, and customary closing conditions.  It


                                                                              35
<PAGE>

is expected to be completed in the third  quarter of 2007.  Upon  completion of
the merger,  all the assets and liabilities of the Company could be recorded at
the fair value in a purchase  price  allocation in accordance  with GAAP if the
Company is identified as the business being acquired.  Therefore, the Company's
assets,  such as goodwill  and future  income  taxes,  could have a decrease in
value upon  completion  of the merger in accordance  with business  combination
accounting.

The Company's summary of significant accounting policies is described in Note 1
of the consolidated  financial  statements.  Abitibi-Consolidated  believes its
most critical accounting policies include those related to goodwill,  property,
plant and equipment, future income taxes, the Company's employee future benefit
plans and foreign exchange.

GOODWILL

The application of CICA Handbook  Section 3062,  GOODWILL AND OTHER  INTANGIBLE
ASSETS, requires that goodwill be tested for impairment.

During the fourth  quarter of each year,  the  Company  performs  the  required
annual impairment test as of September 30. As at December 31, 2006, the Company
had $1,297  million of  goodwill,  from which $858  million were related to the
Newsprint  segment and $439 million to the Commercial  Printing Papers segment.
The Company performed the 2006 goodwill impairment test and found that the fair
value of both paper  segments  exceeded book value by at least 20%. The Company
also performed sensitivity analyses under various scenarios and assumptions.

Testing for impairment is accomplished  mainly by determining  whether the fair
value of a  reporting  unit  exceeds  the book  value of the net assets of that
reporting  unit as at the  assessment  date. The Company tests its goodwill for
impairment using a two-step method. This two-step method contains estimates and
judgments that are subjective and uncertain and, thus, may change over time.

The  Company  conducted  the  initial  step of the  goodwill  impairment  test,
consisting of making the determination of fair value, which the Company does by
relying  primarily  on the  discounted  cash  flow  method.  This  method  uses
projections  of cash flows from each of the reporting  units.  Key  assumptions
include  estimated useful life of the long-lived  assets,  projections of trend
price,  production levels,  production costs, market supply and demand, foreign
exchange rates, inflation,  weighted average cost of capital (WACC) and capital
spending.   The  assumptions   are  derived  from  (1)  information   generated
internally,  such as  existing  sales data based on current  product  lines and
assumed  production  levels,  as well as  manufacturing  costs; (2) independent
industry  research  firms;  and  (3)  other  external   published  reports  and
forecasts. The Company's products are commodity products, therefore, pricing is
inherently  volatile  and often  follows a cyclical  pattern.  Trend prices are
derived from forecasts prepared by Resource Information Systems Inc. (RISI), an
independent   external   firm,   taking   into   consideration   the   specific
characteristics  of the  Company's  products.  The  Company  also  uses  RISI's
currency  exchange  long-term  forecast  of $1.00  equals  US$0.86.  To  assure
consistency with market  valuation,  the Company estimates its market valuation
and compares it with results obtained with the discounted cash flow method.


                                                                              36
<PAGE>

The second step is performed  only when the book value  exceeds the fair value.
Under this scenario,  a second test is performed  whereby the fair value of the
reporting unit's goodwill is estimated to determine if it is less than its book
value as if it was an acquisition, that is, the excess of the fair value of the
reporting  units  over the fair  value of the  identifiable  net  assets of the
reporting unit.

The above-listed  assumptions used in the calculation  models are interrelated.
The continuing degree of  interrelationship  of these assumptions is, in and of
itself, a significant assumption.  Because of the interrelationship among these
assumptions,  the Company does not believe it would be meaningful to provide an
additional  sensitivity analysis on any of these individual  assumptions,  with
the exception of paper prices and WACC.  Based on the  Company's  most probable
price outlook  scenario,  if trend price  projections were to decrease by US$25
per tonne,  the fair value  would  exceed  book value by 12% for the  Newsprint
segment  and  would be about  equal to book  value in the  Commercial  Printing
Papers  segment.  If the WACC,  which is used to discount  the  projected  cash
flows,  was lower,  the measure of the fair value of the Company's assets would
increase.  Conversely, if the WACC was higher, the measure of the fair value of
the Company's assets would decrease. If the estimate of WACC was to increase by
25 basis points,  the excess of the fair values of each of the reporting  units
would continue to exceed their book values by at least 16%.

Future changes in assumptions or the  interrelationship  of the assumptions may
negatively  impact future  valuations.  In future  measurements  of fair value,
adverse  changes  in  discounted  cash  flow  assumptions  could  result  in an
impairment of goodwill that would require a non-cash charge to the consolidated
statements  of  earnings  and  may  have a  material  effect  on the  Company's
consolidated financial statements.

PROPERTY, PLANT AND EQUIPMENT

The Company  records  its  property,  plant and  equipment  at cost,  including
capitalized  interest  and  pre-production  costs.  Investment  tax credits and
government  capital  grants  received  reduce the cost of the  related  assets.
Property,  plant and equipment purchased  following a business  acquisition are
recorded at their fair value based on an independent study.

The Company  amortizes  plant and equipment over their  productive  life mainly
using the straight-line method.  However, the Company records a write down when
the  value  of a  long-lived  asset  is  impaired.  The  Company  assesses  the
probability of future use of its property, plant and equipment and assesses the
fair value related to the most likely outcome.

During the fourth  quarter of 2006,  the Company  conducted the initial step of
the  impairment  tests on the  Bridgewater  paper mill and on the Wood Products
segment as a result of operating losses. The Company also conducted the initial
step on the  indefinitely  idled  Lufkin  paper mill.  Estimates of future cash
flows used to test the  recoverability of a long-lived asset are mainly derived


                                                                              37
<PAGE>

in the same manner as the projections of cash flows used in the initial step of
the goodwill  impairment test. In addition,  the impairment test for the Lufkin
paper mill was performed in light of a scenario of the mill's restart producing
lightweight coated paper under a partnership structure.

The Company  concluded  that the  recognition  of an impairment  charge for the
business units analyzed was not required,  as the estimated  undiscounted  cash
flows  exceeded  the book  values  by at least  32%.  Certain  paper  mills and
sawmills are particularly sensitive to the key assumptions.  Given the inherent
imprecision and  corresponding  importance of the key  assumptions  used in the
impairment  test, it is reasonably  possible that changes in future  conditions
may lead  management to use different  key  assumptions,  which could require a
material  change in the book  value of these  assets.  The total  book value of
these assets was $250 million, $174 million and $344 million for the Newsprint,
Commercial  Printing  Papers and Wood Products  segments,  respectively,  as at
December 31, 2006.

In 2005, the Company wrote down assets in the amount of $203 million mainly due
to the permanent closure of the Kenora and Stephenville  paper mills. Also, the
Company  performed an impairment test of some  long-lived  assets on the Lufkin
paper mill in light of a scenario of the mill's restart  producing  lightweight
coated  paper  under  a  partnership  structure.  As a  result  of  this  test,
Abitibi-Consolidated  recorded an impairment  charge of $125 million,  of which
$81 million was  attributed to the Commercial  Printing  Papers segment and $44
million  to  the  Newsprint  segment.   Furthermore,   following  the  sale  of
timberlands  in the Thunder Bay area,  Abitibi-Consolidated  assessed  its Fort
William paper mill to net realizable value and recognized an impairment  charge
of $43  million.  These  asset  write  downs  and  impairment  charges  reduced
amortization expense by approximately $36 million in 2006.

FUTURE INCOME TAXES

The  application  of CICA Handbook  Section 3465,  INCOME TAXES,  requires that
future income tax assets and  liabilities  be recognized  for the future income
tax  consequences  of  events  that  have  been  included  in the  consolidated
statements of earnings or income tax returns. Future income tax is provided for
using the liability method and recognizes all significant temporary differences
between  the  tax  and  consolidated  financial  statements  bases  of  assets,
liabilities and certain carry forward items.

The Company's  future income tax assets are recognized only to the extent that,
in the Company's opinion, it is more likely than not that the future income tax
assets  will be  realized.  This  opinion  is based on  certain  estimates  and
assumptions.  If these  estimates  or  assumptions  change in the  future,  the
Company  could be required to reduce or increase the value of the future income
tax assets resulting in income tax expense or recovery. The Company reviews its
future income tax assets periodically.

Future tax assets and liabilities  are measured using enacted or  substantively
enacted tax rates and laws  expected to apply in the years in which  assets and
liabilities  are  expected to be  recovered  or  settled.  For these  years,  a
projection  of taxable  income and an  assumption  of the ultimate  recovery or
settlement  period for temporary  differences  are required.  The projection of


                                                                             38
<PAGE>

future taxable income is based on management's  best estimate and may vary from
actual taxable  income.  Changes in estimates or  assumptions  could affect the
income tax expense  (recovery) in the  consolidated  statements of earnings and
the future  income taxes in the balance  sheets of the  Company's  consolidated
financial statements.

EMPLOYEE FUTURE BENEFIT PLANS

The  application  of CICA Handbook  Section  3461,  EMPLOYEE  FUTURE  BENEFITS,
requires  judgments  regarding  certain  assumptions  that  affect the  amounts
recorded  for the plans'  estimated  accrued  benefit  obligations  and related
income or expense.

The Company uses independent actuarial firms to perform actuarial valuations of
the fair values of post-retirement  and pension plan obligations and costs. The
major  assumptions are the expected return on plan assets and the  compensation
rate increase.  The Company,  based on its own  experience and  recommendations
from its actuarial firms, reviews these assumptions annually. The discount rate
used to calculate the present value of the pension  obligation is reassessed at
each measurement  date. For 2006, the major  assumptions have been estimated at
5.25% for the discount rate and 3.1% for the compensation  rate increase in the
case of the  pension  obligation.  In the  case  of the  pension  expense,  the
assumptions  have been  estimated  at 5.25% for the discount  rate,  7% for the
return on plan assets and 3.1% for the compensation rate increase.

The Company  amortizes  past  service  costs and  cumulative  unrecognized  net
actuarial  gains and losses,  in excess of 10% of the greater of the  projected
benefit obligation or the market-related value of plan assets, over the average
remaining  service period of the active employee group covered by the plans. As
at December 31, 2006,  the  Company's  deficit of the fair value of the pension
plan assets over its accrued benefit  obligation was $607 million,  compared to
$874 million at the end of 2005.  This decrease is mainly  attributable  to the
higher than expected  return on plan assets as well as the  additional  funding
from the  Company  in  2006.  The  Company  anticipates  that it will  fund its
actuarial deficit over the next five years. Consequently,  the Company believes
its minimum pension and  post-retirement  benefits funding in excess of pension
expense will be in a similar range for 2007 when compared to the  corresponding
$73  million  for  2006.  The  Company's  contributions  for both  pension  and
post-retirement benefits are expected to be approximately $220 million in 2007,
compared to $222 million in 2006. The estimated  contribution for 2007 includes
a one-time amount of $16 million related to mill closures.

Changes in estimates or assumptions  could affect the employee  future benefits
in the balance  sheets and cost of products sold in the  statements of earnings
of the Company's  consolidated  financial statements.  A change of 0.25% in the
discount  and  compensation  rates would  represent a variation  in the pension
obligation of approximately $120 million and $25 million, respectively. Also, a
change of 0.25% in the discount,  return on plan assets and compensation  rates
would represent a variation in the pension costs of approximately  $10 million,
$8 million  and $5  million,  respectively.  These  sensitivities  are based on
actual  assumptions  and could differ when using a different base or percentage
of variation in a way that may not be linear or symmetrical.


                                                                              39
<PAGE>

A description of the plans, the assumptions used in the calculation and certain
sensitivities   are  presented  in  Note  21  of  the  consolidated   financial
statements.

FOREIGN EXCHANGE

The application of CICA Handbook Section 1650,  FOREIGN  CURRENCY  TRANSLATION,
requires  that  monetary  assets and  liabilities  of domestic  and  integrated
foreign  operations  denominated  in foreign  currencies  be  translated at the
year-end   exchange   rate  and  the  gains  or  losses   resulting   from  the
period-to-period  exchange variation be absorbed in the consolidated statements
of earnings.

The majority of the Company's  long-term debt is denominated in U.S. dollars. A
variation of US$0.01 in relative  value to the Canadian  dollar  represents $43
million  of  non-cash  pre-tax  gain  or  loss  to the  Company's  consolidated
statements of earnings.


USE OF NON-GAAP FINANCIAL MEASURES

EBITDA is not a recognized  measure under Canadian  GAAP. The Company  believes
that this measure is useful  supplemental  information  as it provides  readers
with an indication  of cash  generated  before  specific  items,  debt service,
capital  expenditures,  excess  funding to employee  future  benefits plans and
income taxes.  Readers  should be  cautioned,  however,  that this  information
should  not be  confused  with  or  used as an  alternative  for  net  earnings
determined in accordance  with Canadian GAAP as an indicator of  performance or
for cash flows from continuing operating, investing and financing activities as
a measure of liquidity and cash flows.

As shown in Table 16, EBITDA is calculated by adding  amortization of plant and
equipment,  amortization  of intangible  assets,  as well as specific  items to
operating  profit (loss) from continuing  operations.  The Company's method for
calculating  this information may differ from that used by other companies and,
accordingly,  this  information may not be comparable to measures used by other
companies.

Table 16: EBITDA reconciliation

                                                     IN MILLIONS OF DOLLARS
                                                     ----------------------
                                                        2006        2005
                                                        ----        ----

Operating profit (loss) from continuing operations      $327       ($276)
Plus (minus):
 Amortization of plant and equipment                     424         863
 Amortization of intangible assets                        16          16
 Specific items:
  CVD/AD                                                (171)         --
  SG&A                                                   (11)         --
  Mill closure and other elements                         (9)         46
                                                        ----        ----
EBITDA                                                  $576        $649


                                                                              40
<PAGE>

DISCLOSURE  CONTROLS  AND  PROCEDURES  AND  INTERNAL  CONTROLS  OVER  FINANCIAL
REPORTING

Disclosure  controls and procedures  have been  established by the Company,  in
accordance with Regulation MI 52-109,  to ensure that information  disclosed by
the  Company in this MD&A and the related  financial  statements  was  properly
recorded,  processed,  summarized and ultimately  reported to the Board and the
Audit Committee.

The Company has also established internal controls and procedures for financial
reporting to ensure that the financial  information  contained in this MD&A and
the  related  financial  statements  is fairly  presented  in  conformity  with
Canadian GAAP and that the Company's  transactions are properly  approved,  its
assets  are  safeguarded   against   unauthorized  or  improper  use,  and  the
transactions  it enters into are  properly  recorded and reported to permit the
preparation of the Company's  financial  statements in conformity with Canadian
GAAP.

In the year ended December 31, 2006,  the Company did not make any  significant
changes in, nor take any significant  corrective actions regarding the controls
and procedures described in the two preceding paragraphs, or other factors that
could significantly affect these controls and procedures. The Company's CEO and
CFO  periodically  review  the  aforementioned   controls  and  procedures  for
effectiveness  and conduct an  evaluation  each  quarter.  As of the end of the
fourth  quarter,  the  Company's  CEO and CFO believe  that the  aforementioned
controls and procedures are effective.

OVERSIGHT ROLE OF AUDIT COMMITTEE AND THE BOARD OF DIRECTORS

The Audit  Committee  reviews the Company's  annual MD&A and related  financial
statements  with  management and the external  auditors,  and recommends  their
approval to the Board.  Management and the internal auditor of the Company also
present  periodically  to the  committee  a report of their  assessment  of the
Company's  internal  controls  and  procedures  for  financial  reporting.  The
external  auditor  periodically  prepares  for  management a report on internal
control weaknesses  identified during the course of the auditor's annual audit,
which is reviewed by the Audit Committee.

ADDITIONAL INFORMATION

Additional information relating to  Abitibi-Consolidated,  including the Annual
Information   Form,   is   on   SEDAR   at    www.sedar.com,    on   EDGAR   at
www.edgar-online.com,      and     on     the     Company's      website     at
www.abitibiconsolidated.com.