Abitibi-Consolidated Announces Q3 Results

MONTREAL, Oct. 25 /PRNewswire-FirstCall/ -- Abitibi-Consolidated Inc. today reported a third quarter loss of $48 million, or 11 cents a share. This compares to net earnings of $99 million, or 23 cents a share, recorded in the third quarter of 2005. For the first nine months of 2006, the Company recorded net earnings of $76 million, or 17 cents a share, compared to $5 million, or 1 cent a share, in the same period of last year.

Although not a GAAP measure, the third quarter loss before the impact of specific items was $59 million, or 13 cents per share. This compares to a loss of $40 million, or 9 cents a share, in the third quarter of 2005. (Table 3 of MD&A)

Before specific items, the Company posted an operating profit of $3 million during the third quarter of 2006, with its Newsprint business making a positive contribution of $40 million, while its Commercial Printing Papers (CPP) and Wood Products segments posted operating losses of $4 million and $33 million respectively. This compares with an overall operating profit of $49 million in the same quarter of 2005. (Table 2 of MD&A)

Before specific items, the $46 million reduction in operating profit from continuing operations is mainly attributable to the strengthening of the Canadian dollar, higher cost of products sold per unit and lower sales volume. These were partially offset by higher prices in the Company's two paper business segments and lower amortization.

------------------------------------------------------------------------- Q3 2006 Highlights ------------------------------------------------------------------------- - Sales of $1.18 billion ($1.36 billion in Q3 2005) - EBITDA of $113 million ($176 million in Q3 2005) - Wood Products EBITDA declines $31 million vs. Q3 2005 - US $235 million refund of softwood lumber duty deposits anticipated before year-end - Improvement in costs and pricing of CPP business vs. Q2 - North American newsprint supply/demand remained largely in balance - SG&A costs continue to decline; among lowest in industry -------------------------------------------------------------------------

"The third quarter once again required decisive action on our part. We announced the idling of five sawmills, representing approximately 20% of our annual production capacity. We continue to progress with our previously announced IPO for an income fund that will hold a minority interest in all of the Company's Ontario hydroelectric assets. We made important strides in reducing our SG&A costs and, in light of progress achieved to-date, we are confident in removing $35 million of cost annually," said John Weaver, President and CEO.

Two previously announced initiatives, the IPO for the Ontario hydroelectric income fund as well as the acquisition of the remaining interest in Augusta Newsprint Company, are expected to proceed in Q1 2007.

Final settlement of the softwood lumber dispute is also an important milestone. The approximately US$235 million of refunded deposits, expected to be received in the fourth quarter, will be targeted to debt reduction.

A conference call hosted by management to discuss quarterly results will be held today at 11 a.m. (Eastern). The call will be webcast at http://www.abitibiconsolidated.com/, under the "Investor Relations" section. A slide presentation to be referenced on the call will also be made available in the same section prior to the call. Participants not able to listen to the live conference call can access a replay along with the slide presentation, both of which will be archived online.

Abitibi-Consolidated is a global leader in newsprint and commercial printing papers as well as a major producer of wood products, serving clients in some 70 countries from its 45 operating facilities. Abitibi-Consolidated is among the largest recyclers of newspapers and magazines in North America, diverting annually approximately 1.9 million tonnes of waste paper from landfills. It also ranks first in Canada in terms of total certified woodlands. Abitibi-Consolidated shares are traded on the Toronto Stock Exchange (TSX: A) and on the New York Stock Exchange .

FORWARD-LOOKING STATEMENETS

This disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions in the U.S. and Canada and in countries in which the Company and its subsidiaries currently do business; industry conditions, the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in the availability or costs of raw materials or electrical power; changes in existing forestry regulations or changes in how they are administered which could result in the loss of certain contractual or other rights or permits which are material to the Company's business; increased competition; the lack of availability of qualified personnel or management; the outcome of certain litigation; labour unrest; and fluctuation in foreign exchange or interest rates. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom.

Abitibi-Consolidated Inc. Management's Discussion and Analysis (MD&A) Third Quarter Report to Shareholders October 25, 2006 HIGHLIGHTS ---------- $48 Million Loss in Third Quarter of 2006 -----------------------------------------

Abitibi-Consolidated reported a loss of $48 million, or 11 cents a share, in the third quarter ended September 30, 2006, compared to net earnings of $99 million, or 23 cents a share, in the same quarter of 2005. For the nine-month period ended September 30, 2006, the Company recorded net earnings of $76 million, or 17 cents a share, compared to $5 million, or 1 cent a share, in the same period last year.

To view Abitibi-Consolidated Inc. charts (Highlights) please click here: http://files.newswire.ca/490/Highlights.doc Table 1: Summary of financial information (in millions of dollars, except per share amount) As per financial statements ----------------------------------------- Third Quarter Nine-month period ------------------ --------------------- 2006 2005 2006 2005 -------- -------- -------- ----------- Sales $ 1,181 $ 1,355 $ 3,671 $ 4,032 EBITDA N/A N/A N/A N/A Operating profit (loss) from continuing operations 2 8 91 76 Net earnings (loss) (48) 99 76 5 $ per share (0.11) 0.23 0.17 0.01 Before specific items(1) ----------------------------------------- Third Quarter Nine-month period ------------------ --------------------- 2006 2005 2006 2005 -------- -------- -------- ----------- Sales $ 1,181 $ 1,355 $ 3,671 $ 4,032 EBITDA 113 176 424 510 Operating profit (loss) from continuing operations 3 49 93 126 Net earnings (loss) (59) (40) (137) (125) $ per share (0.13) (0.09) (0.31) (0.28) Note (1) Non-GAAP measures

Sales were $1,181 million in the three-month period ending September 30, 2006, compared to $1,355 million in the same period last year. The Company recorded an operating profit from continuing operations of $2 million during the quarter, compared to $8 million for the third quarter of 2005. Sales were $3,671 million for the nine-month period ending September 30, 2006, compared to $4,032 million in the same period last year. In the first nine months of 2006, the operating profit from continuing operations was $91 million, compared to $76 million in the first nine months 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 (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, expenses related to early debt repayment 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 Generally Accepted Accounting Principles (GAAP). The Company believes this is useful supplemental information, as it provides an indication of performance and comparative trends, excluding these specific items. However, readers should be cautioned that this information should not be confused with or used as an alternative to measures prescribed by GAAP.

Specific items impacting operating profit (loss) from continuing ---------------------------------------------------------------- operations ----------

In the third quarter of 2006, the Company accounted for a provision of $1 million for mill closure and other elements related to the Sales, General and Administrative expenses (SG&A) restructuring announced in the first quarter. The restructuring charges impacted the Commercial Printing Papers segment.

In the third quarter of 2005, the Company announced the permanent closure of one paper machine at its Kenora, Ontario mill, removing 90,000 tonnes of newsprint capacity and consequently recorded asset write downs of $23 million and a provision for mill closure elements of $18 million.

Table 2: Operating profit (loss) from continuing operations (in millions of dollars) As per financial statements ----------------------------------------- Third Quarter Nine-month period ------------------ --------------------- 2006 2005 2006 2005 -------- -------- -------- ----------- Newsprint $ 40 $ 9 $ 145 $ 40 Commercial Printing Papers (5) 1 (24) (7) Wood Products (33) (2) (30) 43 -------- -------- -------- ----------- $ 2 $ 8 $ 91 $ 76 Before specific items(1) ----------------------------------------- Third Quarter Nine-month period ------------------ --------------------- 2006 2005 2006 2005 -------- -------- -------- ----------- Newsprint $ 40 $ 50 $ 146 $ 90 Commercial Printing Papers (4) 1 (21) (7) Wood Products (33) (2) (32) 43 -------- -------- -------- ----------- $ 3 $ 49 $ 93 $ 126 Note (1) Non-GAAP measures Other specific items impacting net earnings (loss) --------------------------------------------------

Other than specific items already covered in the previous section, in the third quarter of 2006, Abitibi-Consolidated recorded a positive income tax adjustment of $12 million, relating to the conclusion of prior years' federal audits.

In the third quarter of 2005, the Company recorded an after-tax gain on translation of foreign currencies of $168 million, mainly from the stronger Canadian currency at the end of the quarter, compared to the U.S. dollar. Also, the Company recorded an unfavourable after-tax amount of $2 million in its financial expenses, mainly due to a premium paid on early debt repayment as well as positive income tax adjustments of $1 million.

Table 3: Impact of specific items (in millions of dollars, except per share amount) Third Quarter ----------------------------------------- 2006 2005 ------------------ --------------------- Before After Before After Tax Tax Tax Tax -------- -------- -------- ----------- Net earnings (loss) as reported in the financial statements $ (48) $ 99 $ per share (0.11) 0.23 Specific items: Impacting operating profit (loss) from continuing operations (from Table 2) 1 1 41 28 Loss (gain) on translation of foreign currencies - - (206) (168) Financial expenses - - 3 2 Income tax adjustments (12) (1) -------- ----------- Net earnings (loss) excluding specific items(1) $ (59) $ (40) $ per share(1) (0.13) (0.09) Nine-month period ----------------------------------------- 2006 2005 ------------------ --------------------- Before After Before After Tax Tax Tax Tax -------- -------- -------- ----------- Net earnings (loss) as reported in the financial statements $ 76 $ 5 $ per share 0.17 0.01 Specific items: Impacting operating profit (loss) from continuing operations (from Table 2) 2 2 50 34 Loss (gain) on translation of foreign currencies (141) (118) (118) (99) Financial expenses - - 4 3 Income tax adjustments (97) (68) -------- ----------- Net earnings (loss) excluding specific items(1) $ (137) $ (125) $ per share(1) (0.31) (0.28) Note (1) Non-GAAP measures RESULTS BEFORE SPECIFIC ITEMS -----------------------------

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

Consolidated results before specific items ------------------------------------------

Before specific items, the $46 million reduction in operating profit from continuing operations in the third quarter of 2006 is mainly attributable to the strengthening of the Canadian dollar, higher cost of products sold per unit and lower sales volume. These were partially offset by higher prices in the Company's two paper business segments and lower amortization expense.

Table 4: Consolidated results before specific items(1) (in millions of dollars, except per share amount) Fav/(unfav) variance due to Third -------------------------------------- Third Quarter Foreign Quarter 2006 Volume exchange Prices Costs 2005 -------- -------- -------- -------- -------- ----------- Sales $ 1,181 $ (145) $ (79) $ 50 $ - $ 1,355 Cost of products sold 897 101 10 - (42) 966 Distribution costs 130 17 4 - 1 152 CVD/AD 7 1 - - 9 17 SG&A 34 - - - 10 44 -------- -------- -------- -------- -------- ----------- EBITDA(1) $ 113 $ (26) $ (65) $ 50 $ (22) $ 176 Amortization 110 - 1 - 16 127 -------- -------- -------- -------- -------- ----------- Operating profit (loss) from continuing operations $ 3 $ (26) $ (64) $ 50 $ (6) $ 49 Net earnings (loss) $ (59) $ (40) $ per share (0.13) (0.09) Note (1) Non-GAAP measures

When comparing the average exchange rate of the third quarter of 2006 to the same period in 2005, the Canadian Dollar was 7.1% (8.1% for nine months) stronger compared to the U.S. dollar. The Company estimates that this had an unfavourable impact of approximately $60 million ($187 million year-to-date) on its operating results, compared to the same period last year. Other currency exchange rates had a negative impact of $4 million ($8 million year-to-date).

Amortization decreased to $110 million from $127 million in the third quarter of 2005. In December of 2005, the Company recorded asset write downs for an amount totalling $348 million, which largely contributed to this reduction in amortization.

Financial expenses totalled $86 million in the third quarter of 2006, compared to financial expenses before specific items of $98 million in 2005. The reduction is mainly due to the decrease 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.

Segmented results before specific items --------------------------------------- Newsprint ---------

In the Newsprint segment, the $10 million reduction in operating profit from continuing operations, before specific items, is mainly due to a stronger Canadian dollar, lower sales volume and higher cost of products sold per tonne, partly offset by higher U.S. dollar selling prices and lower amortization expense.

To view Abitibi-Consolidated Inc. charts (Newsprint) please click here: http://files.newswire.ca/490/Newsprint.doc Table 5: Newsprint operating results before specific items(1) (in millions of dollars) Fav/(unfav) variance due to Third -------------------------------------- Third Quarter Foreign Quarter 2006 Volume exchange Prices Costs 2005 -------- -------- -------- -------- -------- ----------- Sales $ 630 $ (123) $ (46) $ 51 $ - $ 748 EBITDA(1) 99 (24) (34) 51 (15) 121 Amortization 59 - 1 - 11 71 Operating profit (loss) from continuing operations 40 (24) (33) 51 (4) 50 Note (1) Non-GAAP measures

The Company's newsprint shipments in the third quarter of 2006 were 848,000 tonnes, compared to 1,014,000 tonnes in the third quarter of 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.

At the end of the third quarter of 2006, the Company's overall inventories remained low, slightly above the level at the end of the second quarter 2006 and approximately 20% lower than as at the end of September 2005.

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. The implementation of this increase is more difficult than previous ones and Abitibi-Consolidated is attempting to realize a portion of the increase by year-end. Average price in the U.S. increased 6.3% in the third quarter of 2006, compared to the same period last year. In most regions of the world, newsprint prices have increased. The pricing index in the U.K. was approximately 10% higher in August 2006 compared to August 2005.

On a per tonne basis, cost of products sold for newsprint in the third quarter of 2006 was $14 higher than in the same quarter of 2005. The increase in costs was mainly due to higher energy input prices, higher pension and other employee future benefits and timing difference in major maintenance performed during the quarter. This was partly offset by the stronger Canadian dollar, reducing costs in Canadian dollars of the Company's U.S. mills, the closure of the high cost Kenora and Stephenville paper mills and higher productivity.

According to Pulp and Paper Products Council (PPPC), North American supply/demand remained largely in balance in the third quarter of 2006. North American newsprint production declined 6.8% in the third quarter of 2006, compared to the same period in 2005. Total U.S. consumption was down by 7.9% in the third quarter of 2006, compared to the third quarter of 2005, as daily publishers' advertising volume and circulation continued on a downward trend. The ongoing increased use of lighter basis weight paper contributed to 1.1% consumption decrease year-over-year. In the third quarter of 2006, the operating rate of the North American industry was 94%, at the same level as last year.

In 2006, global consumption growth is expected to be slightly positive lead by Eastern Europe and Latin America, partly offset by a decline in North America. The Company expects 2006 newsprint consumption in the United States to decline by approximately 6% on a tonnage basis, resulting mainly from a continued increase in sales of lower basis weight paper, as well as reductions in circulation and continued conservation measures by daily newspaper publishers. However, the Company believes announced capacity reductions and the impact of lower basis weights should result in continued high industry operating rates in North America.

Commercial Printing Papers

In the Commercial Printing Papers segment, the $5 million reduction in operating results from continuing operations, before specific items, is mainly due to a stronger Canadian dollar and higher cost of products sold per tonne, partly offset by higher U.S. dollar selling prices and lower amortization expense.

To view Abitibi-Consolidated Inc. charts (Printing) please click here: http://files.newswire.ca/490/Printing.doc Table 6: Commercial Printing Papers operating results before specific items(1) (in millions of dollars) Fav/(unfav) variance due to Third -------------------------------------- Third Quarter Foreign Quarter 2006 Volume exchange Prices Costs 2005 -------- -------- -------- -------- -------- ----------- Sales $ 386 $ (5) $ (28) $ 24 $ - $ 395 EBITDA(1) 34 (1) (27) 24 (6) 44 Amortization 38 - - - 5 43 Operating profit (loss) from continuing operations (4) (1) (27) 24 (1) 1 Note (1) Non-GAAP measures

The Company's shipments of commercial printing papers totalled 446,000 tonnes in the third quarter of 2006, compared to 451,000 tonnes in the third quarter of 2005. The lower volume is primarily a result of the Company exiting the rotonews grades. The Company's uncoated freesheet substitute grades, the ABIOFFSET(TM) product line, continued its growth, increasing by 16.4% in the third quarter of 2006, compared to the third quarter of 2005.

During the third quarter of 2006, the Company successfully implemented a US$40 per short ton price increase, announced in the first quarter for its ABICAL(R) grades.

On a per tonne basis, cost of products sold for commercial printing papers in the third quarter of 2006 was $22 higher than in the same quarter of 2005. The cost increase was mainly due to higher pension and other employee future benefits and energy input prices. In addition, the Company realized less cost reductions tied to its product development initiatives during the third quarter of 2006 than in the same quarter of 2005. This was partly offset by better productivity, lower usage and the conversion of a Belgo newsprint machine to commercial printing paper grades.

According to the PPPC, North American demand for uncoated groundwood papers increased 1.3% in the third quarter of 2006, compared to the same period of 2005. The increase in demand originated mainly from a higher volume in SCA/A+ imports, partly offset by lower domestic shipments. This was due to a competitor's labour disruption, impacting the largest uncoated mechanical paper machine in Eastern Canada since December of 2005. Also, contributing to uncoated groundwood growth in the third quarter was an increase in Superbrite and Bulky book grades, which increased 21.7% and 21.6% respectively.

The outlook for uncoated groundwood demand remains positive. Moreover, continued uncoated freesheet substitution and a positive outlook for print advertising are expected to drive uncoated groundwood demand growth in the future. However, the restart of temporary idled capacity and grade conversions could temporarily impact the supply/demand balance.

Wood Products

In the Wood Products segment, the $31 million reduction in operating results from continuing operations, before specific items, is mainly due to lower selling prices, higher cost of products sold per thousand board feet and a stronger Canadian dollar, partly offset by a reduction in countervailing duty (CVD) and anti-dumping duty (AD) expenses.

To view Abitibi-Consolidated Inc. charts (Wood Products) please click here: http://files.newswire.ca/490/Wood_Products.doc Table 7: Wood products operating results before specific items(1) (in millions of dollars) Fav/(unfav) variance due to Third -------------------------------------- Third Quarter Foreign Quarter 2006 Volume exchange Prices Costs 2005 -------- -------- -------- -------- -------- ----------- Sales $ 165 $ (17) $ (5) $ (25) $ - $ 212 EBITDA(1) (20) (1) (4) (25) (1) 11 Amortization 13 - - - - 13 Operating profit (loss) from continuing operations (33) (1) (4) (25) (1) (2) Note (1) Non-GAAP measures

Sales volume in the third quarter of 2006 totalled 439 million board feet (MBf), compared to 479 MBf for the same period in 2005. Average selling prices in Canadian dollars, for the third quarter of 2006 were 15% lower than in the same quarter in 2005, as a result of lower U.S. dollar lumber prices and a stronger Canadian dollar

On a per thousand board feet basis, cost of products sold for wood products in the third quarter of 2006 was $25 higher than in the third quarter of 2005. This was mainly due to lower production mainly attributable to increased downtime taken in the summer months and the devaluation of finished goods inventory at the lower of costs and realizable value.

In the United States, housing starts decreased by 17.9% from an annual rate of 2.158 million units during September of 2005 to 1.772 million units in September of 2006. During the third quarter of 2006, average U.S. dollar lumber prices (f.o.b. Great Lakes) decreased by 21% for 2x4 Stud and by 12% for 2x4 Random Length, compared to the same period of 2005.

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 CVD and of 3.2% for 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.

Effective October 12, 2006, the governments of Canada and the United States implemented an agreement for the settlement of the softwood lumber dispute (the Agreement). 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 is a party.

Under the terms of the Agreement, all but US$1 billion of duty deposits by Canadian producers is to be returned. According to the terms of the Agreement, the Company is selling its refunds to Export Development Canada (EDC), pursuant to which the Company will receive an amount equal to its refunds, less its share of the US$1 billion that the United States will not reimburse. As of September 30, 2006, Abitibi-Consolidated has paid a total of approximately US$245 million in AD and CVD deposits. Subject to the Agreement receiving final approval by the Canadian Parliament, the Company expects to receive from EDC, during the fourth quarter of this year, approximately 81.5% of this amount, plus interest accruing from the date of deposits to the date of liquidation. This amount is expected to be approximately US$235 million.

Exports of softwood lumber to the United States now are subject to either a three tiered export tax or a combination of a lower tiered export tax and volume restrictions, as elected by each 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. 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).

During the fourth quarter of 2006, the Company announced the idling of four of its Quebec sawmills. Produits Forestiers Saguenay Inc., a subsidiary of Abitibi-Consolidated, also announced the idling of a sawmill in the Lac-Saint-Jean region. The closures are mainly attributable to high production and fibre costs as well as deteriorating wood products market conditions. The closures took effect beginning October 16, 2006.

BALANCE SHEET -------------

Total long-term debt amounted to $3,834 million for a ratio of net debt to total capitalization of 0.605 as at September 30, 2006, compared to $3,762 million for a net debt to total capitalization ratio of 0.598 at December 31, 2005. The increase in the Company's long-term debt is mainly attributable to additional working capital requirements, partly offset by the variation in the exchange rate between the Canadian dollar and the U.S. dollar, in which most of the Company's long-term debt is denominated. The current portion of the long-term debt increased to $86 million as at September 30, 2006. Also, as at September 30, 2006, cash and cash equivalents stood at $25 million, a decrease of $42 million, compared to December 31, 2005.

During the quarter, the Company increased its revolving credit facilities from $700 million to $750 million as a new lender joined the banking syndicate. Net funded debt to capitalization ratio, calculated as per the requirements of the Company's revolving credit facilities, amounted to 59.5% at the end of September 2006 and the interest coverage ratio was 1.7x for the twelve-month period ended September 30, 2006, both ratios being compliant with the covenants of the said facilities. At the end of September 2006, the Company had drawn $290 million on these credit facilities.

As at September 30, 2006, the outstanding balance of the Company's securitization programs, in Canadian dollars, was $434 million, compared to $459 million as at December 31, 2005.

LIQUIDITY AND CAPITAL RESOURCES -------------------------------

Cash used to finance continuing operating activities totalled $61 million for the third quarter ended September 30, 2006, compared to $42 million in the corresponding period of 2005. The increase is mainly due to lower operating results.

Capital expenditures were $39 million ($107 million year-to-date) for the three-month period ended September 30, 2006, compared to $37 million ($102 million year-to-date) in the corresponding period last year. The Company expects total capital expenditures of approximately $180 million in 2006.

DIVIDENDS AND SHARES OUTSTANDING --------------------------------

On July 25, 2006, the Company's Board of Directors suspended dividend payments.

As at September 30, 2006, the number of shares outstanding has remained constant at 440 million, compared to the end of the same period in 2005, while there were 14.5 million options outstanding at the end of September 2006, compared to 13.6 million as at the end of December 2005.

OTHER NOTEWORTHY EVENTS -----------------------

On July 25, 2006, the Company announced its intent to proceed with an initial public offering of an income fund that would hold a minority interest in all of the Company's Ontario hydroelectric assets, consisting of approximately 137 MW of installed capacity. The income fund is intended to be the Company's growth vehicle in energy generation. Due to regulatory delays, the offering is now expected to proceed in the first quarter of 2007.

Also 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. Under the terms of the option, the Company expects to pay approximately US$190 million. During the first nine months of 2006, ANC generated an EBITDA of US$56 million and the Company recorded a non-controlling interest of $26 million, reflecting the 47.5% interest of the other partner in ANC. Subject to receipt of necessary approvals, the transaction would also be expected to proceed in the first quarter of 2007. Concurrently, the Company intends to proceed with the sale of 55,000 acres of woodlands related to the Augusta operation.

In April of 2006, as a result of a review of its Selling, General and Administrative costs, the Company began to implement its plan 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 costs of products sold. The objective is to remove $35 million of cost annually, by the middle of 2007, through process improvements, regionalization or centralization of certain functions, as well as reviewing the necessity of some expenses. The plan is expected to eliminate more than 200 positions. In light of the progress achieved to-date, the Company is confident it will fully deliver on its objective.

SELECTED QUARTERLY INFORMATION ------------------------------ Table 8: Summary of Quarterly results (in millions of dollars, except otherwise noted) 2006 2005 -------------- ----------------------------------------- Q-3 Q-2 Q-1 Q-4 Q-3 Q-2 Q-1 ------ ------ ------ ------ ------ ------ --------- Sales $1,181 $1,253 $1,237 $1,310 $1,355 $1,354 $1,323 Operating profit (loss) from continuing operations 2 48 41 (352) 8 57 11 Operating profit (loss) from continuing operations before specific items(1) 3 47 43 15 49 58 19 Earnings (loss) from continuing operations (48) 157 (33) (345) 95 (49) (54) Earnings (loss) from continuing operations per share (0.11) 0.36 (0.08) (0.79) 0.22 (0.11) (0.13) Net earnings (loss) (48) 157 (33) (355) 99 (43) (51) Net earnings (loss) per share (0.11) 0.36 (0.08) (0.81) 0.23 (0.10) (0.12) Exchange rates (CDN$1 = US$): Average noon rate 0.892 0.891 0.866 0.852 0.832 0.804 0.815 2004 ----------------- Q-4 Q-3 ------ --------- Sales $1,347 $1,405 Operating profit (loss) from continuing operations (346) 75 Operating profit (loss) from continuing operations before specific items(1) (6) 80 Earnings (loss) from continuing operations (115) 179 Earnings (loss) from continuing operations per share (0.26) 0.40 Net earnings (loss) (108) 182 Net earnings (loss) per share (0.24) 0.41 Exchange rates (CDN$1 = US$): Average noon rate 0.819 0.765 Note (1) Non-GAAP measures DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS --------------------------------------------------------

In the quarter ended September 30, 2006, the Company did not make any significant changes in, nor take any significant corrective actions regarding its internal controls or other factors that could significantly affect such internal controls. The Company's CEO and CFO periodically review the Company's disclosure controls and procedures for effectiveness and conduct an evaluation each quarter. As of the end of the third quarter, the Company's CEO and CFO were satisfied with the effectiveness of the Company's disclosure controls and procedures.

OVERSIGHT ROLE OF AUDIT COMMITTEE ---------------------------------

The Audit Committee reviews, with Management and the external auditor, the Company's quarterly MD&A and related consolidated financial statements and approves the release to shareholders. Management and the internal auditor of the Company also periodically present to the Committee a report of their assessment of the Company's internal controls and procedures for financial reporting. The external auditor periodically prepares a report for Management on internal control weaknesses noted, if any, identified during the course of the auditor's annual audit, which is reviewed by the Audit Committee.

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. 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 merger, acquisitions or other business combinations or divestitures that may be announced or completed after such statements are made.

Abitibi-Consolidated Inc. Consolidated Statements of Earnings (Loss) Three months ended Nine months ended (unaudited) September September September September (in millions of 30 30 30 30 Canadian dollars, unless 2006 2005 2006 2005 otherwise noted) $ $ $ $ ------------------------------------------------------------------------- Sales 1,181 1,355 3,671 4,032 ------------------------------------------------------------------------- Cost of products sold, excluding amortization 897 966 2,722 2,897 Distribution costs 130 152 388 443 Countervailing and anti-dumping duties (note 7) 7 17 26 54 Selling, general and administrative expenses 34 44 100 128 Mill closure and other elements 1 18 13 27 Amortization of plant and equipment 106 146 319 395 Amortization of intangible assets 4 4 12 12 ------------------------------------------------------------------------- Operating profit from continuing operations 2 8 91 76 Financial expenses (note 2) 86 101 253 299 Gain on translation of foreign currencies - (206) (141) (118) Other expenses (income) 8 (2) 22 4 ------------------------------------------------------------------------- Earnings (loss) from continuing operations before the following items (92) 115 (43) (109) Income tax expense (recovery) (note 4) (52) 13 (145) (120) Share of earnings from investments subject to significant influence - - 1 1 Non-controlling interests (8) (7) (27) (20) ------------------------------------------------------------------------- Earnings (loss) from continuing operations (48) 95 76 (8) Earnings from discontinued operations - 4 - 13 ------------------------------------------------------------------------- Net earnings (loss) (48) 99 76 5 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Per common share (in dollars, basic and diluted) Earnings (loss) from continuing operations (0.11) 0.22 0.17 (0.02) Net earnings (loss) (0.11) 0.23 0.17 0.01 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares outstanding (in millions) 440 440 440 440 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Deficit Three months ended Nine months ended September September September September (unaudited) 30 30 30 30 (in millions of 2006 2005 2006 2005 Canadian dollars) $ $ $ $ ------------------------------------------------------------------------- Deficit, beginning of period (773) (597) (875) (481) Net earnings (loss) (48) 99 76 5 Dividends declared - (11) (22) (33) ------------------------------------------------------------------------- Deficit, end of period (821) (509) (821) (509) ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying Notes to consolidated financial statements Abitibi-Consolidated Inc. Consolidated Statements of Cash Flows Three months ended Nine months ended September September September September (unaudited) 30 30 30 30 (in millions of 2006 2005 2006 2005 Canadian dollars) $ $ $ $ ------------------------------------------------------------------------- Continuing operating activities Earnings (loss) from continuing operations (48) 95 76 (8) Amortization 110 150 331 407 Future income taxes (52) 4 (141) (42) Gain on translation of foreign currency long-term debt - (235) (156) (152) Employee future benefits, excess of funding over expense (36) (16) (54) (56) Gain on disposal of investment - - - (2) Non-controlling interests 8 7 27 20 Other non-cash items - 5 (3) 16 ------------------------------------------------------------------------- (18) 10 80 183 Changes in non-cash operating working capital components (43) (52) (196) (112) ------------------------------------------------------------------------- Cash flows from (used in) continuing operating activities (61) (42) (116) 71 ------------------------------------------------------------------------- Financing activities of continuing operations Increase in long-term debt 190 211 478 1,034 Repayment of long-term debt (71) (196) (257) (1,010) Financing fees - - - (9) Dividends paid to shareholders - (11) (22) (33) Dividends and cash distributions paid to non-controlling interests (13) (6) (31) (15) Other - - - 1 ------------------------------------------------------------------------- Cash flows from (used in) financing activities of continuing operations 106 (2) 168 (32) ------------------------------------------------------------------------- Investing activities of continuing operations Additions to property, plant and equipment (39) (37) (107) (102) Additions to intangible assets - - (3) - Business acquisition, net of cash and cash equivalents - - - (13) Net proceeds on disposal of an investment - - - 2 Receipt on note receivable - - 10 - Net proceeds on disposal of property, plant and equipment 3 9 4 9 Other - - 2 (2) ------------------------------------------------------------------------- Cash flows used in investing activities of continuing operations (36) (28) (94) (106) ------------------------------------------------------------------------- Cash from (used in) continuing operations 9 (72) (42) (67) Cash generated (used) by discontinued operations - (21) - 10 ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents during the period 9 (93) (42) (57) Foreign currency translation adjustment - (5) - (5) Cash and cash equivalents, beginning of period 16 171 67 135 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 25 73 25 73 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents, at the end of the period, related to Continuing operations 25 57 Discontinued operations - 16 ------------------------------------------------------------------------- 25 73 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying Notes to consolidated financial statements Components of the changes in non-cash operating working capital Accounts receivable (23) (16) (21) (85) Inventories (39) - (43) (17) Prepaid expenses 1 (1) (21) (17) Accounts payable and accrued liabilities 18 (35) (111) 7 -------------------- -------------------- (43) (52) (196) (112) -------------------- -------------------- -------------------- -------------------- Cash outflows (inflows) during the period related to Interest on long-term debt 73 93 232 267 Income taxes (1) 4 1 (49) -------------------- -------------------- 72 97 233 218 -------------------- -------------------- -------------------- -------------------- Abitibi-Consolidated Inc. Consolidated Balance Sheets September December 30 31 (unaudited) 2006 2005 (in millions of Canadian dollars) $ $ ------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents 25 67 Accounts receivable 511 436 Inventories 692 652 Prepaid expenses 73 52 ------------------------------------------------------------------------- 1,301 1,207 Property, plant and equipment 3,995 4,260 Intangible assets 464 473 Employee future benefits 308 248 Future income taxes 385 414 Other assets (note 7) 99 146 Goodwill 1,296 1,296 ------------------------------------------------------------------------- 7,848 8,044 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and accrued liabilities (note 5) 809 933 Long-term debt due within one year 86 18 ------------------------------------------------------------------------- 895 951 Long-term debt (note 3) 3,748 3,744 Employee future benefits 157 154 Future income taxes 560 716 Non-controlling interests 73 78 Shareholders' equity Capital stock 3,518 3,518 Contributed surplus 39 34 Deficit (821) (875) Foreign currency translation adjustment (321) (276) ------------------------------------------------------------------------- 2,415 2,401 ------------------------------------------------------------------------- 7,848 8,044 ------------------------------------------------------------------------- ------------------------------------------------------------------------- See accompanying Notes to consolidated financial statements Abitibi-Consolidated Inc. Consolidated Business Segments (unaudited) (in millions of Canadian dollars, unless otherwise noted) Additions Operating to Three months ended Amorti- profit capital Sales September 30, 2006 Sales zation (loss)(1) assets(2) volume ------------------------------------------------------------------------- $ $ $ $ $ Newsprint 630 59 40 22 848(a) Commercial printing papers 386 38 (5) 9 446(a) Wood products(3) 165 13 (33) 8 439(b) ------------------------------------------------------------------------- Continuing operations 1,181 110 2 39 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three months ended September 30, 2005 ------------------------------------------------------------------------- Newsprint 748 94 9 19 1,014(a) Commercial printing papers 395 43 1 7 451(a) Wood products(3) 212 13 (2) 11 479(b) ------------------------------------------------------------------------- Continuing operations 1,355 150 8 37 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Additions Operating to Nine months ended Amorti- profit capital Sales September 30, 2006 Sales zation (loss)(1) assets(2) volume ------------------------------------------------------------------------- $ $ $ $ $ Newsprint 1,929 178 145 56 2,581(a) Commercial printing papers 1,142 117 (24) 34 1,327(a) Wood products(3) 600 36 (30) 20 1,479(b) ------------------------------------------------------------------------- Continuing operations 3,671 331 91 110 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Nine months ended September 30, 2005 ------------------------------------------------------------------------- Newsprint 2,161 236 40 51 2,972(a) Commercial printing papers 1,165 132 (7) 24 1,334(a) Wood products(3) 706 39 43 27 1,519(b) ------------------------------------------------------------------------- Continuing operations 4,032 407 76 102 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Operating profit for the "Newsprint" segment for the nine months ended September 30, 2006 includes $7 million of mill closure and other elements ($18 million and $27 million of mill closure and other elements for the three and nine months ended September 30, 2005). The nine months ended September 30, 2006 also include a reduction of SG&A expenses of $6 million related to the reversal of prior years' provision of capital tax (No such amount in 2005). In addition, the three and nine months ended September 30, 2005 included $23 million of assets write downs. Operating profit (loss) for the "Commercial printing papers" segment for the three and nine months ended September 30, 2006 includes respectively $1 million and $6 million of mill closure and other elements (No such amount in 2005). In addition, the nine months ended September 30, 2006 include a reduction of SG&A expenses of $3 million related to the reversal of prior years' provision of capital tax (No such amount in 2005). Operating profit (loss) for the "Wood products" segment for the nine months period ended September 30, 2006 includes a reduction of SG&A expenses of $2 million related to the reversal of prior years' provision of capital tax (No such amount in 2005). (2) Capital assets include property, plant and equipment and intangible assets. (3) Wood products sales exclude inter-segment sales of $37 million for the three months ended September 30, 2006 ($34 million for the three months ended September 30, 2005) and $125 millions for the nine months ended September 30, 2006 and September 30, 2005. (a) in thousands of tonnes (b) in millions of board feet September December 30 31 2006 2005 Total assets $ $ ------------------------------------------------------------------------- Newsprint 4,287 4,490 Commercial printing papers 2,708 2,701 Wood products 853 853 ------------------------------------------------------------------------- 7,848 8,044 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Abitibi-Consolidated Inc. Notes to Consolidated Financial Statements September 30, 2006 (unaudited) (in millions of Canadian dollars, unless otherwise noted) 1. Summary of significant accounting policies

These consolidated financial statements of Abitibi-Consolidated Inc. (the "Company"), expressed in Canadian dollars, are prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"), with the exception that their disclosures do not conform in all material respects to the requirements of GAAP for annual financial statements. They should be read in conjunction with the latest annual financial statements.

These consolidated financial statements are prepared using the same accounting principles and application thereof as the consolidated financial statements for the year ended December 31, 2005.

2. Financial expenses Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 $ $ $ $ ------------------------------------------------------------------------- Interest on long-term debt 81 92 237 275 Amortization of deferred financing elements related to debt 4 7 12 18 Premium on early retirement of debt and other elements related to early debt retirement - 2 - 12 Interest income - (2) (2) (14) Other 1 2 6 8 ------------------------------------------------------------------------- 86 101 253 299 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. Credit facilities

During 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.

4. Income tax adjustments

In the three months ended September 30, 2006, favourable future income tax adjustments of approximately $21 million are included in income tax recovery. From this amount, $12 million is related to the finalization of prior-years tax audits and $9 million is from other favorable adjustments (unfavourable income tax adjustments of $2 million in the three months ended September 30, 2005). The nine months ended September 30, 2006 include a total favourable income tax adjustments of $106 million from which $63 million relates to the reduction in Canadian federal income tax rate announced in the second quarter, $12 million related to the finalization of prior-years tax audits and $31 million of other favorable adjustments (the nine months ended September 30, 2005 include a total favorable income tax adjustments of $65 million). As mentioned previously, the Canadian federal income tax rate will decrease from 22.12% in 2006 to 20.5% in 2008, to 20% in 2009 and to 19% in 2010.

5. Mill closure elements provision

The following table provides a reconciliation of the mill closure elements provision (excluding defined benefit pension and other benefits cost, early retirement program and labour force reductions, inventory obsolescence, asset retirement obligations and other gains) for the periods:

Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 $ $ $ $ ------------------------------------------------------------------------- Mill closure elements provision, beginning of period 20 4 38 17 Mill closure elements incurred during the period - 15 - 15 Payments (2) (1) (20) (14) ------------------------------------------------------------------------- Mill closure elements provision, end of period 18 18 18 18 ------------------------------------------------------------------------- -------------------------------------------------------------------------

The Company expects to pay most of the balance of the provision for mill closure elements within the next twelve months.

6. Employee future benefits

The following table provides total employee future benefits costs for the periods:

Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 $ $ $ $ ------------------------------------------------------------------------- Defined contribution pension plans 4 4 11 11 Defined benefit pension plans and other benefits 39 34 112 91 ------------------------------------------------------------------------- 43 38 123 102 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. Subsequent event

Effective October 12, 2006, the governments of Canada and the United Sates implemented an agreement for the settlement of the softwood lumber dispute. The Company expects to receive during the fourth quarter of this year, approximately 81.5% of the total deposits paid plus interest. This amount is expected to be approximately US$235 million. The Company has previously recorded $57 million (US$52 million) on its balance sheet, which amount has been reclassified in the current quarter from Other assets to Current assets under Accounts receivable and the balance is expected to be recognized in the fourth quarter upon final settlement.

8. Comparative figures

Certain comparative figures presented in the consolidated financial statements have been reclassified to conform to the current period presentation.

Contacts: Investors: Francesco Alessi, Vice-President, Investor Relations and Taxation, (514) 394-2341, falessi@abitibiconsolidated.com; Media: Seth Kursman, Vice-President, Communications and Government Affairs, (514) 394-2398, seth_kursman@abitibiconsolidated.com