UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

1155 Metcalfe Street, Suite 800; Montreal, Quebec; Canada H3B 5H2

(Address of principal executive offices) (Zip Code)

(514) 875-2160

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o   No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o   No þ

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2010) was approximately $6 million. For purposes of the foregoing calculation only, all directors, executive officers and 5% beneficial owners have been deemed affiliates.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed pursuant to Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ   No o

On December 9, 2010, the predecessor registrant’s common stock, par value $1.00 per share, was canceled and the successor registrant issued 97,134,954 shares of common stock, par value $0.001 per share. As of February 28, 2011, there were 97,134,954 shares of AbitibiBowater Inc. common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed within 120 days of December 31, 2010 are incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

 

 

     

TABLE OF CONTENTS

Part I
Item 1.		Business			1
Item 1A.		Risk Factors			13
Item 1B.		Unresolved Staff Comments			22
Item 2.		Properties			22
Item 3.		Legal Proceedings			23
Item 4.		(Removed and Reserved)			24
Part II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			25
Item 6.		Selected Financial Data			26
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			60
Item 8.		Financial Statements and Supplementary Data			61
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			141
Item 9A.		Controls and Procedures			141
Item 9B.		Other Information			141
Part III
Item 10.		Directors, Executive Officers and Corporate Governance			142
Item 11.		Executive Compensation			142
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			142
Item 13.		Certain Relationships and Related Transactions, and Director Independence			142
Item 14.		Principal Accounting Fees and Services			142
Part IV
Item 15.		Exhibits, Financial Statement Schedules			143
Signatures					147
EX-4.4
EX-10.2
EX-10.4
EX-10.5
EX-10.6
EX-10.11
EX-10.12
EX-10.13
EX-10.16
EX-10.17
EX-10.18
EX-10.19
EX-10.20
EX-10.21
EX-10.23
EX-10.25
EX-10.26
EX-10.27
EX-10.28
EX-10.29
EX-10.31
EX-10.32
EX-10.33
EX-12.1
EX-21.1
EX-23.1
EX-24.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF
THIRD-PARTY DATA

Statements in this Annual Report on Form 10-K (“Form 10-K”) that are not reported financial results or other historical information of AbitibiBowater Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “AbitibiBowater,” “we,” “our,” “us” or the “Company”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: restructuring efforts and the reorganization process in connection with our Creditor Protection Proceedings (as defined below); efforts to continue to reduce costs and increase revenues and profitability, including our cost reduction initiatives regarding selling, general and administrative expenses; business outlook; assessment of market conditions; liquidity outlook, prospects, growth, strategies and the industry in which we operate; and strategies for achieving our goals generally. Forward-looking statements may be identified by the use of forward-looking terminology such as the words “should,” “would,” “could,” “will,” “may,” “expect,” “believe,” “anticipate,” “attempt,” “project” and other terms with similar meaning indicating possible future events or potential impact on our business or AbitibiBowater’s shareholders.

The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. These statements are based on management’s current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. The potential risks and uncertainties that could cause our actual future financial condition, results of operations and performance to differ materially from those expressed or implied in this Form 10-K include those set forth under the heading “Risk Factors” in Part I, Item 1A.

All forward-looking statements in this Form 10-K are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the United States Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities. We disclaim any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.

Market and Industry Data

Information about industry or general economic conditions contained in this Form 10-K is derived from third-party sources and certain trade publications (“Third-Party Data”) that we believe are widely accepted and accurate; however, we have not independently verified this information and cannot provide assurances of its accuracy.

On April 16, 2009 and December 21, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions (collectively, the “Chapter 11 Cases”) in the United States Bankruptcy Court for the District of Delaware (the “U.S. Court”) for relief under the provisions of Chapter 11. In addition, on April 17, 2009, certain of AbitibiBowater Inc.’s Canadian subsidiaries sought creditor protection (the “CCAA Proceedings”) under the CCAA with the Superior Court of Quebec in Canada (the “Canadian Court”). On April 17, 2009, Abitibi and its wholly-owned subsidiary, Abitibi-Consolidated Company of Canada (“ACCC”), each filed a voluntary petition for provisional and final relief (the “Chapter 15 Cases”) in the U.S. Court under the provisions of Chapter 15 of the United States Bankruptcy Code, as amended, to obtain recognition and enforcement in the United States of certain relief granted in the CCAA Proceedings and also on that date, AbitibiBowater Inc. and certain of its subsidiaries in the Chapter 11 Cases obtained orders under Section 18.6 of the CCAA in respect thereof (the “18.6 Proceedings”). The Chapter 11 Cases, the Chapter 15 Cases, the CCAA Proceedings and the 18.6 Proceedings are collectively referred to as the “Creditor Protection Proceedings.” The entities that were subject to the Creditor Protection Proceedings are referred to herein as the “Debtors.” The U.S. Court and the Canadian Court are collectively referred to as the “Courts.” Our wholly-owned subsidiary that operates our Mokpo, South Korea operations and almost all of our less than wholly-owned subsidiaries operated outside of the Creditor Protection Proceedings.

On September 14, 2010 and September 21, 2010, the creditors under the CCAA Proceedings and the Chapter 11 Cases, respectively, with one exception, voted in the requisite numbers to approve the respective Plan of Reorganization. Creditors of Bowater Canada Finance Corporation (“BCFC”), a wholly-owned subsidiary of Bowater, did not vote in the requisite numbers to approve the Plans of Reorganization (as defined below). Accordingly, we did not seek approval of the Plans of Reorganization from the Courts with respect to BCFC. See Item 3, “Legal Proceedings – BCFC Bankruptcy and Insolvency Act Filing,” for information regarding BCFC’s Bankruptcy and Insolvency Act filing on December 31, 2010. On September 23, 2010, the CCAA Plan of Reorganization and Compromise (the “CCAA Reorganization Plan”) was sanctioned by the Canadian Court, on November 23, 2010, the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Reorganization Plan” and, together with the CCAA Reorganization Plan, the “Plans of Reorganization”) was confirmed by the U.S. Court and on December 9, 2010, the Plans of Reorganization became effective.

Upon implementation of the Plans of Reorganization, the Debtors were reorganized through the consummation of several transactions pursuant to which, among other things:

	•		each of the Debtors’ operations were continued in substantially the same form;
	•		all allowed pre-petition and post-petition secured claims, administrative expense claims and priority claims were paid in full in cash, including accrued interest, if applicable, and all pre-petition and post-petition secured credit facilities were terminated;
	•		all outstanding receivable interests sold under the Abitibi and Donohue Corp. (“Donohue,” an indirect, wholly-owned subsidiary of AbitibiBowater Inc.) accounts receivable securitization program were repurchased in cash for a price equal to the par amount thereof and the program was terminated;
	•		holders of allowed claims arising from the Debtors’ pre-petition unsecured indebtedness received their pro rata share of common stock issued by us on account of their claims;
	•		holders of pre-petition unsecured claims with individual claim amounts of $5,000 or less (or reduced to that amount) were paid in cash in an amount equal to 50% of their claim amount, but under certain circumstances, these claim holders were treated instead like all other holders of claims arising from pre-petition unsecured liabilities and received shares of common stock issued by us on account of their claims;
	•		all equity interests in the Predecessor Company (as defined below) existing immediately prior to the Emergence Date, including, among other things, all of our common stock issued and outstanding, were discharged, canceled, released and extinguished;
	•		AbitibiBowater Inc. issued an aggregate of 97,134,954 shares of Successor Company (as defined below) common stock, par value $0.001 per share, for the benefit of unsecured creditors of the Debtors in the Creditor Protection Proceedings, and distributed 73,752,881 of those shares in December 2010 to the holders of unsecured claims as of the applicable distribution record date on account of allowed unsecured creditor claims;
	•		various equity incentive and other employee benefit plans came into effect, including the AbitibiBowater Inc. 2010 Equity Incentive Plan, pursuant to which 8.5% of common stock on a fully diluted basis (or 9,020,960 shares) was

			reserved for issuance to eligible persons, of which awards representing not more than 4% (or 4,245,158 shares) were to be made approximately 30 days after the Emergence Date;
	•		the Debtors’ obligations to fund the prior service costs related to their pension and other postretirement (“OPEB”) benefit plans were reinstated prospectively;
	•		the Debtors’ assets were retained by, and were reinvested in, the Successor Company;
	•		AbitibiBowater Inc. assumed by merger the obligations of ABI Escrow Corporation with respect to $850 million in aggregate principal amount of 10.25% senior secured notes due 2018, as further discussed in Item 7 of this Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“Item 7”), under “Liquidity and Capital Resources”; and
	•		we entered into the ABL Credit Facility, as defined and further discussed in Item 7 under “Liquidity and Capital Resources.”

From the 97,134,954 shares of Successor Company common stock issued for claims in the Creditor Protection Proceedings, we established a reserve of 23,382,073 shares for claims that remained in dispute as of the Emergence Date, from which we will make supplemental interim distributions to unsecured creditors as and if disputed claims are allowed or accepted. We continue to work to resolve these claims, including the identification of claims that we believe should be disallowed because they are duplicative, were later amended or superseded, are without merit, are overstated or for other reasons. Although we continue to make progress, in light of the substantial number and amount of claims filed and remaining unresolved claims, the claims resolution process may take considerable time to complete. The applicable Court will determine the resolution of claims that we are unable to resolve in negotiations with the affected parties. We may be required to settle certain disputed claims in cash under certain specific circumstances. As such, included in “Accounts payable and accrued liabilities” in our Consolidated Balance Sheets (as defined below) as of December 31, 2010 is a liability of approximately $35 million for the fair value of the estimated cash settlement of such claims. To the extent there are shares remaining after all disputed claims have been resolved, these shares will be reallocated ratably among unsecured creditors with allowed claims in the Creditor Protection Proceedings pursuant to the Plans of Reorganization.

The common stock of the Successor Company began trading under the symbol “ABH” on both the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) on December 10, 2010.

Events prior to emergence from Creditor Protection Proceedings

We initiated the Creditor Protection Proceedings to pursue reorganization efforts under the protection of Chapter 11 and the CCAA, as applicable. During the Creditor Protection Proceedings, we remained in possession of our assets and properties and operated our business and managed our properties as “debtors in possession” under the jurisdiction of the Courts and in accordance with the applicable provisions of Chapter 11 and the CCAA. In general, the Debtors were authorized to operate as ongoing businesses, but could not engage in transactions outside the ordinary course of business without the approval of the applicable Court(s) or Ernst & Young Inc. (which, under the terms of a Canadian Court order, served as the court-appointed monitor under the CCAA Proceedings (the “Monitor”)), as applicable.

Subject to certain exceptions under Chapter 11 and the CCAA, our filings and orders of the Canadian Court automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us and our property to recover, collect or secure a claim arising prior to the filing of the Creditor Protection Proceedings. Chapter 11 and orders of the Canadian Court gave us the ability to reject certain contracts, subject to Court oversight. We engaged in a review of our various agreements and rejected and repudiated a number of unfavorable agreements and leases, including leases of real estate and equipment. The creditors affected by these actions were given the opportunity to file proofs of claims in the Creditor Protection Proceedings.

The commencement of the Creditor Protection Proceedings constituted an event of default under substantially all of our pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligations was stayed as a result of the commencement of the Creditor Protection Proceedings. See Note 17, “Liquidity and Debt,” to our consolidated financial statements and related notes (“Consolidated Financial Statements”) appearing in Item 8 of this Form 10-K, “Financial Statements and Supplementary Data” (“Item 8”), for additional information.

The NYSE and the TSX delisted the Predecessor Company’s common stock at the opening of business on May 21, 2009 and the close of market on May 15, 2009, respectively. During the Creditor Protection Proceedings, the Predecessor Company’s common stock traded in the over-the-counter market and was quoted on the Pink Sheets Quotation Service (the “Pink Sheets”) and on the OTC

Bulletin Board under the symbol “ABWTQ.” In addition, the TSX delisted the exchangeable shares of our indirect wholly-owned subsidiary, AbitibiBowater Canada Inc., at the close of market on May 15, 2009.

Basis of presentation

During Creditor Protection Proceedings

Effective upon the commencement of the Creditor Protection Proceedings and through the Convenience Date, as defined below, we applied the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations” (“FASB ASC 852”), in preparing our consolidated financial statements. The guidance in FASB ASC 852 does not change the manner in which financial statements are prepared. However, it requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, during the Creditor Protection Proceedings, we: (i) recorded certain expenses, charges and credits incurred or realized that were directly associated with or resulting from the reorganization and restructuring of the business in “Reorganization items, net” in our Consolidated Statements of Operations included in our Consolidated Financial Statements (“Consolidated Statements of Operations”), (ii) classified pre-petition obligations that could be impaired by the reorganization process in our Consolidated Balance Sheets included in our Consolidated Financial Statements (“Consolidated Balance Sheets”) as “Liabilities subject to compromise” and (iii) ceased recording interest expense on certain of our pre-petition debt obligations. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures,” and Note 17, “Liquidity and Debt,” to our Consolidated Financial Statements.

Upon Emergence from Creditor Protection Proceedings

In accordance with FASB ASC 852, fresh start accounting (“fresh start accounting”) was required upon our emergence from the Creditor Protection Proceedings because: (i) the reorganization value of the assets of the Predecessor Company immediately prior to the approval of the Plans of Reorganization was less than the total of all post-petition liabilities and allowed claims and (ii) the holders of the Predecessor Company’s existing voting shares immediately prior to the approval of the Plans of Reorganization received less than 50% of the voting shares of the common stock of the Successor Company. FASB ASC 852 requires that fresh start accounting be applied as of the date the Plans of Reorganization were approved, or as of a later date when all material conditions precedent to effectiveness of the Plans of Reorganization are resolved, which occurred on December 9, 2010. We elected to apply fresh start accounting effective December 31, 2010, to coincide with the timing of our normal December accounting period close. We evaluated the events between December 9, 2010 and December 31, 2010 and concluded that the use of an accounting convenience date of December 31, 2010 (the “Convenience Date”) did not have a material impact on our results of operations or financial position. As such, the application of fresh start accounting was reflected in our Consolidated Balance Sheet as of December 31, 2010 and fresh start accounting adjustments related thereto were included in our Consolidated Statements of Operations for the year ended December 31, 2010.

The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements for periods prior to December 31, 2010 will not be comparable to our consolidated financial statements as of December 31, 2010 or for periods subsequent to December 31, 2010. References to “Successor” or “Successor Company” refer to the Company on or after December 31, 2010, after giving effect to the implementation of the Plans of Reorganization and the application of fresh start accounting. References to “Predecessor” or “Predecessor Company” refer to the Company prior to December 31, 2010. Additionally, references to periods on or after December 31, 2010 refer to the Successor and references to periods prior to December 31, 2010 refer to the Predecessor.

For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures - Fresh start accounting,” to our Consolidated Financial Statements.

Going concern

Our Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty involved in the Creditor Protection Proceedings raised substantial doubt about our ability to continue as a going concern. During the Creditor Protection Proceedings, our ability to continue as a going concern was dependent on market conditions and our ability to obtain the approval of the Plans of Reorganization from affected creditors and the Courts, successfully implement the Plans of Reorganization, improve profitability and consummate our exit financing to replace our debtor in possession financing.

Management believes that the implementation of the Plans of Reorganization and our emergence from the Creditor Protection Proceedings on the Emergence Date have resolved the substantial doubt and the related uncertainty about our application of the going concern basis of accounting.

Bridgewater Administration

On February 2, 2010, Bridgewater Paper Company Limited (“BPCL”), a subsidiary of AbitibiBowater Inc., filed for administration in the United Kingdom pursuant to the United Kingdom Insolvency Act 1986, as amended (the “BPCL Administration”). BPCL’s board of directors appointed Ernst & Young LLP as joint administrators for the BPCL Administration, whose responsibilities are to manage the affairs, business and assets of BPCL. In May 2010, the joint administrators announced the sale of the Bridgewater paper mill and all related machinery and equipment. As a result of the filing for administration, we lost control over and the ability to influence BPCL’s operations. As a result, effective as of the date of the BPCL Administration filing, the financial position, results of operations and cash flows of BPCL are no longer consolidated in our Consolidated Financial Statements. We are now accounting for BPCL using the cost method of accounting. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements.

Newfoundland and Labrador Expropriation

On August 24, 2010, we reached a settlement agreement with the government of Canada, which was subsequently approved by the Courts, concerning the December 2008 expropriation of certain of our assets and rights in the province of Newfoundland and Labrador by the provincial government pursuant to the Abitibi-Consolidated Rights and Assets Act , S.N.L. 2008, c.A-1.01 (“Bill 75”). Under the agreement, the government of Canada agreed to pay AbiBow Canada Inc. (“AbiBow Canada,” our post-emergence Canadian operating subsidiary) Cdn$130 million ($130 million) following our emergence from the Creditor Protection Proceedings. On February 25, 2010, we had filed a Notice of Arbitration against the government of Canada under the North American Free Trade Agreement (“NAFTA”), asserting that the expropriation was arbitrary, discriminatory and illegal. As part of the settlement agreement, we agreed to waive our legal actions and claims against the government of Canada under NAFTA.

Bill 75 was introduced following our December 4, 2008 announcement of the permanent closure of our Grand Falls, Newfoundland and Labrador newsprint mill to expropriate, among other things, all of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, whether partially or wholly owned through our subsidiaries and affiliated entities. The province also announced that it did not plan to compensate us for the loss of the water and timber rights, but indicated that it may compensate us for certain of our hydroelectric assets. However, it made no commitment to ensure that such compensation would represent the fair market value of such assets. As a result of the expropriation, in the fourth quarter of 2008, we recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.

In December 2010, following our emergence from the Creditor Protection Proceedings, we received the settlement amount. Since the receipt of the settlement was contingent upon our emergence from the Creditor Protection Proceedings, we recorded the settlement in “Reorganization items, net” in our Consolidated Statements of Operations for the year ended December 31, 2010.

Our Products

We manage our business based on the products that we manufacture and sell to external customers. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products. Certain segment and geographical financial information, including sales by segment and by geographic area, operating income (loss) by segment, total assets by segment and long-lived assets by geographic area, can be found in Note 26, “Segment Information,” to our Consolidated Financial Statements.

In accordance with our values, our environmental vision statement and forestry policies and in the interests of our customers and other stakeholders, we are committed to implementing and maintaining environmental management systems at our pulp, paper, woodlands and wood procurement operations to promote the conservation and sustainable use of forests and other natural resources.

Newsprint

In 2010, excluding BPCL, we produced newsprint at 13 facilities in North America and South Korea. We are among the largest producers of newsprint in the world by capacity, with total capacity of approximately 3.1 million metric tons, or approximately 9% of total worldwide capacity. In addition, we are the largest North American producer of newsprint, with total North American capacity of approximately 2.9 million metric tons, or approximately 35% of total North American capacity.

We supply leading publishers with top-quality newsprint, including eco-friendly products made with 100% recycled fiber. We distribute newsprint by rail, truck and ship. Our newsprint is sold directly by our regional sales offices to customers in North America. Export markets are serviced primarily through our international offices located in or near the markets we supply or through international agents. In 2010, approximately 50% of our total newsprint shipments were to markets outside of North America.

We sell newsprint to various joint venture partners (partners with us in the ownership of certain mills we operate). During 2010, these joint venture partners purchased approximately 407,000 metric tons from our consolidated entities, which represented approximately 14% of the total newsprint metric tons we sold in 2010.

Coated papers

We produce coated mechanical papers at one facility in North America. We are one of the largest producers of coated mechanical papers in North America, with total capacity of approximately 651,000 metric tons, or approximately 15% of total North American capacity. Our coated papers are used in magazines, catalogs, books, retail advertising, direct mail and coupons.

We sell coated papers to major commercial printers, publishers, catalogers and retailers. We distribute coated papers by truck and rail. Export markets are serviced primarily through international agents.

Specialty papers

We produce specialty papers at 10 facilities in North America. We are one of the largest producers of specialty papers in North America, including supercalendered, superbright, high bright, bulky book and directory papers and kraft papers, with total capacity as of December 31, 2010 of approximately 1.9 million metric tons, or approximately 34% of total North American capacity. Our specialty papers are used in books, retail advertising, direct mail, coupons and other commercial printing applications.

We sell specialty papers to major commercial printers, direct mailers, publishers, catalogers and retailers. We distribute specialty papers by truck and rail. Export markets are serviced primarily through international agents.

Market pulp

Wood pulp is the most common material used to make paper. Pulp shipped and sold as pulp, as opposed to being processed into paper in one of our facilities, is commonly referred to as market pulp. We produce market pulp at five facilities in North America, with total capacity of approximately 1.0 million metric tons, or approximately 6% of total North American capacity. Market pulp is used to make a range of consumer products including tissue, packaging, specialty paper products, diapers and other absorbent products.

North American market pulp sales are made through our regional sales offices, while export sales are made through international sales agents local to their markets. We distribute market pulp by truck, rail and ship.

Wood products

We operate 18 sawmills in Canada that produce construction-grade lumber sold in North America. In addition, our sawmills are a major source of wood chips for our pulp and paper mills. We also operate two engineered wood products facilities in Canada that produce products for specialized applications, such as wood i-joists for beam replacement, and four remanufacturing wood products facilities in Canada that produce roofing and flooring material and other products.

Pulp and paper manufacturing facilities

The following table provides a listing of the pulp and paper manufacturing facilities we owned or operated as of December 31, 2010 (excluding facilities which have been permanently closed as of December 31, 2010) and production information by product line (which represents all of our reportable segments except wood products). The table below represents these facilities’ actual 2010 production, which reflects the impact of any downtime taken in 2010, and 2011 total capacity.

(1)		On April 1, 2011, we announced the permanent closure of a newsprint machine at our Baie-Comeau facility, effective May 28, 2011 (representing approximately 117,000 metric tons of capacity).
(2)		Donohue Malbaie Inc. (“DMI”), which owns one of Clermont’s paper machines, is owned 51% by us and 49% by NYT Capital Inc. We manage the facility and wholly own all of the other assets at the site. Manufacturing costs are transferred between us and DMI at agreed-upon transfer costs. DMI’s paper machine produced 213,000 metric tons of newsprint in 2010. The amounts in the above table represent the mill’s total capacity and production including DMI’s paper machine.
(3)		Bowater Mersey Paper Company Limited (“Mersey”) is located in Liverpool, Nova Scotia and is owned 51% by us and 49% by The Daily Herald Company, a wholly-owned subsidiary of The Washington Post. We manage the facility. The amounts in the above table represent the mill’s total capacity and production.
(4)		On March 11, 2010, we announced the indefinite idling of one of our newsprint machines at our Thorold facility, effective April 12, 2010 (representing approximately 207,000 metric tons of capacity in 2010). In the fourth quarter of 2010, this machine was restarted and we permanently closed our other newsprint machine at this facility (representing approximately 207,000 metric tons of capacity).
(5)		In August 2009, we announced the indefinite idling of our two newsprint machines at our Thunder Bay facility effective August 21, 2009 (representing 392,000 metric tons of capacity), one of which was restarted in February 2010. In the fourth quarter of 2010, we permanently closed the machine that was still idled.
(6)		As of December 31, 2010, Augusta Newsprint Company (“ANC”), which operates our newsprint mill in Augusta was owned 52.5% by us and 47.5% by an indirect subsidiary of The Woodbridge Company Limited (“Woodbridge”). We manage the facility. The amounts in the above table represent the mill’s total capacity and production. ANC became a wholly-owned subsidiary of ours on January 14, 2011.
(7)		Calhoun Newsprint Company (“CNC”), which owns one of Calhoun’s paper machines, Calhoun’s recycled fiber plant and a portion of the thermomechanical pulp (“TMP”) mill, is owned 51% by us and 49% by Herald Company, Inc. We manage the facility and wholly own all of the other assets at the site, including the remaining portion of the TMP mill, a kraft pulp mill, a market pulp dryer, four other paper machines (two of which are still operating) and other support equipment. Pulp, other raw materials, labor and other manufacturing services are transferred between us and CNC at agreed-upon transfer costs. CNC’s paper machine produced 115,000 metric tons of newsprint and 95,000 metric tons of specialty papers in 2010. The amounts in

		the above table represent the mill’s total capacity and production including CNC’s paper machine.
(8)		On February 14, 2011, we announced the permanent closure of our paper machine at our Coosa Pines mill effective at the end of March 2011 (representing approximately 183,000 metric tons of capacity related to lightweight containerboard and other packaging grades, which were being produced on a trial basis on this paper machine since May 2010).
(9)		Ponderay Newsprint Company is located in Usk, Washington and is an unconsolidated partnership in which we have a 40% interest and, through a wholly-owned subsidiary, we are the managing partner. The balance of the partnership is held by subsidiaries of three newspaper publishers. The amounts in the above table represent the mill’s total capacity and production.

Wood products facilities

The following table provides a listing of the sawmills we owned or operated as of December 31, 2010 and their respective capacity and production. This table excludes facilities which have been permanently closed as of December 31, 2010.

(1)		Produits Forestiers Mauricie L.P. is located in La Tuque, Quebec and is a consolidated subsidiary in which we have a 93.2% interest. The amounts in the above table represent the mill’s total capacity and production.
(2)		The Oakhill sawmill is wholly owned by Mersey, which is a consolidated subsidiary in which we have a 51% interest. The amounts in the above table represent the mill’s total capacity and production.
(3)		Societe en Commandite Scierie Opitciwan is located in Obedjiwan, Quebec and is an unconsolidated entity in which we have a 45% interest. The amounts in the above table represent the mill’s total capacity and production.
(4)		In the third quarter of 2010, we indefinitely idled our Petit Saguenay and Saint-Fulgence sawmills.
(5)		Produits Forestiers Petit-Paris Inc. is located in Saint-Ludger-de-Milot, Quebec and is an unconsolidated entity in which we have a 50% interest. The amounts in the above table represent the mill’s total capacity and production.

The following table provides a listing of the remanufacturing and engineered wood facilities we owned or operated as of December 31, 2010 and their respective capacity and production.

(1)		Abitibi-LP Engineering Wood Inc. and Abitibi-LP Engineering Wood II Inc. are located in Larouche, Quebec and Saint-

		Prime, Quebec, respectively, and are unconsolidated entities in which we have a 50% interest in each entity. We operate the facilities and our joint venture partners sell the products. The amounts in the above table represent the mills’ total capacity and production.

On October 12, 2006, an agreement regarding Canada’s softwood lumber exports to the U.S. became effective (the “2006 Softwood Lumber Agreement”). The 2006 Softwood Lumber Agreement provides for, among other things, softwood lumber to be subject to one of two ongoing border restrictions, depending upon the province of first manufacture with several provinces, including Nova Scotia, being exempt from these border restrictions. Volume quotas have been established for each company within the provinces of Ontario and Quebec based on historical production, and the volume quotas are not transferable between provinces. U.S. composite prices would have to rise above $355 composite per thousand board feet before the quota volume restrictions would be lifted, which had not occurred since the implementation of the 2006 Softwood Lumber Agreement. For additional information, reference is made to Note 22, “Commitments and Contingencies – Lumber duties,” to our Consolidated Financial Statements.

Other products

We also sell pulpwood, saw timber, wood chips and electricity to customers located in Canada and the United States. Sales of these other products are considered a recovery of the cost of manufacturing our primary products.

Raw Materials

Our operations consume substantial amounts of raw materials such as wood, recovered paper, chemicals and energy in the manufacturing of our paper, pulp and wood products. We purchase raw materials and energy sources (except internal generation) primarily on the open market.

Wood

Our sources of wood include property we own or lease, property on which we possess cutting rights and purchases from local producers, including sawmills that supply residual wood chips. As of December 31, 2010, we owned or leased approximately 0.8 million acres of timberlands, primarily in Canada, and have long-term cutting rights for approximately 40.8 million acres of Crown-owned land in Canada. These sources provide approximately half of our wood fiber supplies to our paper, pulp and wood products operations. The cutting rights contracts are approximately 20 – 25 years in length and automatically renew every five years, contingent upon our continual compliance with environmental performance and reforestation requirements.

All of our managed forest lands are third-party certified to one or more globally recognized sustainable forest management standards, including those of the Sustainable Forestry Initiative (the “SFI”), Canadian Standards Association (the “CSA”) and Forest Stewardship Council (the “FSC”). We have implemented fiber tracking systems at our mills to ensure that our wood fiber supply comes from acceptable sources such as certified forests and legal harvesting operations. At several of our mills, these systems are third-party certified to recognize chain of custody standards and others are in the process of being certified.

We strive to improve our forest management and wood fiber procurement practices and we encourage our wood and fiber suppliers to demonstrate continual improvement in forest resource management, wood and fiber procurement and third-party certification.

Recovered paper

We are one of the largest recyclers of newspapers and magazines in North America and have a number of recycling plants that use advanced mechanical and chemical processes to manufacture high quality pulp from a mixture of old newspapers and magazines, or “recovered paper.” Using recovered paper, we produce, among other things, recycled fiber newsprint and uncoated specialty papers comparable in quality to paper produced with 100% virgin fiber pulp. The Thorold and Mokpo operations produce products containing 100% recycled fiber. In 2010, we used 1.2 million metric tons of recovered paper worldwide and the recycled fiber content in newsprint averaged 23%.

In 2010, our North American recycling division collected or purchased 1.5 million metric tons of recovered paper. Our Paper Retriever ^® program collects recovered fiber through a combination of community drop-off containers and recycling programs with businesses and commercial offices. The recovered paper that we physically purchase is from suppliers generally within the region of our recycling plants, primarily under long-term agreements.

Energy

Steam and electrical power constitute the primary forms of energy used in pulp and paper production. Process steam is produced in boilers using a variety of fuel sources. All but one of our mills produce 100% of their own steam requirements. In 2010, our Alma, Calhoun, Catawba, Coosa Pines, Fort Frances, Kenogami, Mersey and Thunder Bay operations collectively consumed approximately 35% of their electrical requirements from internal sources, notably on-site cogeneration and hydroelectric stations. The balance of our energy needs was purchased from third parties. We have six sites that operate cogeneration facilities and five of these sites generate “green energy” from carbon-neutral biomass. In addition, we utilize alternative fuels such as methane from landfills, used oil, tire-derived fuel and black liquor to reduce consumption of virgin fossil fuels.

The following table provides a listing of our hydroelectric facilities as of December 31, 2010 and their respective capacity and generation.

(1)		The amounts in the above table represent the facility’s total installed capacity and power generation. On February 11, 2011, AbiBow Canada entered into an agreement to sell its 75% equity interest in ACH Limited Partnership (“ACH”), which owns these facilities. For additional information, see Item 7 under “Liquidity and Capital Resources.”

The water rights agreements typically vary from 10 to 50 years and are generally renewable, under certain conditions, for additional terms. In certain circumstances, water rights are granted without expiration dates. In some cases, the agreements are contingent on the continued operation of the related paper mill and a minimum level of capital spending in the region.

Competition

In general, our products are globally-traded commodities and are marketed in approximately 70 countries. The markets in which we compete are highly competitive and, aside from quality specifications to meet customer needs, the production of our products does not depend upon a proprietary process or formula. Pricing and the level of shipments of our products are influenced by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates. Any material decline in prices for our products or other adverse developments in the markets for our products could have a material adverse effect on our results of operations or financial condition. Prices for our products have been and are likely to continue to be highly volatile.

Newsprint, one of our principal products, is produced by numerous manufacturers worldwide. In 2010, the five largest North American producers represented approximately 85% of North American newsprint capacity and the five largest global producers represented approximately 35% of global newsprint capacity. Our total newsprint capacity is approximately 9% of worldwide newsprint capacity. We face competition from both large global producers and numerous smaller regional producers. In recent years, a number of global producers of newsprint based in Asia, particularly China, have grown their production capacity. Price, quality and customer relationships are important competitive determinants.

We compete with eight other coated mechanical paper producers with operations in North America. In 2010, the five largest North American producers represented approximately 83% of North American capacity for coated mechanical paper. In addition, several major offshore suppliers of coated mechanical paper compete for North American business. In 2010, offshore imports represented approximately 11% of North American demand. As a major supplier to printers, end users (such as magazine publishers, catalogers and retailers) and brokers/merchants in North America, we compete with numerous worldwide suppliers of other grades of paper such as coated freesheet and supercalendered paper. We compete on the basis of price, quality and service.

In 2010, we produced approximately 33% of North American uncoated mechanical paper demand, comprised mainly of supercalendered, superbright, high bright, bulky book and directory papers. We compete with numerous uncoated mechanical paper producers with operations in North America. In addition, imports from overseas represented approximately 9% of North American demand in 2010 and were primarily concentrated in the supercalendered paper market where they represented approximately 18% of North American demand. We compete on the basis of price, quality, service and breadth of product line.

We compete with seven other major market pulp suppliers with operations in North America along with other smaller competitors. Market pulp is a globally-traded commodity for which competition exists in all major markets. We produce five major grades of market pulp (northern and southern hardwood, northern and southern softwood and fluff) and compete with other producers from South America (eucalyptus hardwood and radiata pine softwood), Europe (northern hardwood and softwood) and Asia (mixed tropical hardwood). Price, quality and service are considered the main competitive determinants.

By the end of 2008, we had completed the certification of all of our managed forest lands to globally-recognized sustainable forest management standards, namely the SFI and the Z809 Standard of the CSA. In 2009, to better respond to market demands, we introduced the FSC standard in our certification portfolio by re-certifying two forest units in Quebec from CSA to FSC and by dual-certifying one forest in Ontario to FSC (already certified to SFI). In 2010, we further balanced our forest certification portfolio by re-certifying two additional forest units in Quebec from CSA to FSC and by dual-certifying one forest in Nova Scotia to FSC (already certified to SFI).

As with other global commodities, the competitive position of our products is significantly affected by the volatility of foreign currency exchange rates. See Item 7A of this Form 10-K, “Quantitative and Qualitative Disclosures About Market Risk – Foreign Currency Exchange Risk.” We have operations in Canada, the United States and South Korea. Several of our primary competitors are located in Canada, Sweden, Finland and certain Asian countries. Accordingly, the relative rates of exchange between those countries’ currencies and the United States dollar can have a substantial effect on our ability to compete. In addition, the degree to which we compete with foreign producers depends in part on the level of demand abroad. Shipping costs and relative pricing generally cause producers to prefer to sell in local markets when the demand is sufficient in those markets.

Trends in advertising, electronic data transmission and storage and the Internet could have further adverse effects on the demand for traditional print media, including our products and those of our customers, but neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper, magazine and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, including television, electronic readers and the Internet, instead of newsprint, coated papers, uncoated specialty papers or other products made by us. The demand for newsprint declined significantly over the last several years as a result of continued declines in newspaper circulation and advertising volume and publishers’ conservation measures, which include increased usage of lighter basis-weight newsprint and web-width and page count reductions. Our newsprint, magazine and catalog publishing customers are also subject to the effects of competing media, including the Internet.

Employees

As of December 31, 2010, we employed approximately 10,500 people, of whom approximately 7,500 were represented by bargaining units. Our unionized employees are represented predominantly by the Communications, Energy and Paperworkers Union (the “CEP”) in Canada and predominantly by the United Steelworkers International in the U.S.

We have collective bargaining agreements in place covering the majority of our unionized employees, many of which have been recently renewed and revised. However, there can be no assurance that we will maintain continuously satisfactory agreements with all of our unionized employees or that we will finalize satisfactory agreements with the remaining unionized employees (which include approximately 300 wood workers in Quebec). Should we be unable to do so, it could result in strikes or other work stoppages by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.

Trademarks

We registered the mark “AbitibiBowater” and the AbitibiBowater logo in the countries of our principal markets. We consider our interest in the logo and mark to be important and necessary to the conduct of our business.

Environmental Matters

We are subject to a variety of federal, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. While it is impossible to predict future environmental regulations that may be established, we believe that we will not be at a competitive disadvantage with regard to meeting future Canadian, United States or South Korean standards. For additional information, see Note 22, “Commitments and
Contingencies – Environmental matters,” to our Consolidated Financial Statements.

Internet Availability of Information

We make our Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and any amendments to these reports, available free of charge on our Internet website (www.abitibibowater.com) as soon as reasonably practicable after we file or furnish such materials to the SEC. The SEC also maintains a website (www.sec.gov) that contains our reports and other information filed with the SEC. In addition, any materials we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C., 20549. Information on the operations of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our reports are also available on the System for Electronic Document Analysis and Retrieval website (www.sedar.com) .

Executive Officers

The following is information about our executive officers as of March 31, 2011:

Mr. Garneau joined the Board of Directors in June 2010. Previously, Mr. Garneau served as President and Chief Executive Officer of Catalyst Paper Corporation from March 2007 to May 2010. Prior to his tenure at Catalyst, Mr. Garneau served as Executive Vice President, Operations at Domtar Corporation. He also held a variety of roles at Norampac Inc. (a division of Cascades Inc.), Copernic Inc., Future Electronics Inc., St. Laurent Paperboard Inc., Finlay Forest Industries Inc. and Donohue Inc. Mr. Garneau is a member of the Canadian Institute of Chartered Accountants.

Mr. Boivin previously served as Vice President of Mill Operations, Central Region at Smurfit-Stone Container Corporation and as a Vice President at Smurfit-Stone since 2000. He was Senior Vice President, Containerboard Operations for St. Laurent Paperboard Inc. from 1999 to 2000 and was Mill Manager at a number of operations for Donohue Inc. and Avenor Inc.

Mr. Grandmont previously served as Executive Vice President, Human Resources and Supply Chain from July 2009 to January 2011 and as Senior Vice President, Commercial Printing Papers Division from October 2007 to July 2009. He served as Senior Vice President, Commercial Printing Papers of Abitibi from 2005 to October 2007 and as Senior Vice President, Value-Added Operations and Sales of Abitibi in 2004.

Mr. Harvey previously served as Executive Vice President and Chief Financial Officer from July 2009 to January 2011 and as Senior Vice President and Chief Financial Officer from October 2007 to July 2009. He served as Executive Vice President and Chief Financial Officer of Bowater from August 2006 to October 2007, as Senior Vice President and Chief Financial Officer and Treasurer of Bowater from 2005 to 2006 and as Vice President and Treasurer of Bowater from 1998 to 2005.

Mr. Lafave previously served as Vice President Sales, National Accounts – Paper Sales and as Vice President Sales, National
Accounts – Newsprint and Vice President Sales, Commercial Printers of Abitibi from 2004 to 2009. He held progressive positions in sales with UPM-Kymmene and Repap Enterprises.

Mr. Laflamme previously served as Senior Vice President, Wood Products from October 2007 to January 2011, as Senior Vice President, Woodlands and Sawmills of Abitibi from 2006 to October 2007 and as Vice President, Sales, Marketing and Value-Added Wood Products Operations of Abitibi from 2004 to 2005.

Mr. Vachon previously served as Senior Vice President, Corporate Affairs and Chief Legal Officer from October 2007 to January 2011 and as Senior Vice President, Corporate Affairs and Secretary of Abitibi from 1997 to October 2007.

If the Canadian dollar continues to remain strong or gets stronger versus the U.S. dollar, it could influence the foreign exchange rate assumptions that are used in our evaluation of long-lived assets for impairment and consequently, result in asset impairment charges.

We face intense competition in the forest products industry and the failure to compete effectively would have a material adverse effect on our business, financial condition or results of operations.

We compete with numerous forest products companies, many of which have greater financial resources than we do. There has been a continued trend toward consolidation in the forest products industry, 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 we do. The markets for our products are all highly competitive. Actions by competitors can affect our ability to sell our products and can affect the volatility of the prices at which our products are sold. While the principal basis for competition is price, we also compete on the basis of customer service, quality and product type. There has also been an increasing trend toward consolidation among our customers. With fewer customers in the market for our products, our negotiating position with these customers could be weakened.

In addition, our industry is capital intensive, which leads to high fixed costs. Some of our competitors may be lower-cost producers in some of the businesses in which we operate. Global newsprint capacity, particularly Chinese and European newsprint capacity, has been increasing, which may result in lower prices, volumes or both for our exported products. We believe that hardwood pulp capacity at South American pulp mills has unit costs that are significantly below those of our hardwood kraft pulp mills. Other actions by competitors, such as reducing costs or adding low-cost capacity, may adversely affect our competitive position in the products we manufacture and consequently, our sales, operating income and cash flows. We may not be able to compete effectively and achieve adequate levels of sales and product margins. Failure to compete effectively would have a material adverse effect on our business, financial condition or results of operations.

The forest products industry is highly cyclical. Fluctuations in the prices of, and the demand for, our products could result in small or negative profit margins, lower sales volumes and curtailment or closure of operations.

The forest products industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for our products. Most of our paper and wood products are commodities that are widely available from other producers and even our coated and specialty papers are susceptible to these fluctuations. Because our commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for the products we manufacture and distribute and consequently, our sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general economic conditions in North America and worldwide. In 2008 and 2009, we experienced lower demand and decreased pricing for our wood products due to a weaker U.S. housing market. As a result, during 2008, we announced the curtailment of annualized capacity of approximately 1.3 billion board feet of lumber in the provinces of Quebec and British Columbia and during 2009 and 2010, we continued our wood products’ operating rate at extremely low levels. We did not see any significant improvement in the U.S. housing market in 2010 and there is significant uncertainty with respect to near-term prospects for recovery in the market. Curtailments or shutdowns could result in asset impairments at the affected facilities and could materially and adversely affect our results of operations or financial condition.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to service our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The credit agreement that governs our ABL Credit Facility and the indenture related to the 2018 Notes (each as defined below in Item 7 under “Liquidity and Capital Resources”) restrict our ability to dispose of

assets and use the proceeds from any such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or obtain proceeds in an amount sufficient to meet any debt service obligations when due.

If we are unable to generate sufficient cash flows to service our obligations under the 2018 Notes and the ABL Credit Facility, we would be in default. If the default is not cured, holders of the 2018 Notes could declare all outstanding principal and interest to be due and payable, the lenders under the ABL Credit Facility could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing such borrowings and we could be forced into bankruptcy or liquidation.

The credit agreement that governs the ABL Credit Facility and the 2018 Notes indenture may restrict our ability to respond to changes or to take certain actions.

The 2018 Notes indenture and the credit agreement that governs our ABL Credit Facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including, among other things, restrictions on our ability to: incur, assume or guarantee additional indebtedness; issue redeemable stock and preferred stock; pay dividends or make distributions or redeem or repurchase capital stock; prepay, redeem or repurchase certain debt; make loans and investments; incur liens; restrict dividends, loans or asset transfers from our subsidiaries; sell or otherwise dispose of assets, including capital stock of subsidiaries; consolidate or merge with or into, or sell substantially all of our assets to another person; enter into transactions with affiliates; and enter into new lines of business.

In addition, the restrictive covenants in the credit agreement that governs our ABL Credit Facility could require us to maintain a specified financial ratio if the availability falls below a certain threshold, as well as satisfy other financial condition tests. Additionally, we are required to maintain a specified minimum liquidity of at least $200 million if the provinces of Quebec and Ontario do not adopt the pension funding relief regulations described in Item 7 under “Employee Benefit Plans – Resolution of Canadian pension situation.” Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there can be no assurance that we will meet them.

A breach of the covenants under the 2018 Notes indenture or under the credit agreement that governs the ABL Credit Facility could result in an event of default under the applicable indebtedness. Such default may allow the holders to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement that governs our ABL Credit Facility would permit the

lenders under our ABL Credit Facility to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our ABL Credit Facility, those lenders could proceed against the collateral over which they have priority granted to them to secure that indebtedness. In the event our lenders under the ABL Credit Facility or holders of the 2018 Notes accelerate the repayment of our borrowings, there can be no assurance that we and our subsidiaries would have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to grow in accordance with our plans.

Our operations require substantial capital and we may be unable to maintain adequate capital resources to provide for all of our capital requirements.

Our businesses are capital intensive and require regular capital expenditures in order to maintain our equipment, increase our operating efficiency and comply with environmental laws. In addition, significant amounts of capital may be required to modify our equipment to produce alternative grades with better demand characteristics or to make significant improvements in the characteristics of our current products. If our available cash resources and cash generated from operations are not sufficient to fund our operating needs and capital expenditures, we would have to obtain additional funds from borrowings or other available sources or reduce or delay our capital expenditures. Recent global credit conditions and the downturn in the global economy have resulted in a significant decline in the credit markets and the overall availability of credit. Our indebtedness could adversely affect our financial health, limit our operations and impair our ability to raise additional capital. See “–If we incur substantial additional debt, our degree of leverage may limit our financial and operating activities” above. If this occurs, we may not be able to obtain additional funds on favorable terms or at all. If we cannot maintain or upgrade our equipment as we require, we may become unable to manufacture products that compete effectively. An inability to make required capital expenditures in a timely fashion could have a material adverse effect on our growth, business, financial condition or results of operations.

We may not be successful in implementing our strategies to increase our return on capital.

We are targeting a higher return on capital, which may require significant capital investments with uncertain return outcomes. Our strategies include improving our business mix, reducing our costs and increasing operational flexibility, targeting export markets with better newsprint demand and exploring strategic alternatives. There are risks associated with the implementation of these strategies, which are complicated and involve a substantial number of mills, machines, capital and personnel. To the extent we are unsuccessful in achieving these strategies, our results of operations may be adversely affected.

Our manufacturing businesses may have difficulty obtaining wood fiber at favorable prices, or at all.

Wood fiber is the principal raw material we use in our business. We use both virgin fiber (wood chips and logs) and recycled fiber (old newspapers and magazines) as fiber sources for our paper mills. The primary source for wood fiber is timber. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in Canada and the United States. In addition, future domestic or foreign legislation or regulation, litigation advanced by Aboriginal groups and litigation concerning the use of timberlands, forest management practices, the protection of endangered species, the promotion of forest biodiversity and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may further be limited by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms, drought, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. As is typical in the industry, we do not maintain insurance for any loss to our outstanding timber from natural disasters or other causes.

Wood fiber is a commodity and prices historically have been cyclical, are subject to market influences and may increase in particular regions due to market shifts. Pricing of recycled fiber is also subject to market influences and has experienced significant fluctuations. During the last two years, the prices of old newspapers have ranged from a low of $76 average per ton during the first quarter of 2009 to a high of $153 average per ton during the fourth quarter of 2010. There can be no assurance that prices of recycled fiber will remain at levels that are economical for us to use. Any sustained increase in fiber prices would increase our operating costs and we may be unable to increase prices for our products in response, which could have a material adverse effect on our results of operations or financial condition.

There can be no assurance that access to fiber will continue at the same levels as in the past. The cost of softwood fiber and the availability of wood chips may be affected. If our cutting rights pursuant to the forest licenses or forest management agreements are reduced or if any third-party supplier of wood fiber stops selling or is unable to sell wood fiber to us, our financial condition or operating results could suffer.

A sustained increase in the cost of purchased energy and other raw materials would lead to higher manufacturing costs, thereby reducing our margins.

Our operations consume substantial amounts of energy, such as electricity, natural gas, fuel oil, coal and wood waste. We buy energy and raw materials, including chemicals, wood, recovered paper and other raw materials, primarily on the open market.

The prices for raw materials and energy are volatile and may change rapidly, directly affecting our results of operations. The availability of raw materials and energy may also be disrupted by many factors outside our control, adversely affecting our operations. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years and prices every year since 2005 have exceeded long-term historical averages. As a result, fluctuations in energy prices will impact our manufacturing costs and contribute to earnings volatility.

We are a major user of renewable natural resources such as water and wood. Accordingly, significant changes in climate and forest diseases or infestation could affect our financial condition or results of operations. The volume and value of timber that we can harvest or purchase may be limited by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms, drought, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. As is typical in the industry, we do not maintain insurance for any loss to our standing timber from natural disasters or other causes. Also, there can be no assurance that we will be able to maintain our water rights or to renew them at conditions comparable to those currently in effect.

For our commodity products, the relationship between industry supply and demand for these products, rather than changes in the cost of raw materials, will determine our ability to increase prices. Consequently, we may be unable to pass along increases in our operating costs to our customers. Any sustained increase in energy, chemical or raw material prices without any corresponding increase in product pricing would reduce our operating margins and potentially require us to limit or cease operations of one or more of our machines.

The global financial crisis and economic downturn could continue to negatively impact our liquidity, results of operations or financial condition and it may cause a number of the risks that we currently face to increase in likelihood, magnitude and duration.

The global financial crisis and economic downturn has adversely affected economic activity globally. Our operations and performance depend significantly on worldwide economic conditions. Customers across all of our businesses have been delaying and reducing their expenditures in response to deteriorating macroeconomic and industry conditions and uncertainty, which has had a significant negative impact on the demand for our products and therefore, the cash flows of our businesses, and could continue to have a negative impact on our liquidity and capital resources.

Our newsprint, coated papers and specialty papers demand has been and is expected to be negatively impacted by higher unemployment and lower gross domestic product growth rates. We believe that some consumers have reduced newspaper and magazine subscriptions as a direct result of their financial circumstances in the current economic downturn, contributing to lower demand for our products by our customers. Additionally, advertising demand in magazines and newspapers, including classified advertisements, and demand from automotive dealerships and real estate agencies have been impacted by higher unemployment, lower automobile sales and the distressed real estate environment. Lower demand for print advertisements leads to fewer pages in newspapers, magazines and other advertisement circulars and periodicals, decreasing the demand for our products. Furthermore, consumer and advertising-driven demand for our paper products may not recover, even with an economic recovery, as purchasing habits may be permanently changed with a prolonged economic downturn.

The economic downturn has had a profoundly negative impact on the U.S. housing industry, which sets the prices for many of our lumber and other wood-based products. According to the U.S. Census Bureau, U.S. housing starts declined from approximately 1.4 million in 2007 to approximately 0.5 million in 2010, reflecting a 61% decline. With this low level of primary demand for our lumber and other wood-based products, our wood products business may continue to operate at a low level until there is a meaningful recovery in new residential construction demand. With less demand for saw logs at sawmills throughout North America and lower saw log prices, our timberland values may decline, impacting some of our financial options. Additionally, with less lumber demand, sawmills have generated less sawdust and wood chips and shavings that we use for fiber for our mills. The price of sawdust and wood chips for our mills that need to purchase their furnish on the open market may also continue to be at elevated levels, until there is a meaningful recovery in new residential demand in the U.S.

Changes in laws and regulations could adversely affect our results of operations.

We are subject to a variety of foreign, federal, state, provincial and local laws and regulations dealing with trade, employees, transportation, taxes, timber and water rights, pension funding and the environment. Changes in these laws or regulations or their interpretations or enforcement have required in the past, and could require in the future, substantial expenditures by us and adversely affect our results of operations. For example, changes in environmental laws and regulations have in the past, and could in the future, require us to spend substantial amounts to comply with restrictions on air emissions, wastewater discharge, waste management, landfill sites, including remediation costs, the Environmental Protection Agency’s new greenhouse gas regulations and Boiler MACT. Environmental laws are becoming increasingly stringent. Consequently, our compliance and remediation costs could increase materially.

Changes in the political or economic conditions in Canada, the United States or other countries in which our products are manufactured or sold could adversely affect our results of operations.

We manufacture products in Canada, the United States and South Korea and sell products throughout the world. 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. The economic and political climate of each region has a significant impact on our costs and the prices of, and demand for, our products. Changes in regional economies or political instability, including acts of war or terrorist activities, can affect the cost of manufacturing and distributing our products, pricing and sales volume, directly affecting our results of operations. Such changes could also affect the availability or cost of insurance.

We may be required to record additional environmental liabilities.

We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment, including those governing air emissions, wastewater discharges, timber harvesting, the storage, management and disposal of hazardous substances and waste, the clean-up of contaminated sites, landfill and lagoon operation and closure, forestry operations, endangered species habitat and health and safety. As an owner and operator of real estate and manufacturing and processing facilities, we may be liable under environmental laws for cleanup and other costs and damages, including tort liability and damages to natural resources, resulting from past or present spills or releases of hazardous or toxic substances on or from our current or former properties. We may incur liability under these laws without regard to whether we knew of, were responsible for, or owned the property at the time of, any spill or release of hazardous or toxic substances on or from our property, or at properties where we arranged for the disposal of regulated materials. Claims may also arise out of currently unknown environmental conditions or aggressive enforcement efforts by governmental or private parties. As a result of the above, we may be required to record additional environmental liabilities. For information regarding environmental matters to which we are subject, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

We are subject to physical and financial risks associated with climate change.

Our operations are subject to climate variations, which impact the productivity of forests, the distribution and abundance of species and the spread of disease or insect epidemics, which may adversely or positively affect timber production. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters such as hurricanes, earthquakes, hailstorms, wildfires, snow and ice storms, which could also affect our woodlands or cause variations in the cost for raw materials, such as fiber. Changes in precipitation resulting in droughts could adversely affect our hydroelectric facilities’ production, increasing our energy costs, while increased precipitation may generally have positive effects.

To the extent climate change impacts raw material availability or our electricity production, it may also impact our costs and revenues. Furthermore, should financial markets view climate change as a financial risk, our ability to access capital markets or to receive acceptable terms and conditions could be affected.

We may be required to record long-lived asset impairment charges.

Losses related to impairment of long-lived assets are recognized when circumstances indicate the carrying values of the assets may not be recoverable, such as continuing losses in certain locations. When certain indicators that the carrying value of a long-lived asset may not be recoverable are triggered, we evaluate the carrying value of the asset group in relation to our expected undiscounted future cash flows. If the carrying value of the asset group is greater than the expected undiscounted future cash flows, an impairment charge is recorded based on the excess of the long-lived asset group’s carrying value over its fair value.

If there were to be a triggering event, it is possible that we could record non-cash long-lived asset impairment charges in future periods, which would be recorded as operating expenses and would directly and negatively impact our reported operating income (loss) and net income (loss).

We may be required to record additional valuation allowances against our recorded deferred income tax assets.

We recorded significant tax attributes (deferred income tax assets) in our Consolidated Balance Sheet as of December 31, 2010, which attributes would be available to offset any future taxable income. If we later determine that we are unable to use the full extent of these tax attributes as a result of sustained cumulative future taxable losses, we could be required to record additional valuation allowances for the unusable portion of the tax attributes. Such valuation allowances, if taken, would be recorded as a charge to income tax expense and would negatively impact our reported net income (loss).

If expected regulations are not adopted in a timely fashion in Quebec and Ontario to implement special funding parameters in respect of our material Canadian registered pension plans, or if we do not meet certain related undertakings, this could have a material impact on our financial condition.

Pension plan funding obligations, including special funding obligations in respect of solvency deficits within pension plans, are generally determined based on applicable law. We reached agreements with the provinces of Quebec and Ontario for special funding parameters in respect of our material Canadian registered pension plans, 15 of which are defined benefit plans registered in Quebec and Ontario and currently have a material aggregate solvency deficit. The agreements provide for a number of undertakings by AbiBow Canada and the adoption of funding relief regulations in those provinces consistent with those special funding parameters, as further described in Item 7 under “Employee Benefit Plans – Resolution of Canadian pension situation.” There can be no definitive assurance that the regulations will be adopted in a timely fashion, or that if adopted, that they will be consistent with our expectation, either of which could have a material impact on our financial condition. If and when the regulations are adopted, we could lose their benefit if we fail to comply or fail to meet our undertakings in the related agreements.

A $286 million reserve has been established against AbiBow Canada’s borrowing base under the ABL Credit Facility until these regulations are adopted, which restricts its ability to draw on the ABL Credit Facility, should the need to do so arise. As of December 31, 2010, AbiBow Canada had no availability under the ABL Credit Facility. Furthermore, if as of April 30, 2011, the regulations discussed above have not been adopted, we will be required pursuant to the ABL Credit Facility to maintain a specified minimum liquidity of at least $200 million until their adoption. This could have a material impact on our financial condition.

It is also possible that provinces other than Quebec and Ontario could attempt to assert jurisdiction and to compel additional funding of certain of our Canadian registered pension plans in respect of plan members associated with sites we formerly operated in their respective provinces.

We could be compelled to make additional environmental remediation payments in respect of certain sites we formerly owned and/or operated in the province of Newfoundland and Labrador.

On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which will hear the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings. Any additional environmental remediation payments required to be made by us could have a material adverse effect on our results of operations or financial condition. For information regarding our environmental matters, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

Continued weakness in the global economy may significantly inhibit our ability to sell assets.

Non-core asset sales have been and may continue to be a source of additional liquidity and may be a source of debt repayment in the future. We expect to continue to review non-core assets and seek to divest those that no longer fit within our long-term strategic business plan. However, as a result of the current global economy and credit conditions, it may be difficult for potential purchasers to obtain the financing necessary to buy such assets. As a result, we may be forced to sell the assets for significantly lower amounts than planned or may not be able to sell them at all.

We could experience disruptions in operations or increased labor costs due to labor disputes.

As of December 31, 2010, we employed approximately 10,500 people, of whom approximately 7,500 were represented by bargaining units. Our unionized employees are represented predominantly by the CEP in Canada and predominantly by the United Steelworkers International in the U.S.

The employees at the Mokpo facility have complied with all conditions necessary to strike, but the possibility of a strike or lockout of those employees is not clear; we served the six-month notice necessary to terminate the collective bargaining agreement related to the Mokpo facility in June 2009.

We have collective bargaining agreements in place covering the majority of our unionized employees, many of which have been recently renewed and revised. However, there can be no assurance that we will maintain continuously satisfactory agreements with all of our unionized employees or that we will finalize satisfactory agreements with the remaining unionized employees (which include approximately 300 wood workers in Quebec). Should we be unable to do so, it could result in strikes or other work stoppages by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.

The occurrence of natural or man-made disasters could disrupt our supply chain and the delivery of our products and adversely affect our financial condition or results of operations.

The success of our businesses is largely contingent on the availability of direct access to raw materials and our ability to ship products on a timely basis. As a result, any event that disrupts or limits transportation or delivery services would materially and adversely affect our business. In addition, our operating results are dependent on the continued operation of our various production facilities and the ability to complete construction and maintenance projects on schedule. Material operating interruptions at our facilities, including interruptions caused by the events described below, may materially reduce the productivity and profitability of a particular manufacturing facility, or our business as a whole, during and after the period of such operational difficulties.

Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, our operations are subject to hazards inherent in our business and the transportation of raw materials, products and wastes. These potential hazards include: explosions; fires; severe weather and natural disasters; mechanical failures; unscheduled downtimes; supplier disruptions; labor shortages or other labor difficulties; transportation interruptions; remediation complications; discharges or releases of toxic or hazardous substances or gases; other environmental risks; and terrorist acts.

Some of these hazards may cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage and may result in suspension of operations, the shutdown of affected facilities and the imposition of civil or criminal penalties. Furthermore, except for claims that were addressed by the Plans of Reorganization, we will also continue to be subject to present and future claims with respect to workplace exposure, exposure of contractors on our premises, as well as other persons located nearby, workers’ compensation and other matters.

We maintain property, business interruption, product, general liability, casualty and other types of insurance, including pollution and legal liability, that we believe are in accordance with customary industry practices, but we are not fully insured against all potential hazards incident to our business, including losses resulting from natural disasters, war risks or terrorist acts. Changes in insurance market conditions have caused, and may in the future cause, premiums and deductibles for certain insurance policies to increase substantially and in some instances, for certain insurance to become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, we might not be able to finance the amount of the uninsured liability on terms acceptable to us or at all, and might be obligated to divert a significant portion of our cash flow from normal business operations.

Shared control or lack of control of joint ventures may delay decisions or actions regarding the joint ventures.

A portion of our operations currently are, and may in the future be, conducted through joint ventures, where control may be exercised by or shared with unaffiliated third parties. We cannot control the actions of our joint venture partners, including any nonperformance, default or bankruptcy of joint venture partners. The joint ventures that we do not control may also lack adequate internal controls systems.

In the event that any of our joint venture partners do not observe their joint venture obligations, it is possible that the affected joint venture would not be able to operate in accordance with our business plans or that we would be required to increase our level of commitment in order to give effect to such plans. As with any such joint venture arrangements, differences in views among the joint venture participants may result in delayed decisions or in failures to agree on major matters, potentially adversely affecting the business and operations of the joint ventures and in turn our business and operations.

Bankruptcy of a significant customer could have a material adverse effect on our liquidity, financial condition or results of operations.

Trends in alternative media continue to impact the operations of our newsprint customers. See “–Developments in alternative media could continue to adversely affect the demand for our products, especially in North America, and our responses to these developments may not be successful” above. If a customer is forced into bankruptcy as a result of these trends, any receivables related to that customer prior to the date of the bankruptcy filing of such customer may not be realized. In addition, such a customer may choose to reject its contracts with us, which could result in a larger claim arising prior to the date of the bankruptcy filing of such customer that also may not be realized.

Because our Consolidated Financial Statements reflect adjustments related to the implementation of the Plans of Reorganization and the application of fresh start accounting as a result of our emergence from the Creditor Protection Proceedings, the consolidated financial statements of the Successor Company will not be comparable to the consolidated financial statements of the Predecessor Company.

As of December 31, 2010, we applied fresh start accounting, pursuant to which the reorganization value, as derived from the enterprise value established in the Plans of Reorganization, was allocated to our assets and liabilities based on their fair values (except for deferred income taxes and pension and OPEB projected benefit obligations) in accordance with FASB ASC 805, “Business Combinations” (“FASB ASC 805”), with the excess of net asset values over the reorganization value recorded as an adjustment to equity. The amount of deferred income taxes recorded was determined in accordance with FASB ASC 740, “Income Taxes” (“FASB ASC 740”). The amount of pension and OPEB projected benefit obligations recorded was determined in accordance with FASB ASC 715, “Compensation – Retirement Benefits” (“FASB ASC 715”). Additionally, the implementation of the Plans of Reorganization, among other things, resulted in a new capital structure that replaced our historical pre-petition capital structure. The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our Consolidated Financial Statements for periods prior to December 31, 2010 will not be comparable to our consolidated financial statements as of December 31, 2010 or for periods subsequent to December 31, 2010. For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.

Certain liabilities were not fully extinguished as a result of our emergence from the Creditor Protection Proceedings.

While a significant amount of our existing liabilities were discharged upon emergence from the Creditor Protection Proceedings, a number of obligations remain in effect following the effective date of the Plans of Reorganization. Various agreements and liabilities remain in place, such as certain employee benefit and pension obligations, potential environmental liabilities related to sites in operation or formerly owned or operated by us and other contracts that, even if they were modified during the Creditor Protection Proceedings, may still subject us to substantial obligations and liabilities. Other claims, such as those alleging toxic tort or product liability, or environmental liability related to formerly owned or operated sites, were not extinguished.

Other circumstances in which claims and other obligations that arose prior to Creditor Protection Proceedings were not discharged include instances where a claimant had inadequate notice of the Creditor Protection Proceedings or a valid argument as to when its claim arose or as a matter of law or otherwise.

It is unlikely that we will pay dividends with respect to our common stock in the foreseeable future.

It is unlikely that we will pay any dividends with respect to our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of the board of directors and will be dependent on then-existing conditions, including our financial condition, results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant. The 2018 Notes indenture and the credit agreement that governs the ABL Credit Facility contain restrictions on our ability to pay dividends.

As a result of the consummation of the Plans of Reorganization, there are significant holders of our common stock.

Upon consummation of the Plans of Reorganization, certain holders of claims received distributions of our common stock representing a substantial percentage of the outstanding shares of our common stock. If these holders of claims obtained a sufficiently sizeable position of our common stock, such holders could be in a position to influence the outcome of actions requiring shareholder approval, including, among other things, the election of board members. This concentration of ownership could also facilitate or hinder a negotiated change of control and consequently, impact the value of our common stock. Furthermore, the possibility that one or more holders of a significant number of shares of our common stock may sell all or a large portion of its shares of our common stock in a short period of time may adversely affect the trading price of our common stock.

ITEM 3. LEGAL PROCEEDINGS

Creditor Protection Proceedings

For information regarding the Creditor Protection Proceedings from which we emerged on December 9, 2010, see Item 1, “Business – Creditor Protection Proceedings.”

BCFC Bankruptcy and Insolvency Act Filing

As part of a negotiated resolution to certain objections to the Plans of Reorganization, as reflected in the U.S. Court’s order confirming the Chapter 11 Reorganization Plan, BCFC has been dismissed from the CCAA Proceedings and is expected to be dismissed from the Chapter 11 Cases. In addition, BCFC has made an assignment for the benefit of its creditors under the Bankruptcy and Insolvency Act (Canada) (the “BIA”). BCFC appointed a trustee as its representative in the BIA filing, whose responsibilities are to prosecute its claims (including a disputed claim in the Creditor Protection Proceedings), distribute its property, if any, and others as provided by the BIA.

Bridgewater Administration

On February 2, 2010, BPCL filed for administration in the United Kingdom pursuant to the United Kingdom Insolvency Act 1986, as amended. BPCL’s board of directors appointed Ernst & Young LLP as joint administrators for the BPCL Administration, whose responsibilities are to manage the affairs, business and assets of BPCL. For additional information, see Item 1, “Business – Bridgewater Administration.”

Newfoundland and Labrador Expropriation

For information regarding our August 24, 2010 settlement agreement with the Canadian government regarding the December 2008 expropriation of certain of our assets and rights in the province of Newfoundland and Labrador by the provincial government, see Item 1, “Business – Newfoundland and Labrador Expropriation.”

Legal Items

We are involved in various legal proceedings relating to contracts, commercial disputes, taxes, environmental issues, employment and workers’ compensation claims, Aboriginal claims and other matters. We periodically review the status of these proceedings with both inside and outside counsel. Although the final outcome of any of these matters is subject to many variables and cannot be predicted with any degree of certainty, we establish reserves for a matter (including legal costs expected to be incurred) when we believe an adverse outcome is probable and the amount can be reasonably estimated. We believe that the ultimate disposition of these matters will not have a material adverse effect on our financial condition, but it could have a material adverse effect on our results of operations in any given quarter or year.

Subject to certain exceptions, all litigation against the Debtors that arose out of pre-petition conduct or acts was subject to the automatic stay provisions of Chapter 11 and the CCAA and the orders of the Courts rendered thereunder and subject to certain exceptions, any recovery by the plaintiffs in those matters was treated consistently with all other general unsecured claims in the Creditor Protection Proceedings, i.e., to the extent a disputed general unsecured claim becomes an accepted claim, the claimholder would be entitled to receive a ratable amount of Successor Company common stock from the reserve established on the Emergence Date for this purpose, as discussed in Item 1, “Business – Creditor Protection Proceedings.” As a result, we believe that these matters will not have a material adverse effect on our results of operations or financial position.

On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008 with Bill 75. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which will hear the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings, which payments could have a material impact on our results of operations or financial condition.

We settled certain matters on December 23, 2010 relating to Woodbridge’s March 9, 2010 motion in the U.S. Court to force Abitibi Consolidated Sales Corporation (“ACSC”), an indirect, wholly-owned subsidiary of AbitibiBowater Inc., to reject the partnership agreement governing ANC (an appeal of which to the U.S. Court was rejected) and our U.S. Court-approved

rejection in October 2009 of an amended and restated call agreement in respect of Augusta Newsprint Inc. (“ANI”), an indirect subsidiary of Woodbridge and our former partner in ANC. ANC is the partnership that owned and operated the Augusta newsprint mill before we purchased from Woodbridge all of the issued and outstanding securities of ANI. Woodbridge’s claims for damages resulting from our rejection of the amended and restated call agreement remains a disputed general unsecured claim in the claims resolution process. If Woodbridge’s claims are successful, any award would be settled out of the share reserve and would not impact our results of operations and cash flows. The call agreement would have obligated ACSC to either buy out ANI at a price well above market, or risk losing all of its equity in the joint venture pursuant to forced sale provisions. In connection with the settlement, we entered into a stock purchase agreement pursuant to which ANC acquired from Woodbridge all of the issued and outstanding voting securities of ANI. ANI owned a 47.5% interest in ANC and ACSC owned the remaining 52.5% interest. After giving effect to the transaction on January 14, 2011, ANC distributed the ANI securities to ACSC, and ANI thus became a wholly-owned subsidiary of ACSC and a wholly-owned subsidiary of ours.

Following the announcement of the permanent closure of our Donnacona, Quebec paper mill, on December 3, 2008, the Centrale Syndicale Nationale (“CSN”) and the employees of the Donnacona mill filed against us, Investissement Quebec and the government of the province of Quebec a civil lawsuit before the Superior Court of the district of Quebec. The CSN and the employees also filed a grievance claim for labor arbitration on the same basis. The CSN and the employees had claimed an amount of approximately $48 million in salary through April 30, 2011, as well as moral and exemplary damages, arguing that we failed to respect the obligations subscribed in the context of a loan made by Investissement Quebec. The CSN and the employees had also claimed that Investissement Quebec and the government were solidarily responsible for the loss allegedly sustained by the employees. We settled the matter and the two related grievances in the fourth quarter of 2010 and, as a result, recognized an approximate $5 million general unsecured claim, which will be settled out of the share reserve and will not impact our cash flows.

On June 18, 2007, The Levin Group, L.P. filed a complaint against Bowater in the Supreme Court of New York, New York County, asserting claims for breach of contract and related claims relating to certain advisory services purported to have been provided by the plaintiff in connection with the Combination. The Levin Group sought damages of not less than $70 million, related costs and such other relief as the court deemed just and proper. As part of the Creditor Protection Proceedings, we filed a motion with the U.S. Court to reject the engagement letter entered into with The Levin Group pursuant to which The Levin Group was asserting the claims. As a result, The Levin Group filed a proof of claim for approximately $88 million in the Chapter 11 claims process, which remains a disputed general unsecured claim that will be resolved in the claims resolution process. Accordingly, to the extent The Levin Group is successful, we expect any award would be settled out of the share reserve and would not impact our results of operations and cash flows.

Since late 2001, Bowater, several other paper companies, and numerous other companies have been named as defendants in asbestos personal injury actions. These actions generally allege occupational exposure to numerous products. We have denied the allegations and no specific product of ours has been identified by the plaintiffs in any of the actions as having caused or contributed to any individual plaintiff’s alleged asbestos-related injury. These suits have been filed by approximately 1,800 claimants who sought monetary damages in civil actions pending in state courts in Delaware, Georgia, Illinois, Mississippi, Missouri, New York and Texas. Approximately 1,000 of these claims have been dismissed, either voluntarily or by summary judgment, and approximately 800 claims remain. We expect that any resulting liability would be a general unsecured claim in the claims resolution process, which would be settled out of the share reserve and would not impact our results of operations and cash flows.

For a discussion of environmental matters to which we are subject, see Note 22, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 6. SELECTED FINANCIAL DATA

The following table presents summary historical consolidated financial information for each of the last five years and should be read in conjunction with Items 7 and 8. The selected financial information for the years ended December 31, 2010, 2009 and 2008 and as of December 31, 2010 and 2009 under the captions “Statement of Operations Data,” “Segment Sales Information,” “Statement of Cash Flows Data” and “Financial Position” shown below has been derived from our audited Consolidated Financial Statements. All other data under the above-referenced sections has been derived from our or Bowater’s audited consolidated financial statements, which are not included in this Form 10-K. As discussed in Item 1, “Business,” on October 29, 2007, Abitibi and Bowater became subsidiaries of AbitibiBowater Inc. The data set forth below reflects the results of operations and financial position of Bowater for the periods before October 29, 2007 and those of both Abitibi and Bowater for periods beginning on or after October 29, 2007, and may not be indicative of our future financial condition or results of operations.

As previously discussed, the implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our Consolidated Financial Statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, the consolidated financial statements of the Predecessor Company will not be comparable to the consolidated financial statements of the Successor Company. For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.

(1)		Operating (loss) income for 2010, 2009, 2008, 2007 and 2006 included a net gain on disposition of assets and other of $30 million, $91 million, $49 million, $145 million and $186 million, respectively, and included closure costs, impairment of assets other than goodwill and other related charges of $11 million, $202 million, $481 million, $123

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) provides information that we believe is useful in understanding our results of operations, cash flows and financial condition for the years ended December 31, 2010, 2009 and 2008. This discussion should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements.

Creditor Protection Proceedings

For information regarding the Creditor Protection Proceedings from which we emerged on December 9, 2010, see Item 1, “Business – Creditor Protection Proceedings.”

Bridgewater Administration

For information regarding our BPCL subsidiary’s filing for administration in the United Kingdom on February 2, 2010, see Item 1, “Business – Bridgewater Administration.”

Business Strategy and Outlook

We emerged from the Creditor Protection Proceedings with a more flexible, lower-cost operating platform and a conservative capital structure. Through aggressive capacity reductions, we streamlined our asset base and the substantial majority of our remaining assets are highly competitive, top performing facilities. We have reduced our debt levels from approximately $6.2 billion at the time of filing for creditor protection to approximately $0.9 billion as of December 31, 2010 (excluding ACH’s long-term debt of $280 million, which was included in “Liabilities associated with assets held for sale” in our Consolidated Balance Sheets as of December 31, 2010). We have substantially lowered our debt service charges, as well as our selling, general and administrative expenses (“SG&A”). We have also lowered overall manufacturing costs including significant reductions in salary and labor wages and costs.

Our business strategy, which continues actions taken during our Creditor Protection Proceedings, is focused on the following key elements: (i) improving our business mix and targeting markets with better demand characteristics, (ii) continuing to improve our cost structure, (iii) further reducing debt and (iv) opportunistically examining growth alternatives.

Improve business mix

We plan to continue our focus on improving our business mix on grades that have and are expected to offer better margins and higher returns. We believe we have cost effective opportunities to grow into grades that offer better demand characteristics, margins and returns compared to newsprint.

Although North American newsprint demand is expected to continue to decline, world newsprint demand, excluding North America, is expected to grow by approximately 0.3% per year from 2010 to 2012, with growth being strongest in Asia, Latin America and the Middle East. The growth in many of the international markets is primarily the result of increased urbanization trends, a rapidly growing middle class, lower Internet penetration rates per capita versus developed countries, economic growth and rising literacy rates. Accordingly, we will continue to focus on capitalizing on the growth of these markets. The location of certain of our mills, which are on or near deep sea ports, allows us the opportunity to serve these higher growth markets.

Reduce costs

We will aggressively focus on reducing our manufacturing costs through operational improvements at our sites and making focused capital investments to improve our cost competitiveness at our critical sites. We will manage our capital spending carefully and plan to take advantage of funding opportunities under the Canadian Pulp and Paper Green Transformation Program (the “Canadian Green Initiative Program”) on energy and other projects in Canada.

We have significantly reduced our SG&A costs from $332 million in 2008 to $155 million in 2010 and have targeted further reductions in SG&A for 2011.

Reduce debt

Reducing debt and the associated interest charges is one of our primary financial goals. We believe this would improve our financial flexibility and support the implementation of our strategic objectives. The indenture governing the 2018 Notes provides that we must use the first $100 million of the net proceeds received from certain asset sales occurring within six months of the Emergence Date to redeem a portion of the 2018 Notes at a redemption price of 105% of the principal amount, plus accrued and unpaid interest. We expect to apply a portion of the net proceeds from the recently announced sale of our 75% interest in ACH, as described below under “Liquidity and Capital Resources,” to that end. The indenture also provides other opportunities for further note redemptions, subject to certain conditions, including the option, before October 15, 2013, to redeem up to 10% of the 2018 Notes per twelve-month period at a redemption price of 103% of the principal amount, plus accrued and unpaid interest.

Explore strategic opportunities

We believe there will be continued consolidation in the paper and forest products sector as we and our competitors continue to explore ways to increase efficiencies and diversify customer offerings. We believe consolidation could benefit us by allowing us to capture synergies and operate with a lower cost platform. Accordingly, from time to time, we may explore strategic opportunities to enhance our business and improve our returns. Additionally, we will continue to execute on our non-core asset sales initiatives and use the proceeds to continue to improve our balance sheet, increase financial flexibility or reinvest in our business.

Outlook

Overall, the significant operational and financial restructuring that we have implemented since the Combination and during the Creditor Protection Proceedings has provided a competitive operating platform and a conservative capital structure. We believe this operating platform, our financial flexibility and liquidity levels combined, provide us the opportunity to implement our strategies and better manage the continued secular decline in paper consumption.

We will continually strive to improve these strategies and implement more aggressive actions to mitigate downside risk due to cost pressures and cost spikes in our manufacturing costs and a stronger Canadian dollar (currently above parity to the U.S. dollar), which has a significant impact on our financial performance of our Canadian manufacturing sites.

As a result of the implementation of the Plans of Reorganization and the application of fresh start accounting, as well as other actions taken during the Creditor Protection Proceedings, the consolidated financial statements of the Successor Company will not be comparable to the consolidated financial statements of the Predecessor Company. Beginning in 2011, it is expected that the consolidated statement of operations of the Successor Company will be significantly different from the Predecessor Company due to, among other things, the following:

	•		lower depreciation, amortization and cost of timber harvested as a result of the rationalization of facilities, sale of assets, reductions in the carrying values of fixed assets and amortizable intangible assets to reflect fair values and updated useful lives of fixed assets and amortizable intangible assets;
	•		lower labor and salary costs as a result of the implementation of our new labor agreements (costs of sales, excluding depreciation, amortization and cost of timber harvested) and salary reductions at the corporate level (selling and administrative expenses);
	•		significantly lower interest expense as a result of the settlement or extinguishment of the Predecessor Company’s secured and unsecured debt obligations, partially offset by interest expense on our exit financing; and
	•		higher income tax provision due to the reversal of deferred tax valuation allowances in connection with the implementation of the Plans of Reorganization. We established approximately $1,783 million of deferred income tax assets and therefore do not expect to pay significant cash taxes until these deferred income tax assets are fully utilized.

Financial Review

      Overview

Through our subsidiaries, we manufacture newsprint, coated and specialty papers, market pulp and wood products. We operate pulp and paper manufacturing facilities in Canada, the United States and South Korea, as well as wood products manufacturing facilities and hydroelectric facilities in Canada. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products.

As discussed further below, the newsprint industry experienced a decrease in North American demand in 2010 compared to 2009; however, the newsprint market was much improved in 2010 compared to 2009 when North American demand declined 25.3% compared to 2008. North American demand for coated mechanical papers increased slightly in 2010 compared to 2009. The specialty papers industry experienced a slight increase in North American demand in 2010 compared to 2009, particularly for supercalendered high gloss papers. Global shipments of market pulp increased slightly in 2010 compared to 2009. During this period, increases in demand in North America and Western Europe were partially offset by a significant demand decline in China. Our wood products segment benefited from a significant increase in pricing in 2010 compared to 2009.

As discussed above, due to the implementation of the Plans of Reorganization and the application of fresh start accounting, our past operating results and financial condition will not be comparable to our future operating results and financial condition.

Consolidated Results of Operations

Year Ended December 31, 2010 versus December 31, 2009

Sales

Sales increased $380 million, or 8.7%, from $4,366 million in 2009 to $4,746 million in 2010. The increase was primarily due to significantly higher transaction prices for market pulp and wood products, higher transaction prices for newsprint and higher shipments for coated papers, specialty papers and wood products, partially offset by lower transaction prices for specialty papers and lower shipments for newsprint. The impact of each of these items is discussed further below under “Segment Results of Operations.”

Operating loss

Operating loss decreased $215 million from $375 million in 2009 to $160 million in 2010. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.

Manufacturing costs increased $272 million in 2010 compared to 2009, primarily due to a significantly unfavorable currency exchange ($248 million, primarily due to the Canadian dollar), benefits from the alternative fuel mixture tax credits of $276 million that were recorded in 2009 (the fuel tax credit program expired at the end of 2009) and higher costs for maintenance ($26 million) and energy ($12 million). These higher costs were partially offset by lower volumes ($40 million) and lower costs for wood and fiber ($15 million), fuel ($8 million), chemicals ($21 million), labor and benefits ($55 million), depreciation ($109 million) and other favorable cost variances. For additional information regarding the alternative fuel mixture tax credits, reference is made to Note 25, “Alternative Fuel Mixture Tax Credits,” to our Consolidated Financial Statements.

Distribution costs increased $66 million in 2010 compared to 2009 due to higher distribution costs per ton and higher shipment volumes.

Selling and administrative costs decreased $43 million in 2010 compared to 2009 due to our continued cost reduction initiatives and the reversal of a $17 million bonus accrual in 2010, as well as $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts. These decreases were partially offset by a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, an accrual of approximately $7 million in 2010 for the 2010 short-term incentive plan and a lease termination fee of approximately $2 million in 2010 related to our head office in Montreal, Quebec.

In 2010 and 2009, we recorded $11 million and $202 million, respectively, in closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan. In 2010 and 2009, we realized $30 million and $91 million, respectively, in net gains on disposition of assets and other, which were not associated with our work towards a comprehensive restructuring plan. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Net income (loss) attributable to AbitibiBowater Inc.

Net income (loss) attributable to AbitibiBowater Inc. in 2010 was $2,614 million of net income, or $27.63 per diluted common share, an improvement of $4,167 million, or $54.54 per diluted common share, compared to $1,533 million of net loss, or $26.91 per diluted common share, in 2009. The improvement was primarily due to the decrease in operating loss, as discussed above, decreases in interest expense and reorganization items, net, and an increase in income tax benefit, partially offset by the increase in other (expense) income, net, all of which are discussed further below under “Non-operating Items.” As further discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements, reorganization items, net in 2010 included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting. Additionally, we recorded an income tax benefit of $1,606 million, primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 21, “Income Taxes,” to our Consolidated Financial Statements for additional information).

Fourth Quarter of 2010 versus Fourth Quarter of 2009

Sales increased $146 million, or 13.0%, from $1,126 million in the fourth quarter of 2009 to $1,272 million in the fourth quarter of 2010. The increase was due to significantly higher transaction prices for newsprint and market pulp, higher transaction prices for coated papers, specialty papers and wood products, as well as higher shipments for coated papers, specialty papers, market pulp and wood products, partially offset by lower shipments for newsprint.

Operating loss improved $54 million from an operating loss of $43 million in the fourth quarter of 2009 to operating income of $11 million in the fourth quarter of 2010. The improvement was primarily due to the increase in sales, as discussed above, and a $16 million increase in net gain on disposition of assets and other (resulting from a net gain related to a customer bankruptcy settlement), partially offset by the following:

	•		an increase in manufacturing costs of $56 million, primarily due to an unfavorable currency exchange ($26 million, primarily due to the Canadian dollar) and higher costs for wood and fiber ($4 million), energy ($27 million), chemicals ($2 million) and other unfavorable cost variances, partially offset by lower volumes ($56 million) and lower costs for maintenance ($6 million), labor and benefits ($12 million) and depreciation ($24 million), as well as benefits from the alternative fuel mixture tax credits ($75 million) that were recorded in the fourth quarter of 2009;
	•		an increase in distribution costs of $9 million, due to higher distribution costs per ton, partially offset by lower shipment volumes;
	•		an increase in selling and administrative expenses of $13 million, primarily due to an accrual of approximately $7 million in the fourth quarter of 2010 for the 2010 short-term incentive plan and a lease termination fee of approximately $2 million in the fourth quarter of 2010 related to our head office in Montreal, Quebec; and
	•		a change in closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, of $30 million.

Interest expense decreased $70 million from $136 million in the fourth quarter of 2009 to $66 million in the fourth quarter of 2010, primarily as a result of ceasing to accrue interest on the CCAA filers’ pre-petition unsecured debt obligations in the third quarter of 2010, as discussed further below, partially offset by interest accrued on the 2018 Notes in the fourth quarter of 2010.

Other expense, net was $121 million in the fourth quarter of 2010 compared to other expense, net of $15 million in the fourth quarter of 2009, primarily due to higher foreign currency exchange losses in the fourth quarter of 2010 compared to the fourth quarter of 2009.

Net income (loss) attributable to AbitibiBowater Inc. in the fourth quarter of 2010 was $4,240 million of net income, or $44.82 per diluted common share, compared to $314 million of net loss, or $5.43 per diluted common share, in the fourth quarter of 2009. The improvement was primarily due to the decreases in operating loss and interest expense, as discussed above, a decrease in reorganization items, net, and an increase in income tax benefit. These decreases were partially offset by the increase in other expense, net, as discussed above. As further discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements, reorganization items, net in the fourth quarter of 2010 included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting. Additionally, we recorded an income tax benefit of $1,601 million, primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 21, “Income Taxes,” to our Consolidated Financial Statements for additional information).

Year Ended December 31, 2009 versus December 31, 2008

Sales

Sales decreased $2,405 million, or 35.5%, from $6,771 million in 2008 to $4,366 million in 2009. The decrease was primarily due to significantly lower shipments of newsprint, coated papers, specialty papers and wood products, as well as significantly lower transaction prices for newsprint, coated papers and market pulp. The impact of each of these items is discussed further below under “Segment Results of Operations.”

Operating loss

Operating loss decreased $1,055 million from $1,430 million in 2008 to $375 million in 2009. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.

Manufacturing costs decreased $1,925 million in 2009 compared to 2008, primarily due to lower volumes ($931 million), a favorable currency exchange ($194 million, primarily due to the Canadian dollar), benefits from the alternative fuel mixture tax credits ($276 million) that were recorded in 2009 and lower costs for labor and benefits ($135 million), depreciation ($124 million), wood and fiber ($109 million), maintenance ($49 million), energy ($20 million), fuel ($13 million) and other favorable cost variances. These lower costs were partially offset by higher costs for chemicals ($18 million).

Distribution costs decreased $270 million in 2009 compared to 2008, due to significantly lower shipment volumes and lower distribution costs per ton.

Selling and administrative costs decreased $134 million in 2009 compared to 2008, primarily due to our cost reduction initiatives, as well as a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, partially offset by $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts.

In 2008, we recorded an $810 million non-cash impairment charge for goodwill. Additionally, in 2009, we recorded $202 million in closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, compared to $481 million in 2008. In 2009, we realized $91 million in net gains on disposition of assets and other, which were not associated with our work towards a comprehensive

restructuring plan, compared to $49 million in 2008. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Net loss attributable to AbitibiBowater Inc.

Net loss attributable to AbitibiBowater Inc. in 2009 was $1,553 million, or $26.91 per common share, a decrease of $681 million, or $11.88 per common share, compared to $2,234 million, or $38.79 per common share, in 2008. The decrease was primarily due to the decrease in operating loss, as discussed above, and a decrease in interest expense resulting from the Creditor Protection Proceedings, a decrease in income taxes, as well as the extraordinary loss on expropriation of assets recorded in 2008. These decreases were partially offset by increases in reorganization items, net and other (expense) income, net. Each of these items, except for operating loss discussed above, is discussed further below under “Non-operating Items.”

Non-operating Items – Years Ended December 31, 2010, 2009 and 2008

Interest expense

Interest expense decreased to $483 million in 2010 from $597 million in 2009 and $706 million in 2008. Pursuant to the Creditor Protection Proceedings, we ceased recording interest expense on certain pre-petition debt obligations. In accordance with FASB ASC 852, we recorded interest expense on our pre-petition debt obligations only to the extent that: (i) interest would be paid during the Creditor Protection Proceedings or (ii) it was probable that interest would be an allowed priority, secured or unsecured claim. As such, during the Creditor Protection Proceedings, we continued to accrue interest on the Debtors’ pre-petition secured debt obligations and, until the third quarter of 2010, the CCAA filers’ pre-petition unsecured debt obligations, based on the expectation that post-petition accrued interest on the CCAA filers’ pre-petition unsecured debt obligations would be a permitted claim under the CCAA Proceedings. However, pursuant to the CCAA Reorganization Plan sanctioned by the Canadian Court on September 23, 2010, the CCAA filers’ pre-petition unsecured debt obligations did not include the amount of such post-petition accrued interest for distribution purposes and therefore, such accrued interest was accounted for as not having been approved as a permitted claim. Accordingly, we reversed such post-petition accrued interest as a Reorganization item in the third quarter of 2010 and we ceased accruing interest on the CCAA filers’ pre-petition unsecured debt obligations, as discussed in Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements. Interest expense in 2010 included a cumulative adjustment of $43 million to increase the accrued interest on the unsecured U.S. dollar denominated debt obligations of the CCAA filers, as further discussed in Note 17, “Liquidity and Debt – Debt – During Creditor Protection Proceedings,” to our Consolidated Financial Statements. Interest expense in 2010 also included accrued interest on the 2018 Notes, which were issued on October 4, 2010, as further discussed below under “Liquidity and Capital Resources.”

Other (expense) income, net

Other expense, net in 2010 was $89 million, primarily comprised of foreign currency exchange losses. Other expense, net in 2009 was $71 million, primarily comprised of foreign currency exchange losses of $59 million, fees of $23 million for waivers and amendments to the Abitibi and Donohue accounts receivable securitization program, as well as a loss on the sale of ownership interests in accounts receivable of $17 million, partially offset by $24 million of income, net from a subsidiary’s proceeds sharing arrangement related to a third party’s sale of timberlands. Other income, net in 2008 was $93 million, primarily comprised of foreign currency exchange gains of $72 million and a gain on extinguishment of debt of $31 million, partially offset by a loss on the sale of ownership interests in accounts receivable of $20 million.

Reorganization items, net

Pursuant to FASB ASC 852, we recorded reorganization items, net in 2010 of a credit of $1,901 million and expense of $639 million in 2009 for certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred in the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization (net gain of $3,553 million in 2010) and the application of fresh start accounting (net expense of $362 million in 2010). For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements. We anticipate that legal and certain other costs related to our emergence from the Creditor Protection Proceedings will continue in 2011 and such costs, when incurred, will be recorded in other (expense) income, net in our consolidated statements of operations.

Income taxes

In 2010, income tax benefits of approximately $1,606 million were recorded on income before income taxes of $1,169 million, resulting in an effective tax rate of (137)%. The income tax benefit was primarily due to the reversal of our valuation allowances as part of the implementation of the Plans of Reorganization and the non-taxability of the gains on the Plans of Reorganization. See Note 21, “Income Taxes,” to our Consolidated Financial Statements.

Our effective tax rate in 2009 and 2008 was 7% and 5%, respectively, resulting from the recording of a tax benefit on a pre-tax loss in both years. In 2009 and 2008, income tax benefits of approximately $615 million and $331 million, respectively, generated on the majority of our losses for each of these years were entirely offset by tax charges to increase our valuation allowance related to these tax benefits. Our effective tax rate for the year ended December 31, 2009 was primarily impacted by the valuation allowance, as described above, and the tax treatment on foreign currency gains and losses. Additionally, subsequent to the commencement of Abitibi’s CCAA Proceedings, in 2009, we concluded that our investment in the common stock of Abitibi no longer had any value and therefore, we recorded a $308 million tax benefit for a worthless stock deduction, which represents the estimated tax basis in our investment in Abitibi of approximately $800 million. In addition, in 2009, we recorded a tax recovery of approximately $141 million related to the asset impairment charges associated with our investment in Manicouagan Power Company (“MPCo”) while it was an asset held for sale. For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” to our Consolidated Financial Statements. Our effective tax rate for the year ended December 31, 2008 was primarily impacted by the valuation allowance, the non-deductible goodwill impairment charge, the tax treatment on foreign currency gains and losses and the impacts of lower foreign income taxes.

Our effective tax rate varies frequently and substantially from the weighted-average effect of both domestic and foreign statutory tax rates, primarily as a result of the tax treatment on foreign currency gains and losses. We have a number of foreign subsidiaries whose unconsolidated foreign currency gains and losses are taxed in the local country. Upon consolidation, such gains and losses are eliminated, but we are still liable for the local country taxes. Due to the variability and volatility of foreign exchange rates, we are unable to estimate the impact of future changes in exchange rates on our effective tax rate.

Extraordinary loss on expropriation of assets

In 2008, we recorded an extraordinary loss of $256 million for the non-cash write-off of the carrying value of our expropriated assets in the province of Newfoundland and Labrador, which were expropriated by the government of Newfoundland and Labrador in the fourth quarter of 2008. For additional information, see Item 1, “Business – Newfoundland and Labrador Expropriation.”

      Financial Condition

As previously discussed, the implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our Consolidated Financial Statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, the Consolidated Balance Sheet of the Successor Company as of December 31, 2010 is not comparable to the consolidated balance sheet of the Predecessor Company as of December 31, 2009. Total assets were $7.2 billion as of December 31, 2010, an increase of $0.1 billion compared to December 31, 2009. Total assets as of December 31, 2010 reflect the recording of deferred tax assets, partially offset by the revaluation of assets to fair value as a result of the application of fresh start accounting, the sale of assets and a decrease in cash and cash equivalents. Cash and cash equivalents were $319 million as of December 31, 2010, a decrease of $437 million compared to December 31, 2009. This decrease was primarily due to the payments related to the implementation of the Plans of Reorganization in 2010, partially offset by the proceeds received from the issuance of the 2018 Notes and the NAFTA settlement in 2010. For additional information regarding our liquidity, see “Liquidity and Capital Resources” below. For additional information regarding the impact of the implementation of the Plans of Reorganization and the application of fresh start accounting on our Consolidated Balance Sheet as of December 31, 2010, see Note 4, “Creditor Protection Proceedings Related Disclosures – Fresh start accounting,” to our Consolidated Financial Statements.

      Segment Results of Operations

We manage our business based on the products that we manufacture and sell to external customers. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products. None of the income or loss items following “Operating loss” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, impairment of goodwill, closure costs, impairment of assets other than goodwill and other related charges, employee termination costs, net gain on disposition of assets and other, as well as other discretionary charges or credits are not allocated to our segments. Also excluded from our segment results are corporate and other items, which include timber sales and general and administrative expenses, including costs associated with our unsuccessful refinancing efforts. These items are also analyzed separately from our segment results. Share-based compensation expense and depreciation expense are, however, allocated to

our segments. For additional information regarding our segments, see Note 26, “Segment Information,” to our Consolidated Financial Statements.

Year Ended December 31, 2010 versus December 31, 2009

Newsprint

Segment sales increased $2 million, or 0.1%, from $1,802 million in 2009 to $1,804 million in 2010 due to higher transaction prices, offset by lower shipment volumes. Shipments in 2010 decreased 152,000 metric tons, or 4.8%, compared to 2009.

In 2010, downtime was primarily at indefinitely idled facilities.

Segment operating loss decreased $182 million to $171 million in 2010 compared to $353 million in 2009, primarily due to lower manufacturing costs, partially offset by higher distribution and selling and administrative costs. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.

Segment manufacturing costs decreased $211 million in 2010 compared to 2009, primarily due to lower volumes ($166 million), lower costs for wood and fiber ($7 million), energy ($4 million), fuel ($5 million), labor and benefits ($55 million), depreciation ($68 million) and other favorable cost variances. These lower costs were partially offset by an unfavorable currency exchange ($96 million, primarily due to the Canadian dollar), as well as benefits from the alternative fuel mixture tax credits of $15 million that were recorded in 2009. The average cost per ton decreased $30 in 2010 compared to 2009, excluding the benefit of $5 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.

Segment distribution costs increased $22 million in 2010 compared to 2009 due to higher distribution costs per ton, partially offset by lower shipment volumes.

Newsprint Third-Party Data: In 2010, North American newsprint demand declined 6.0% compared to 2009 and for the month of December 2010, declined 4.5% compared to the month of December 2009. In 2010, North American net exports of newsprint were 47.9% higher than 2009. Inventories for North American mills as of December 31, 2010 were 187,000 metric tons, which is 34.2% lower than as of December 31, 2009. The days of supply at the U.S. daily newspapers was 44 days as of December 31, 2010 compared to 47 days as of December 31, 2009. The North American operating rate for newsprint was 92% in 2010 compared to 75% in 2009.

Segment sales increased $66 million, or 15.9%, from $416 million in 2009 to $482 million in 2010 due to significantly higher shipment volumes, partially offset by lower transaction prices.

Segment operating income decreased $58 million to $31 million in 2010 compared to $89 million in 2009, primarily due to higher manufacturing and distribution costs, partially offset by increased sales as discussed above. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.

Segment manufacturing costs increased $117 million in 2010 compared to 2009, primarily due to benefits from the alternative fuel mixture tax credits of $62 million that were recorded in 2009, higher volumes ($31 million) and higher costs for wood and fiber ($10 million), fuel ($2 million), chemicals ($8 million), labor and benefits ($2 million), maintenance ($7 million) and depreciation ($2 million), partially offset by favorable cost variances. The average cost per ton decreased $11 in 2010 compared to 2009, excluding the benefit of $109 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.

Segment distribution costs increased $6 million in 2010 compared to 2009 due to higher shipment volumes.

Coated Papers Third-Party Data: North American demand for coated mechanical papers increased 1.8% in 2010 compared to 2009. The North American operating rate for coated mechanical papers was 88% in 2010 compared to 78% in 2009. North American coated mechanical mill inventories were at 14 days of supply as of December 31, 2010 compared to 19 days of supply as of December 31, 2009.

Segment sales decreased $10 million, or 0.8%, from $1,331 million in 2009 to $1,321 million in 2010 due to lower average transaction prices, partially offset by higher shipment volumes.

In 2010, downtime at our facilities was market related.

Segment operating income decreased $129 million to an operating loss of $44 million in 2010 compared to $85 million of operating income in 2009, primarily due to higher manufacturing costs, as well as decreased sales as discussed above. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.

Segment manufacturing costs increased $114 million in 2010 compared to 2009, primarily due to an unfavorable Canadian dollar currency exchange ($78 million), benefits from the alternative fuel mixture tax credits of $34 million that were recorded in 2009, higher volumes ($8 million) and higher costs for energy ($23 million), maintenance ($10 million) and other unfavorable cost variances. These higher costs were partially offset by lower costs for wood and fiber ($3 million), depreciation ($23 million), chemicals ($14 million) and fuel ($3 million). The average cost per ton increased $5 in 2010 compared to 2009, excluding the benefit of $19 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.

Segment distribution costs increased $3 million in 2010 compared to 2009 due to higher shipment volumes, partially offset by lower distribution costs per ton.

Specialty Papers Third-Party Data: In 2010 compared to 2009, North American demand for supercalendered high gloss papers was up 1.8%, for lightweight or directory grades was down 8.1%, for standard uncoated mechanical papers was up 3.5% and in total for all specialty papers was up 1.1%. The North American operating rate for all specialty papers was 91% in 2010 compared to 76% in 2009. North American uncoated mechanical mill inventories were at 16 days of supply as of December 31, 2010 compared to 18 days supply as of December 31, 2009.

Segment sales increased $197 million, or 38.0%, from $518 million in 2009 to $715 million in 2010 due to significantly higher transaction prices and slightly higher shipment volumes.

Segment operating income increased $25 million to $137 million in 2010 compared to $112 million in 2009, primarily due to increased sales as discussed above, partially offset by higher manufacturing and distribution costs. The above table analyzes the major items that increased operating income. A brief explanation of these major items follows.

Segment manufacturing costs increased $159 million in 2010 compared to 2009, primarily due to benefits from the alternative fuel mixture tax credits of $165 million that were recorded in 2009, an unfavorable Canadian dollar currency exchange ($26 million), higher costs for maintenance ($6 million) and other unfavorable cost variances. These higher costs were partially offset by lower volumes ($10 million) and lower costs for energy ($2 million), fuel ($2 million), chemicals ($13 million), labor and benefits ($15 million) and depreciation ($3 million). The average cost per ton decreased $9 in 2010 compared to 2009, excluding the benefit of $175 per ton credited in 2009 due to the benefits from the alternative fuel mixture tax credits in 2009.

Segment distribution costs increased $10 million in 2010 compared to 2009 due to higher distribution costs per ton and higher shipment volumes.

Market Pulp Third-Party Data: World shipments for market pulp increased 0.3% in 2010 compared to 2009. Shipments were up 7.6% in Western Europe (the world’s largest pulp market), up 5.7% in North America, down 17.4% in China, up 11.3% in Latin America and down 7.0% in Africa and Asia (excluding China and Japan). World market pulp producers shipped at 92% of capacity in 2010 compared to 91% in 2009. World market pulp producer inventories were at 30 days of supply as of December 31, 2010 compared to 27 days of supply as of December 31, 2009.

Segment sales increased $134 million, or 46.2%, from $290 million in 2009 to $424 million in 2010 due to significantly higher shipment volumes and transaction prices. Despite a decrease in U.S. housing starts, shipments were higher in 2010, primarily due to an increase in Canadian housing starts.

In 2010, downtime at our facilities was market related.

Segment operating loss improved $65 million to operating income of $9 million in 2010 compared to a $56 million operating loss in 2009, primarily due to increased sales as discussed above, partially offset by higher manufacturing and distribution costs. The above table analyzes the major items that improved operating loss. A brief explanation of these major items follows.

Segment manufacturing costs increased $54 million in 2010 compared to 2009, primarily due to an unfavorable Canadian dollar currency exchange ($48 million) and higher volumes ($105 million), partially offset by lower costs for wood ($14 million), energy ($5 million), depreciation ($6 million), labor and benefits ($12 million), administrative overhead ($38 million) and other favorable cost variances.

Segment distribution costs increased $17 million in 2010 compared to 2009 due to higher shipment volumes and higher distribution costs per ton.

Wood Products Third-Party Data : Privately-owned housing starts in the U.S. decreased 8.2% to a seasonally-adjusted annual rate of 529,000 units in December 2010 compared to 576,000 units in December 2009.

Cost of sales and depreciation, amortization and cost of timber harvested

Manufacturing costs included an accrual of approximately $6 million in 2010 for the 2010 short-term incentive plan and approximately $31 million in 2010 for ongoing costs related to closed mills. Manufacturing costs included $17 million in 2009 for the write-down of inventory, primarily associated with our Alabama River, Alabama and Dalhousie, New Brunswick mills, as well as two paper machines at our Calhoun mill.

Selling and administrative expenses

The decrease in selling and administrative expenses in 2010 compared to 2009 was due to our continued cost reduction initiatives, the reversal of a $17 million bonus accrual in 2010, as well as $10 million of costs incurred in 2009 related to our unsuccessful refinancing efforts. These decreases were partially offset by a $16 million reversal that was recorded in 2009 for previously recorded Canadian capital tax liabilities as a result of legislation which eliminated this tax, an accrual of approximately $7 million in 2010 for the 2010 short-term incentive plan and a lease termination fee of approximately $2 million in 2010 related to our head office in Montreal, Quebec.

Closure costs, impairment of assets other than goodwill and other related charges

In 2010, we recorded $11 million of closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, primarily for the recording of a tax indemnification liability related to the 2009 sale of our investment in MPCo and long-lived asset impairment charges related to our previously permanently closed Covington, Tennessee facility, as well as costs for a lawsuit related to a closed mill and other miscellaneous adjustments to severance liabilities and asset retirement obligations.

In 2009, we recorded $202 million of closure costs, impairment of assets other than goodwill and other related charges, which were not associated with our work towards a comprehensive restructuring plan, primarily for asset impairment charges related to assets held for sale for our interest in MPCo, as well as certain of our newsprint mill assets, accelerated depreciation charges for two paper machines at our Calhoun mill, which were previously indefinitely idled, and additional asset impairment charges primarily related to two previously permanently closed mills. In addition, in 2009, we recorded severance and other costs related to the permanent closures of our Westover, Alabama sawmill and Goodwater, Alabama planer mill operations and the continued idling of our Alabama River newsprint mill.

For additional information, see Note 6, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” to our Consolidated Financial Statements.

Net gain on disposition of assets and other

In 2010, we recorded a net gain on disposition of assets and other of $30 million, primarily related to the sale, with Court or Monitor approval, as applicable, of various assets, which were not associated with our work towards a comprehensive restructuring plan, as well as a net gain related to a customer bankruptcy settlement. In 2009, we recorded a net gain on disposition of assets and other of $91 million, primarily related to the sale, with Court or Monitor approval, as applicable, of 491,356 acres of timberlands, primarily located in Quebec, Canada and other assets.

For additional information, see Note 7, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets and Other – Net gain on disposition of assets and other,” to our Consolidated Financial Statements.

Year Ended December 31, 2009 versus December 31, 2008

Newsprint