Notes to Unaudited Interim Consolidated Financial Statements

Note 1. Organization and Basis of Presentation

Nature of operations

AbitibiBowater Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “AbitibiBowater,” “we,” “our,” “us” or the “Company”) is incorporated in Delaware. We are a global forest products company with a market presence in newsprint, coated mechanical 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.

Financial statements

Our interim consolidated financial statements are unaudited and have been prepared in accordance with the requirements of the United States Securities and Exchange Commission (the “SEC”) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required by United States generally accepted accounting principles (“U.S. GAAP”) may be condensed or omitted. In our opinion, all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the unaudited interim consolidated financial statements have been made. All amounts are expressed in U.S. dollars, unless otherwise indicated. The results for the interim period ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year. These unaudited interim consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on April 5, 2011. Certain prior year amounts in the unaudited interim Consolidated Statements of Cash Flows have been reclassified to conform to the 2011 presentation. The reclassification had no effect on total cash and cash equivalents.

Basis of presentation

Effective upon the commencement of the Creditor Protection Proceedings (as defined in Note 2, “Creditor Protection Proceedings”) on April 16 and 17, 2009 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 and (ii) ceased recording interest expense on certain of our pre-petition debt obligations. For additional information, see Note 2, “Creditor Protection Proceedings,” and Note 11, “Liquidity and Debt.”

As further discussed in Note 2, “Creditor Protection Proceedings,” on December 9, 2010, we emerged from the 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, which we applied effective December 31, 2010 (the “Convenience Date”). For additional information, see Note 1, “Organization and Basis of Presentation – Basis of presentation – Upon Emergence from Creditor Protection Proceedings,” included in our consolidated financial statements for the year ended December 31, 2010.

The implementation of the Plans of Reorganization (as defined in Note 2, “Creditor Protection Proceedings”) 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 as of December 31, 2010 and for periods subsequent to December 31, 2010 are not comparable to our consolidated financial statements for periods prior 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.

Information on our significant accounting policies is presented in Note 2, “Summary of Significant Accounting Policies,” included in our consolidated financial statements for the year ended December 31, 2010. Pursuant to fresh start accounting,

5

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

all assets and liabilities reflected in our Consolidated Balance Sheet as of December 31, 2010 were recorded at fair value (except for deferred income taxes and pension and other postretirement (“OPEB”) projected benefit obligations). Except for the impact of the application of fresh start accounting on the carrying values of our assets and liabilities as of December 31, 2010, the accounting policies adopted by the Successor Company and applied to the carrying values of our assets and liabilities reflected in our Consolidated Balance Sheet as of September 30, 2011 were consistent with the Predecessor Company’s significant accounting policies, as disclosed in our consolidated financial statements for the year ended December 31, 2010.

Note 2. Creditor Protection Proceedings

Emergence from Creditor Protection Proceedings

AbitibiBowater Inc. and all but one of its debtor affiliates (as discussed below) successfully emerged from creditor protection proceedings under Chapter 11 of the United States Bankruptcy Code, as amended (“Chapter 11”) and the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”), as applicable (collectively, the “Creditor Protection Proceedings”) on December 9, 2010 (the “Emergence Date”). In the third quarter of 2010, the creditors under the Creditor Protection Proceedings, with one exception, voted in the requisite numbers to approve the respective Plan of Reorganization (as defined below). Creditors of Bowater Canada Finance Corporation (“BCFC”), an indirect, wholly-owned subsidiary of ours, did not vote in the requisite numbers to approve the Plans of Reorganization. Accordingly, we did not seek sanction of the CCAA Plan of Reorganization and Compromise or confirmation of the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (collectively, the “Plans of Reorganization” and each, a “Plan of Reorganization”) with respect to BCFC. See Note 22, “Commitments and Contingencies – BCFC Bankruptcy and Insolvency Act filing,” included in our consolidated financial statements for the year ended December 31, 2010 for information regarding BCFC’s Bankruptcy and Insolvency Act filing on December 31, 2010 and our deconsolidation of BCFC as of December 31, 2010. The Plans of Reorganization became effective on the Emergence Date.

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 have made and will make supplemental interim distributions to unsecured creditors as disputed claims are resolved. As of October 31, 2011, there were 20,508,137 shares remaining in this reserve. The remaining claims are claims that we believe should be disallowed because they are duplicative, without merit, overstated or should be disallowed for other reasons. We have made significant progress to address the claims that remained in dispute at the time of our emergence from the substantial number and amount of claims filed during the Creditor Protection Proceedings. The majority of the remaining disputed claims will be disposed through ongoing litigation before the United States Bankruptcy Court for the District of Delaware (the “U.S. Court”) or a claims officer appointed by the Superior Court of Quebec in Canada (the “Canadian Court” and, together with the U.S. Court, the “Courts”). The ultimate completion of the claims resolution process could therefore take some time to complete. 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 of September 30, 2011 and December 31, 2010 is a liability of approximately $16 million and $35 million, respectively, for 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.

Events prior to emergence from Creditor Protection Proceedings

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 entities that were subject to the Creditor Protection Proceedings 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), 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

6

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

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.

Reorganization items, net

FASB ASC 852 requires separate disclosure of reorganization items such as 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 during the Creditor Protection Proceedings. As a result, during the Creditor Protection Proceedings, all charges related to the commencement of an indefinite idling or permanent closure of a mill or a paper machine subsequent to the commencement of the Creditor Protection Proceedings were recorded in “Reorganization items, net,” whereas all charges related to the commencement of an indefinite idling or permanent closure of a mill or a paper machine prior to the commencement of the Creditor Protection Proceedings were recorded in “Closure costs, impairment and other related charges,” both in our Consolidated Statements of Operations. The recognition of Reorganization items, net, unless specifically prescribed otherwise by FASB ASC 852, was in accordance with other applicable U.S. GAAP, including accounting for impairments of long-lived assets, accelerated depreciation, severance and termination benefits and costs associated with exit and disposal activities (including costs incurred in a restructuring).

Reorganization items, net for the three and nine months ended September 30, 2010 were comprised of the following:

7

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

8

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

In the three and nine months ended September 30, 2010, we paid $38 million and $85 million, respectively, relating to reorganization items, which were comprised of: (i) professional fees of $37 million and $79 million, respectively, and (ii) debtor in possession financing costs of $1 million and $6 million, respectively. Payments relating to professional fees and debtor in possession financing costs were included in cash flows from operating activities and cash flows from financing activities, respectively, in our Consolidated Statements of Cash Flows.

Accelerated depreciation

During the three months ended September 30, 2011, we recorded accelerated depreciation charges of $1 million related to the permanent closure of our Saint-Prime, Quebec remanufacturing wood products facility. During the nine months ended September 30, 2011, we also recorded accelerated depreciation charges of $1 million related to the permanent closure of a de-inking line at our Alma, Quebec paper mill, $2 million related to the permanent closure of a paper machine and a thermomechanical pulp line at our Baie-Comeau, Quebec paper mill and $1 million as a result of the decision to cease paperboard production at our Coosa Pines, Alabama paper mill.

Impairment of long-lived assets

During the three months ended September 30, 2011, we recorded long-lived asset impairment charges of $7 million related to our Mokpo, South Korea paper mill and $3 million related to certain scrapped equipment at our Calhoun, Tennessee paper mill to reduce the carrying value of the assets to their estimated fair value, which was determined based on the assets’ estimated sale or salvage values. During the nine months ended September 30, 2011, we also recorded long-lived asset impairment charges of $7 million as a result of the decision to cease paperboard production at our Coosa Pines paper mill to reduce the carrying value of the assets to their estimated fair value, which was determined based on the assets’ estimated salvage values.

During the nine months ended September 30, 2010, we recorded long-lived asset impairment charges of $2 million related to our previously permanently closed Covington, Tennessee facility to further reduce the carrying value of the assets to their estimated fair value, which was determined based on the mill’s estimated sales value.

Severance and other costs

During the three months ended September 30, 2011, we recorded $6 million of severance and other costs primarily for an early retirement severance program for employees at our Mokpo paper mill and miscellaneous adjustments to severance liabilities. During the nine months ended September 30, 2011, we also recorded $3 million of severance costs and a $3 million OPEB plan curtailment loss as a result of the decision to cease paperboard production at our Coosa Pines paper mill.

During the three months ended September 30, 2010, we recorded a credit of $3 million in severance and other costs, primarily for miscellaneous adjustments to severance liabilities and asset retirement obligations. During the nine months ended September 30, 2010, we also recorded $6 million of severance and other costs, primarily for miscellaneous adjustments to severance liabilities and asset retirement obligations, as well as other costs, primarily for a lawsuit related to a closed mill.

9

Table of Contents

Liabilities associated with assets held for sale as of September 30, 2011 and December 31, 2010 were comprised of the following:

As of December 31, 2010, we held for sale the following assets: our investment in ACH Limited Partnership (“ACH”), our Kenora, Ontario and Alabama River, Alabama paper mills, our Saint-Fulgence and Petit Saguenay sawmills and various other assets. These assets and liabilities held for sale were carried in our Consolidated Balance Sheet as of December 31, 2010 at fair value (as a result of the application of fresh start accounting) less costs to sell. Since we had control over ACH, our consolidated financial statements included this entity on a fully consolidated basis.

As of September 30, 2011, we held for sale the following assets: our Petit Saguenay sawmill, our U.S. recycling operations and various other assets. The assets held for sale are carried in our Consolidated Balance Sheet as of September 30, 2011 at the lower of carrying value or fair value less costs to sell. We expect to complete a sale of all of these assets within the next twelve months for amounts that equal or exceed their individual carrying values.

During the three months ended September 30, 2011, we sold our Alabama River paper mill and various other assets for cash proceeds of $11 million, resulting in a net loss on disposition of assets of $1 million. Additionally, during the nine months ended September 30, 2011, we sold our investment in ACH (for additional information, see Note 11, “Liquidity and Debt”), our Kenora paper mill and various other assets for proceeds of $304 million, resulting in a net gain on disposition of assets of $4 million.

During the three months ended September 30, 2010, we sold various assets for proceeds of $2 million, resulting in a net gain on disposition of assets of $1 million. During the nine months ended September 30, 2010, we sold timberlands and other assets for proceeds of $15 million, resulting in a net gain on disposition of assets of $14 million. Additionally, during the nine months ended September 30, 2010, as part of our work toward a comprehensive restructuring plan, we sold various mills and other assets. For additional information, see Note 2, “Creditor Protection Proceedings – Events prior to emergence from Creditor Protection Proceedings – Reorganization items, net.”

10

Table of Contents

Note 6. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss as of September 30, 2011 was comprised of foreign currency translation gains of $3 million and unrecognized gains on hedging transactions of $1 million (net of a deferred tax provision of zero). No tax effect was recorded for foreign currency translation since the investment in foreign net assets translated is deemed indefinitely invested. Accumulated other comprehensive loss as of September 30, 2011 is net of $8 million that was transferred and included in “Net (loss) gain on disposition of assets” in our Consolidated Statements of Operations for the nine months ended September 30, 2011 as a result of the sale of our investment in ACH. In connection with the application of fresh start accounting as of December 31, 2010, accumulated other comprehensive loss of the Predecessor Company was eliminated.

Note 7. Net (Loss) Income Per Share

The weighted-average number of common shares outstanding used to calculate basic and diluted net (loss) income per share attributable to AbitibiBowater Inc. common shareholders was 97.1 million for both the three and nine months ended September 30, 2011 and 57.7 million for both the three and nine months ended September 30, 2010.

No adjustments to net (loss) income attributable to AbitibiBowater Inc. common shareholders were necessary to calculate basic and diluted net (loss) income per share for all periods presented.

For both the three and nine months ended September 30, 2011, the dilutive impact of 0.5 million option shares and 0.1 million equity-classified restricted stock units (“RSUs”) and deferred stock units (“DSUs”) on the weighted-average number of common shares outstanding used to calculate diluted net (loss) income per share was nominal. For both the three and nine months ended September 30, 2010, 3.3 million option shares and 0.1 million RSUs were excluded from the calculation of diluted net loss per share as the impact would have been anti-dilutive. For both the three and nine months ended September 30, 2010, no adjustment to the diluted weighted-average number of common shares outstanding for the assumed conversion of the pre-petition convertible notes, which were outstanding at that time, was necessary as the impact would have been anti-dilutive.

11

Table of Contents

During the nine months ended September 30, 2011, we recorded charges of $1 million for write-downs of inventory as a result of the decision to cease paperboard production at our Coosa Pines paper mill. These charges were included in “Cost of sales, excluding depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations.

During the nine months ended September 30, 2010, we recorded charges of $15 million for write-downs of inventory, primarily associated with our indefinitely idled Gatineau paper mill, as well as an indefinitely idled paper machine and de-inking line at our Thorold paper mill. These charges were incurred as part of our restructuring and were included in “Reorganization items, net” in our Consolidated Statements of Operations.

Note 9. Restricted Cash

In connection with the sale of our investment in Manicouagan Power Company (“MPCo”) in December 2009, we provided certain undertakings and indemnities to Alcoa Canada Ltd., our former partner in MPCo, including an indemnity for potential tax liabilities arising from the transaction. As of September 30, 2011 and December 31, 2010, we maintained a reserve of approximately Cdn$85 million ($81 million, based on the exchange rate in effect on September 30, 2011) and Cdn$80 million ($80 million, based on the exchange rate in effect on December 31, 2010), respectively, to secure those obligations. This reserve was included as restricted cash in “Other assets” in our Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010.

During the nine months ended September 30, 2011, we recorded severance costs primarily as a result of corporate employee terminations, the decision to close our Greenville, South Carolina office, the decision to cease paperboard production at our Coosa Pines paper mill and an early retirement severance program for employees at our Mokpo paper mill.

Severance costs incurred in the nine months ended September 30, 2011 were included in “Selling, general and administrative expenses” or “Closure costs, impairment and other related charges” in our Consolidated Statements of Operations. The severance accruals were included in “Accounts payable and accrued liabilities” in our Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010.

12

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 11. Liquidity and Debt

Overview

As of September 30, 2011, in addition to cash and cash equivalents and net cash provided by operations, our principal external source of liquidity was the ABL Credit Facility, which is defined and discussed below. As of September 30, 2011, we had cash and cash equivalents of $295 million and had $519 million of availability under the ABL Credit Facility.

Interest expense recorded in our Consolidated Statements of Operations totaled $19 million and $77 million for the three and nine months ended September 30, 2011, respectively, and $99 million and $417 million for the three and nine months ended September 30, 2010, respectively. The decrease in interest expense was primarily due to significantly lower debt levels in connection with our emergence from the Creditor Protection Proceedings in December 2010. Additionally, interest expense for the nine months ended September 30, 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 to a fixed exchange rate. In accordance with FASB ASC 852, during the Creditor Protection Proceedings, 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. Contractual interest expense was $159 million and $528 million for the three and nine months ended September 30, 2010, respectively.

On May 27, 2011, we announced the sale of our 75% equity interest in ACH. Cash proceeds from the sale, including cash available at closing, were approximately Cdn$290 million ($296 million, based on the exchange rate in effect on May 27, 2011). The proceeds were applied in accordance with the terms of the 2018 Notes (as defined below) indenture, which requires, among other things, that the first $100 million of net proceeds from the sale of certain assets, including our interest in ACH, be used to redeem 2018 Notes (including accrued and unpaid interest) if the closing occurs within six months of the Emergence Date (as further discussed below). We also redeemed an additional $85 million of principal amount of the 2018 Notes and repaid $90 million of other long-term debt (as further discussed below) with the proceeds from the sale of ACH. The purchaser assumed the outstanding debt of ACH. Accordingly, ACH’s total long-term debt ($280 million as of December 31, 2010) is no longer reflected in our Consolidated Balance Sheet.

As further discussed below, on November 4, 2011, we redeemed an additional $85 million of principal amount of the 2018 Notes.

10.25% senior secured notes due 2018

Information on our 10.25% senior secured notes due 2018 (the “2018 Notes”) is presented in Note 17, “Liquidity and Debt,” included in our consolidated financial statements for the year ended December 31, 2010.

As a result of our application of fresh start accounting, as of December 31, 2010, the 2018 Notes were recorded at their fair value of $905 million, which resulted in a premium of $55 million, which is being amortized to interest expense using the effective interest method over the term of the notes. On June 13, 2011, we applied the first $100 million of net proceeds from the sale of ACH (as discussed above) to redeem $94 million of principal amount of the 2018 Notes at a redemption price of 105% of the principal amount, plus accrued and unpaid interest. Additionally, on June 29, 2011, we redeemed $85 million of principal amount of the 2018 Notes at a redemption price of 103% of the principal amount, plus accrued and unpaid interest. As a result of these redemptions, during the nine months ended September 30, 2011, we recorded a net gain on extinguishment of debt of approximately $4 million, which was included in “Other (expense) income, net” in our Consolidated Statements of Operations. As of September 30, 2011, the carrying value of the 2018 Notes (including the unamortized premium of approximately $41 million) was approximately $712 million.

On November 4, 2011, we redeemed an additional $85 million of principal amount of the 2018 Notes at a redemption price of 103% of the principal amount, plus accrued and unpaid interest. This $85 million of principal amount of the 2018 Notes was included in “Current portion of long-term debt” and the remaining balance of the 2018 Notes of $627 million was included in “Long-term debt, net of current portion” in our Consolidated Balance Sheet as of September 30, 2011.

13

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

ABL Credit Facility

On December 9, 2010, AbitibiBowater Inc. and two of its wholly-owned subsidiaries, AbiBow US Inc. and AbiBow Recycling LLC, (collectively, the “U.S. Borrowers”) and AbiBow Canada Inc. (the “Canadian Borrower” and, together with the U.S. Borrowers, the “Borrowers”) entered into a senior secured asset-based revolving credit facility (the “ABL Credit Facility”) with certain lenders and Citibank, N.A., as administrative agent and collateral agent (the “agent”). Additional information regarding the ABL Credit Facility is presented in Note 17, “Liquidity and Debt,” included in our consolidated financial statements for the year ended December 31, 2010.

The borrowing base availability of each borrower is subject to certain reserves, which are established by the agent in its discretion. The reserves may include dilution reserves, inventory reserves, rent reserves and any other reserves that the agent determines are necessary and have not already been taken into account in the calculation of the borrowing base. As of June 30, 2011, an additional reserve of $259 million was in place against the borrowing base of the Canadian Borrower until the adoption, by the governments of Quebec and Ontario, of regulations to implement previously-announced funding relief with respect to aggregate solvency deficits in our material Canadian registered pension plans, as discussed in Note 20, “Pension and Other Postretirement Benefit Plans – Resolution of Canadian pension situation,” included in our consolidated financial statements for the year ended December 31, 2010. As of the third quarter of 2011, both the provinces of Quebec and Ontario had adopted these funding relief regulations. As a result, this reserve against the borrowing base of the Canadian Borrower was removed in the third quarter of 2011.

On October 28, 2011, the Borrowers and the subsidiaries of AbitibiBowater Inc. that are guarantors of the ABL Credit Facility entered into an amendment to the credit agreement that governs the ABL Credit Facility. The ABL Credit Facility, as amended, provides for an asset-based, revolving credit facility with an aggregate lender commitment of up to $600 million at any time outstanding, subject to borrowing base availability, including a $60 million (increased from $20 million) swingline sub-facility and a $200 million (increased from $150 million) letter of credit sub-facility. The ABL Credit Facility includes a $400 million tranche available to the Borrowers and a $200 million tranche available solely to the U.S. Borrowers, in each case subject to the borrowing base availability of those Borrowers.

The amendment extends the maturity of the ABL Credit Facility from December 9, 2014 to October 28, 2016.

The amendment reduces the interest rate margin applicable to borrowings under the ABL Credit Facility to 1.75% – 2.25% per annum with respect to Eurodollar rate and bankers’ acceptance rate borrowings (reduced from 2.75% – 3.25%) and 0.75% – 1.25% per annum with respect to base rate and Canadian prime rate borrowings (reduced from 1.75% – 2.25%), in each case depending on excess availability under the ABL Credit Facility. Additionally, the amendment reduces the unutilized commitment fee payable by the Borrowers under the ABL Credit Facility to 0.375% – 0.50% per annum (reduced from 0.50% – 0.75%), subject to monthly pricing adjustments based on the unutilized commitment of the ABL Credit Facility.

The amendment reduces to 1.0:1.0 (reduced from 1.1:1.0) the minimum consolidated fixed charge coverage ratio required if at any time excess availability falls below the greater of: (i) $60 million and (ii) 12.5% of the lesser of (A) the total commitments and (B) the borrowing base then in effect. Prior to the effectiveness of the amendment, this springing fixed charge coverage ratio covenant was triggered if excess availability fell below 15% of the total commitments then in effect.

The amendment also eases certain other covenants, including covenants restricting the Company’s ability to: (i) prepay certain indebtedness, (ii) consummate permitted acquisitions and (iii) make certain restricted payments.

As of September 30, 2011, the Borrowers had no borrowings and $62 million of letters of credit outstanding under the ABL Credit Facility. As of September 30, 2011, we had $519 million of availability under the ABL Credit Facility, which was comprised of $290 million for the U.S. Borrowers and $229 million for the Canadian Borrower.

Promissory note

As of December 31, 2010, Augusta Newsprint Company (“ANC”), which operates our newsprint mill in Augusta, Georgia, was owned 52.5% by us. Our consolidated financial statements included this entity on a fully consolidated basis. On January 14, 2011, we acquired the noncontrolling interest in ANC and ANC became a wholly-owned subsidiary of ours. As part of the consideration for the transaction, ANC paid cash of $15 million and issued a secured promissory note (the “note”) in the principal amount of $90 million. The acquisition of the noncontrolling interest in ANC was accounted for as an equity transaction. On June 30, 2011, the note, including accrued interest, was repaid with cash in full.

14

Table of Contents

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 12. Pension and Other Postretirement Benefit Plans

The components of net periodic benefit cost relating to our pension and OPEB benefit plans for the three and nine months ended September 30, 2011 and 2010 were as follows: