AbitibiBowater Inc. (Form: 10-Q, Received: 05/10/2012 17:05:55)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2012

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 001-33776

ABITIBIBOWATER INC.

(Exact name of registrant as specified in its charter)


Delaware				98-0526415
(State or other jurisdiction of incorporation or organization)				(I.R.S. employer identification number)

111 Duke Street, Suite 5000; Montreal, Quebec; Canada H3C 2MI

(Address of principal executive offices) (Zip Code)

(514) 875-2515

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 ¨

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 (§232.405 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 þ No ¨

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.

Large accelerated filer þ

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

(Do not check if a smaller

reporting company)

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 ¨

As of April 30, 2012, there were 98,907,391 shares of AbitibiBowater Inc. common stock outstanding.

ABITIBIBOWATER INC.

TABLE OF CONTENTS


		Page Number
PART I FINANCIAL INFORMATION

Item 1. Financial Statements:

Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011		1

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011		2

Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011		3

Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2012		4

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011		5

Notes to Unaudited Interim Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19

Item 3. Quantitative and Qualitative Disclosures About Market Risk		31

Item 4. Controls and Procedures		31

PART II OTHER INFORMATION

Item 1. Legal Proceedings		31

Item 1A.Risk Factors		31

Item 6. Exhibits		32

SIGNATURES		33

ABITIBIBOWATER INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions except per share amounts)



	Three Months Ended March 31,
	2012		2011
Sales	$	1,054	$	1,185
Costs and expenses:
Cost of sales, excluding depreciation, amortization and cost of timber harvested		836		922
Depreciation, amortization and cost of timber harvested		57		54
Distribution costs		121		133
Selling, general and administrative expenses		32		37
Closure costs, impairment and other related charges		5		13
Net gain on disposition of assets		(23)		(1)
Operating income		26		27
Interest expense		(16)		(30)
Other income, net		13		19
Income before income taxes		23		16
Income tax benefit		10		14
Net income including noncontrolling interests		33		30
Net income attributable to noncontrolling interests		(10)		–
Net income attributable to AbitibiBowater Inc.	$	23	$	30

Net income per share attributable to AbitibiBowater Inc. common shareholders:
Basic	$	0.23	$	0.31
Diluted		0.23		0.31
Weighted-average number of AbitibiBowater Inc. common shares outstanding:
Basic		97.1		97.1
Diluted		97.1		97.1

See accompanying notes to unaudited interim consolidated financial statements.

ABITIBIBOWATER INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in millions)



	Three Months Ended March 31,
	2012		2011
Net income including noncontrolling interests	$	33	$	30
Other comprehensive income (loss):
Change in unamortized prior service costs and credits, net of tax of $0 in 2012		2		–
Change in unamortized actuarial gains and losses, net of tax of $0 in 2012		(2)		–
Foreign currency translation		3		22
Other comprehensive income, net of tax		3		22
Comprehensive income including noncontrolling interests		36		52
Less: Comprehensive income attributable to noncontrolling interests:
Net income		(10)		–
Foreign currency translation		–		(5)
Comprehensive income attributable to noncontrolling interests		(10)		(5)
Comprehensive income attributable to AbitibiBowater Inc.	$	26	$	47

See accompanying notes to unaudited interim consolidated financial statements.

ABITI BIBOWATER INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except per share amount)


	March 31, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents		$	410		$	369
Accounts receivable, net:
Trade			554			582
Other			136			168
Inventories, net			501			475
Assets held for sale			5			7
Deferred income tax assets			111			109
Other current assets			73			59
Total current assets			1,790			1,769
Fixed assets, net			2,484			2,502
Amortizable intangible assets, net			18			18
Deferred income tax assets			1,787			1,749
Other assets			257			260
Total assets		$	6,336		$	6,298

Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities		$	538		$	544
Total current liabilities			538			544
Long-term debt			620			621
Pension and other postretirement benefit obligations			1,534			1,524
Deferred income tax liabilities			73			75
Other long-term liabilities			57			57
Total liabilities			2,822			2,821
Commitments and contingencies
Equity:
AbitibiBowater Inc. shareholders’ equity:
Common stock, $0.001 par value. 114.1 shares issued and 97.1 shares outstanding as of March 31, 2012 and December 31, 2011			–			–
Additional paid-in capital			3,688			3,687
Retained earnings			64			41
Accumulated other comprehensive loss			(308)			(311)
Treasury stock at cost, 17.0 shares as of March 31, 2012 and December 31, 2011			–			–
Total AbitibiBowater Inc. shareholders’ equity			3,444			3,417
Noncontrolling interests			70			60
Total equity			3,514			3,477
Total liabilities and equity		$	6,336		$	6,298

See accompanying notes to unaudited interim consolidated financial statements.

ABITIBIBOWATER INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited, in millions)


	AbitibiBowater Inc. Shareholders’ Equity
	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Non-controlling Interests		Total Equity
Balance as of December 31, 2011	$	–	$	3,687	$	41	$	(311)	$	–	$	60		$ 3,477
Share-based compensation costs for equity-classified awards		–		1		–		–		–		–		1
Net income		–		–		23		–		–		10		33
Other comprehensive income, net of tax		–		–		–		3		–		–		3
Balance as of March 31, 2012	$	–	$	3,688	$	64	$	(308)	$	–	$	70		$ 3,514

As of December 31, 2010, the balance of noncontrolling interests was $278 million. During the three months ended March 31, 2011, amounts attributable to noncontrolling interests consisted of dividends and distribution paid of $18 million, acquisition of noncontrolling interest of $105 million and other comprehensive income of $5 million, net of tax, which resulted in a balance of noncontrolling interests of $160 million as of March 31, 2011.

See accompanying notes to unaudited interim consolidated financial statements.

ABITIBIBOWATER INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)


	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities:
Net income including noncontrolling interests		$	33		$	30
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Share-based compensation			1			–
Depreciation, amortization and cost of timber harvested			57			54
Closure costs, impairment and other related charges			5			13
Write-downs of inventory			–			1
Deferred income taxes			(14)			(13)
Net pension contributions			(18)			(19)
Net gain on disposition of assets			(23)			(1)
Gain on translation of foreign currency denominated deferred income taxes			(30)			(37)
Loss on translation of foreign currency denominated pension and other postretirement benefit obligations			24			27
Changes in working capital:
Accounts receivable			56			20
Inventories			(26)			(54)
Other current assets			(5)			2
Accounts payable and accrued liabilities			(9)			29
Other, net			6			6
Net cash provided by operating activities			57			58
Cash flows from investing activities:
Cash invested in fixed assets			(39)			(15)
Disposition of assets			26			5
Decrease (increase) in restricted cash			4			(2)
Increase in deposit requirements for letters of credit, net			(7)			(6)
Net cash used in investing activities			(16)			(18)
Cash flows from financing activities:
Dividends and distribution to noncontrolling interests			–			(18)
Acquisition of noncontrolling interest			–			(15)
Net cash used in financing activities			–			(33)
Net increase in cash and cash equivalents			41			7
Cash and cash equivalents:
Beginning of period			369			319
End of period		$	410		$	326

See accompanying notes to unaudited interim consolidated financial statements.

ABITIBIBOWATER INC.

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 leader in the forest products industry, with a diverse range of products, including newsprint, coated and specialty papers, market pulp and wood products. We own or operate pulp and paper mills and wood products facilities in the United States, Canada and South Korea. On November 7, 2011, AbitibiBowater Inc. began doing business as Resolute Forest Products. We are seeking shareholder approval at the 2012 annual meeting of shareholders to amend our certificate of incorporation to change our legal name to Resolute Forest Products Inc.

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 March 31, 2012 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, 2011, filed with the SEC on February 29, 2012. Certain prior period amounts in our Consolidated Balance Sheets, Consolidated Statements of Cash Flows and footnotes have been reclassified to conform to the 2012 presentation. The reclassifications had no effect on total assets, cash and cash equivalents or net cash provided by operating activities.

Note 2. Closure Costs, Impairment and Other Related Charges

Closure costs, impairment and other related charges for the three months ended March 31, 2012 and 2011 were comprised of the following:


(Unaudited, in millions)	2012			2011
Accelerated depreciation		$	–		$	1
Impairment of long-lived assets			–			7
Severance and other costs			5			5
		$	5		$	13

Accelerated depreciation

During the three months ended March 31, 2011, we recorded accelerated depreciation charges of $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 March 31, 2011, we 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.

Severance and other costs

During the three months ended March 31, 2012, we recorded $2 million of severance costs and a $2 million pension curtailment loss as a result of a workforce reduction at our Baie-Comeau, Quebec paper mill, as well as a $1 million credit adjustment for severance costs and a $2 million pension curtailment loss related to the permanent closure in December 2011 of a paper machine at our Kenogami, Quebec paper mill. During the three months ended March 31, 2011, we recorded $2 million of severance costs and a $3 million other postretirement benefit (“OPEB”) plan curtailment loss as a result of the decision to cease paperboard production at our Coosa Pines paper mill.

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 3. Assets Held for Sale and Net Gain on Disposition of Assets

As of March 31, 2012 and December 31, 2011, assets held for sale were comprised of fixed assets, net of $5 million and $7 million, respectively.

As of March 31, 2012, we held for sale our Petit Saguenay, Quebec sawmill and a parcel of land. We expect to complete a sale of these assets within the next twelve months for amounts that equal or exceed their individual carrying values.

As of December 31, 2011, we held for sale our Petit Saguenay sawmill and certain parcels of land.

The assets held for sale are carried in our Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 at the lower of carrying value or fair value less costs to sell.

During the three months ended March 31, 2012, we sold a portion of our Mersey timberlands in Nova Scotia and various other assets for proceeds of $26 million, resulting in a net gain on disposition of assets of $23 million.

During the three months ended March 31, 2011, we sold our Kenora, Ontario paper mill and various other assets for proceeds of $5 million, resulting in a net gain on disposition of assets of $1 million.

Note 4. Other Income, Net

Other income, net for the three months ended March 31, 2012 and 2011 was comprised of the following:


(Unaudited, in millions)	2012				2011
Foreign exchange gain		$	12			$	28
Post-emergence costs ⁽¹⁾			(2	)			(11	)
Income from equity method investments			1				–
Interest income			1				–
Miscellaneous income			1				2
		$	13			$	19

⁽¹⁾	Primarily represents ongoing legal and other professional fees for the resolution and settlement of disputed creditor claims, as well as costs for other post-emergence activities associated with the creditor protection proceedings, from which we emerged on December 9, 2010.

Note 5. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss as of March 31, 2012 and December 31, 2011 was comprised of the following:


(Unaudited, in millions)	March 31, 2012			December 31, 2011
Unamortized prior service costs ⁽¹ ⁾		$	–		$	(2)
Unamortized actuarial losses ⁽² ⁾			(311)			(309)
Foreign currency translation ⁽³ ⁾			3			–
		$	(308)		$	(311)

⁽¹⁾	Net of deferred income taxes of zero as of both March 31, 2012 and December 31, 2011.

⁽²⁾	Net of deferred income tax benefit of $127 million as of both March 31, 2012 and December 31, 2011. Net of unamortized actuarial losses of $8 million attributable to noncontrolling interests as of both March 31, 2012 and December 31, 2011.

⁽³⁾	No tax effect was recorded for foreign currency translation since the investment in foreign net assets translated is deemed indefinitely invested. Net of noncontrolling interests of $2 million of foreign exchange gains as of both March 31, 2012 and December 31, 2011.

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 6. Net Income Per Share

The weighted-average number of common shares outstanding used to calculate basic and diluted net income per share attributable to AbitibiBowater Inc. common shareholders was 97.1 million for both the three months ended March 31, 2012 and 2011.

For the three months ended March 31, 2012 and 2011, no adjustments to net income attributable to AbitibiBowater Inc. common shareholders were necessary to calculate basic and diluted net income per share.

For the three months ended March 31, 2012, the dilutive impact of 0.9 million option shares and 0.4 million equity-classified restricted stock units (“RSUs”) and deferred stock units on the weighted-average number of common shares outstanding used to calculate diluted net income per share was nominal. For the three months ended March 31, 2011, the dilutive impact of 0.6 million option shares and 0.1 million equity-classified RSUs on the weighted-average number of common shares outstanding used to calculate diluted net income per share was nominal.

Note 7. Inventories, Net

Inventories, net as of March 31, 2012 and December 31, 2011 were comprised of the following:


(Unaudited, in millions)	March 31, 2012			December 31, 2011
Raw materials and work in process		$	180		$	152
Finished goods			161			168
Mill stores and other supplies			160			155
		$	501		$	475

During the three months ended March 31, 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.

Note 8. 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 March 31, 2012 and December 31, 2011, we maintained a reserve of approximately Cdn $77 million ($77 million, based on the exchange rate in effect on March 31, 2012) and Cdn $83 million ($81 million, based on the exchange rate in effect on December 31, 2011), respectively, to secure those obligations. As of March 31, 2012, $4 million and $73 million of this reserve was included as restricted cash in “Other current assets” and “Other assets,” respectively, in our Consolidated Balance Sheet. As of December 31, 2011, this reserve was included as restricted cash in “Other assets” in our Consolidated Balance Sheet.

Note 9. Severance Related Liabilities

The activity in our severance related liabilities for the three months ended March 31, 2012 was as follows:


(Unaudited, in millions)	2012 Initiatives				2011 Initiatives				Total
Balance as of December 31, 2011		$	–			$	11			$	11
Charges (credits)			4				(1	)			3
Payments			(1	)			(6	)			(7	)
Balance as of March 31, 2012		$	3			$	4			$	7

During the three months ended March 31, 2012, we recorded employee termination costs primarily as a result of workforce reductions at our Baie-Comeau paper mill and certain other paper mills. The majority of the remaining severance liability is expected to be paid in 2012.

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Employee termination costs incurred in the three months ended March 31, 2012 were included in “Cost of sales, excluding depreciation, amortization and cost of timber harvested,” “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 March 31, 2012 and December 31, 2011.

Note 10. Long-Term Debt

10.25% senior secured notes due 2018

Our 10.25% senior secured notes (the “2018 Notes) have a maturity date of October 15, 2018. Interest is payable on the notes on April 15 and October 15 of each year until maturity. As of March 31, 2012 and December 31, 2011, the carrying value of the 2018 Notes was $620 million and $621 million, respectively, which included an unamortized premium of $34 million and $35 million, respectively. The fair value of the 2018 Notes was $672 million and $649 million as of March 31, 2012 and December 31, 2011, respectively, and was determined by reference to quoted market prices.

ABL Credit Facility

Our senior secured credit facility (the “ABL Credit Facility”), as amended, has a maturity date of October 28, 2016 and provides an asset-based revolving credit facility of up to $600 million at any time, subject to borrowing base availability. As of March 31, 2012, we had no borrowings and $58 million of letters of credit outstanding under the ABL Credit Facility. As of March 31, 2012, we had $491 million of availability under the ABL Credit Facility, which was comprised of $265 million for the U.S. borrowers (AbiBow US Inc. and AbiBow Recycling LLC) and $226 million for the Canadian borrower (AbiBow Canada Inc.).

Note 11. Employee Benefit Plans

Pension and OPEB plans

The components of net periodic benefit cost relating to our pension and OPEB plans for the three months ended March 31, 2012 and 2011 were as follows:


	Pension Plans								OPEB Plans
(Unaudited, in millions)	2012				2011				2012			2011
Service cost		$	9			$	9			$	1		$	1
Interest cost			76				83				5			6
Expected return on plan assets			(84	)			(87	)			–			–
Curtailments			4				–				–			3
		$	5			$	5			$	6		$	10

Events impacting net periodic benefit cost for the three months ended March 31, 2012

In March 2012, we announced a workforce reduction at our Baie-Comeau paper mill, which will result in the elimination of approximately 90 positions. As a result, a curtailment loss of $2 million was included in the net periodic benefit cost of our pension plans, which was recorded in “Closure costs, impairment and other related charges” in our Consolidated Statements of Operations for the three months ended March 31, 2012.

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

As a result of the permanent closure in December 2011 of a paper machine at our Kenogami paper mill, approximately 112 positions were eliminated. As a result, a curtailment loss of $2 million was included in the net periodic benefit cost of our pension plans, which was recorded in “Closure costs, impairment and other related charges” in our Consolidated Statements of Operations for the three months ended March 31, 2012.

Event impacting net periodic benefit cost for the three months ended March 31, 2011

In February 2011, as a result of the decision to cease paperboard production at our Coosa Pines paper mill, approximately 137 positions were eliminated. As a result, a curtailment loss of $3 million was included in the net periodic benefit cost of our OPEB plans, which was recorded in “Closure costs, impairment and other related charges” in our Consolidated Statements of Operations for the three months ended March 31, 2011.

Defined contribution plans

The expense for our defined contribution plans totaled $6 million and $4 million for the three months ended March 31, 2012 and 2011, respectively.

Note 12. Income Taxes

The income tax benefit attributable to income before income taxes differs from the amounts computed by applying the United States federal statutory income tax rate of 35% for the three months ended March 31, 2012 and 2011 as a result of the following:


(Unaudited, in millions)	2012			2011
Income before income taxes	$	23		$	16

Income tax (provision) benefit:
Expected income tax provision		(8	)		(6	)
Changes resulting from:
Valuation allowance		3			(2	)
Adjustments for unrecognized tax benefits		4			–
Foreign exchange		7			11
Reorganization-related adjustments		(3	)		10
Research and development tax incentives		2			–
State income taxes and foreign tax rate differences		2			1
Other, net		3			–
	$	10		$	14

During the three months ended March 31, 2012, we recorded benefits of $4 million for previously unrecognized tax benefits, following the conclusion of audits related to prior year research and development tax incentive claims. In the next quarter, we expect to conclude additional tax examinations related to significant prior year research and development tax incentive claims. The amount ultimately determined upon resolution is uncertain and could differ from the amount accrued.

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 13. Commitments and Contingencies

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.

On March 31, 2010, the Canadian court in the Companies’ Creditors Arrangement Act (Canada) proceedings 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 heard 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.

Information on our commitments and contingencies is presented in Note 20, “Commitments and Contingencies,” included in our consolidated financial statements for the year ended December 31, 2011. There have been no material developments to the commitments and contingencies described in our consolidated financial statements for the year ended December 31, 2011.

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 14. Segment Information

We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our primary product lines: newsprint, coated papers, specialty papers, market pulp and wood products.

None of the income or loss items following “Operating income” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, closure costs, impairment and other related charges, employee termination costs, net gain on disposition of assets and other discretionary charges or credits are not allocated to our segments. We allocate depreciation expense to our segments, although the related fixed assets are not allocated to segment assets. Additionally, all selling, general and administrative expenses, excluding employee termination costs and certain discretionary charges and credits, are allocated to our segments.

Information about certain segment data for the three months ended March 31, 2012 and 2011 was as follows:


(Unaudited, in millions)	Newsprint			Coated Papers				Specialty Papers			Market Pulp ⁽¹⁾				Wood Products				Corporate and Other				Consolidated Total
Sales
First quarter 2012		$	416		$	128			$	272		$	127			$	111			$	–			$	1,054
First quarter 2011			429			134				330			176				116				–				1,185

Depreciation, amortization and cost of timber harvested
First quarter 2012		$	18		$	10			$	12		$	8			$	9			$	–			$	57
First quarter 2011			20			9				11			7				7				–				54

Operating income (loss) ⁽²⁾
First quarter 2012		$	21		$	(1	)		$	15		$	(21	)		$	(6	)		$	18			$	26
First quarter 2011			19			3				–			23				(3	)			(15	)			27

⁽¹⁾	Market pulp sales excluded inter-segment sales of $11 million and $15 million for the three months ended March 31, 2012 and 2011, respectively.

⁽²⁾	Corporate and other operating income (loss) for the three months ended March 31, 2012 and 2011 included the following special items:


(Unaudited, in millions)	2012			2011
Net gain on disposition of assets	$	23		$	1
Closure costs, impairment and other related charges		(5	)		(13	)
Write-downs of inventory		–			(1	)
Employee termination costs		(2	)		(4	)
Transaction costs in connection with our acquisition of Fibrek Inc. (“Fibrek”)		(4	)		–
	$	12		$	(17	)

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 15. Condensed Consolidating Financial Information

The following information is presented in accordance with Rule 3-10 of Regulation S-X and the public information requirements of Rule 144 promulgated pursuant to the Securities Act of 1933, as amended, in connection with AbitibiBowater Inc.’s issuance of the 2018 Notes that are fully and unconditionally guaranteed, on a joint and several basis, by all of our 100% owned material U.S. subsidiaries (the “Guarantor Subsidiaries”). The 2018 Notes are not guaranteed by our foreign subsidiaries and our less than 100% owned U.S. subsidiaries (the “Non-guarantor Subsidiaries”).

The following condensed consolidating financial information sets forth the Statements of Operations for the three months ended March 31, 2012 and 2011, the Balance Sheets as of March 31, 2012 and December 31, 2011 and the Statements of Cash Flows for the three months ended March 31, 2012 and 2011 for AbitibiBowater Inc. (the “Parent”), the Guarantor Subsidiaries on a combined basis and the Non-guarantor Subsidiaries on a combined basis. The condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries and Non-guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-guarantor Subsidiaries, using the equity method of accounting. The principal consolidating adjustments are elimination entries to eliminate the investments in subsidiaries and intercompany balances and transactions.


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Three Months Ended March 31, 2012
(Unaudited, in millions)	Parent				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Sales		$	–			$	716			$	734			$	(396	)		$	1,054
Costs and expenses:
Cost of sales, excluding depreciation, amortization and cost of timber harvested			–				654				578				(396	)			836
Depreciation, amortization and cost of timber harvested			–				24				33				–				57
Distribution costs			–				32				89				–				121
Selling, general and administrative expenses			6				15				11				–				32
Closure costs, impairment and other related charges			–				–				5				–				5
Net gain on disposition of assets			–				–				(23	)			–				(23	)
Operating (loss) income			(6	)			(9	)			41				–				26
Interest expense			(34	)			(1	)			(1	)			20				(16	)
Other income, net			–				23				10				(20	)			13
Parent’s equity in income of subsidiaries			49				–				–				(49	)			–
Income before income taxes			9				13				50				(49	)			23
Income tax benefit (provision)			14				(7	)			3				–				10
Net income including noncontrolling interests			23				6				53				(49	)			33
Net income attributable to noncontrolling interests			–				–				(10	)			–				(10	)
Net income attributable to AbitibiBowater Inc.		$	23			$	6			$	43			$	(49	)		$	23

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Three Months Ended March 31, 2011
(Unaudited, in millions)	Parent				Guarantor Subsidiaries				Non-guarantor Subsidiaries				Consolidating Adjustments				Consolidated
Sales		$	–			$	792			$	765			$	(372	)		$	1,185
Costs and expenses:
Cost of sales, excluding depreciation, amortization and cost of timber harvested			–				685				609				(372	)			922
Depreciation, amortization and cost of timber harvested			–				23				31				–				54
Distribution costs			–				39				94				–				133
Selling, general and administrative expenses			2				12				23				–				37
Closure costs, impairment and other related charges			–				13				–				–				13
Net gain on disposition of assets			–				–				(1	)			–				(1	)
Operating (loss) income			(2	)			20				9				–				27
Interest expense			(41	)			(2	)			(8	)			21				(30	)
Other income, net			9				13				18				(21	)			19
Parent’s equity in income of subsidiaries			54				–				–				(54	)			–
Income before income taxes			20				31				19				(54	)			16
Income tax benefit (provision)			10				(9	)			13				–				14
Net income including noncontrolling interests			30				22				32				(54	)			30
Net income attributable to noncontrolling interests			–				–				–				–				–
Net income attributable to AbitibiBowater Inc.		$	30			$	22			$	32			$	(54	)		$	30

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2012

(Unaudited, in millions)

Parent

Guarantor
Subsidiaries

Non-guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated

Assets

Current assets:

Cash and cash equivalents

–

166

244

–

410

Accounts receivable, net

–

321

369

–

690

Accounts receivable from affiliates

–

327

(339

)

–

Inventories, net

–

173

328

–

501

Assets held for sale

–

Deferred income tax assets

–

111

Note and interest receivable from parent

–

966

–

(966

)

–

Note receivable from affiliate

–

)

–

Other current assets

–

Total current assets

–

1,693

1,411

(1,314

)

1,790

Fixed assets, net

–

924

1,560

–

2,484

Amortizable intangible assets, net

–

Deferred income tax assets

–

530

1,257

–

1,787

Note receivable from affiliate

–

)

–

Investments in and advances to consolidated subsidiaries

5,620

2,361

–

(7,981

)

–

Other assets

–

127

106

257

Total assets

5,620

5,535

4,373

(9,192

)

6,336

Liabilities and equity

Current liabilities:

Accounts payable and accrued liabilities

159

351

–

538

Accounts payable to affiliates

226

–

(226

)

–

Note and interest payable to a subsidiary

966

–

(966

)

–

Note payable to affiliate

–

)

–

Total current liabilities

1,220

159

360

(1,201

)

538

Long-term debt

620

–

620

Long-term debt due to affiliate

–

)

–

Pension and other postretirement benefit obligations

–

467

1,067

–

1,534

Deferred income tax liabilities

–

Other long-term liabilities

–

Total liabilities

1,840

660

1,526

(1,204

)

2,822

Total equity

3,780

4,875

2,847

(7,988

)

3,514

Total liabilities and equity

5,620

5,535

4,373

(9,192

)

6,336

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements


CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2011
(Unaudited, in millions)	Parent		Guarantor Subsidiaries		Non-guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	–	$	128	$	241	$	–		$	369
Accounts receivable, net		–		349		401		–			750
Accounts receivable from affiliates		–		70		302		(372	)		–
Inventories, net		–		172		303		–			475
Assets held for sale		–		–		7		–			7
Deferred income tax assets		–		27		82		–			109
Note and interest receivable from parent		–		945		–		(945	)		–
Note receivable from affiliate		–		11		–		(11	)		–
Other current assets		–		16		43		–			59
Total current assets		–		1,718		1,379		(1,328	)		1,769
Fixed assets, net		–		938		1,564		–			2,502
Amortizable intangible assets, net		–		–		18		–			18
Deferred income tax assets		–		524		1,225		–			1,749
Note receivable from affiliate		–		3		–		(3	)		–
Investments in and advances to consolidated subsidiaries		5,565		2,360		–		(7,925	)		–
Other assets		–		27		128		105			260
Total assets	$	5,565	$	5,570	$	4,314	$	(9,151	)	$	6,298

Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities	$	15	$	166	$	363	$	–		$	544
Accounts payable to affiliates		232		27		–		(259	)		–
Note and interest payable to a subsidiary		945		–		–		(945	)		–
Note payable to affiliate		–		–		11		(11	)		–
Total current liabilities		1,192		193		374		(1,215	)		544
Long-term debt		621		–		–		–			621
Long-term debt due to affiliate		–		–		3		(3	)		–
Pension and other postretirement benefit obligations		–		475		1,049		–			1,524
Deferred income tax liabilities		–		–		75		–			75
Other long-term liabilities		–		34		23		–			57
Total liabilities		1,813		702		1,524		(1,218	)		2,821
Total equity		3,752		4,868		2,790		(7,933	)		3,477
Total liabilities and equity	$	5,565	$	5,570	$	4,314	$	(9,151	)	$	6,298

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Three Months Ended March 31, 2012
(Unaudited, in millions)	Parent			Guarantor Subsidiaries				Non-guarantor Subsidiaries				Consolidating Adjustments			Consolidated
Net cash provided by operating activities		$	–		$	48			$	9				$ –		$	57
Cash flows from investing activities:
Cash invested in fixed assets			–			(10	)			(29	)			–			(39	)
Disposition of assets			–			–				26				–			26
Decrease in restricted cash			–			–				4				–			4
Increase in deposit requirements for letters of credit, net			–			–				(7	)			–			(7	)
Net cash used in investing activities			–			(10	)			(6	)			–			(16	)
Cash flows from financing activities:
Net cash used in financing activities			–			–				–				–			–
Net increase in cash and cash equivalents			–			38				3				–			41
Cash and cash equivalents:
Beginning of period			–			128				241				–			369
End of period		$	–		$	166			$	244				$ –		$	410


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the Three Months Ended March 31, 2011
(Unaudited, in millions)	Parent			Guarantor Subsidiaries				Non-guarantor Subsidiaries				Consolidating Adjustments			Consolidated
Net cash provided by operating activities		$	–		$	49			$	9			$	–		$	58
Cash flows from investing activities:
Cash invested in fixed assets			–			(7	)			(8	)			–			(15	)
Disposition of assets			–			–				5				–			5
Increase in restricted cash			–			–				(2	)			–			(2	)
Increase in deposit requirements for letters of credit, net			–			–				(6	)			–			(6	)
Net cash used in investing activities			–			(7	)			(11	)			–			(18	)
Cash flows from financing activities:
Dividends and distribution to noncontrolling interests			–			–				(18	)			–			(18	)
Acquisition of noncontrolling interest			–			–				(15	)			–			(15	)
Net cash used in financing activities			–			–				(33	)			–			(33	)
Net increase (decrease) in cash and cash equivalents			–			42				(35	)			–			7
Cash and cash equivalents:
Beginning of period			–			164				155				–			319
End of period		$	–		$	206			$	120			$	–		$	326

ABITIBIBOWATER INC.

Notes to Unaudited Interim Consolidated Financial Statements

Note 16. Subsequent Events

The following significant events occurred subsequent to March 31, 2012:

•

In connection with our offer to purchase all of the issued and outstanding shares of Fibrek (which is more fully described in the bid circular and other ancillary documentation we filed with the SEC, as varied and extended), as of May 4, 2012, we had taken up and accepted for payment approximately 63.3% of the then outstanding Fibrek shares, and as aggregate consideration for the shares, we distributed approximately 2.3 million newly-issued shares of our common stock and Cdn$45 million ($45 million, based on the exchange rates in effect on each of the dates we acquired the shares of Fibrek) in cash. The offer has been extended to 5:00 p.m. (Eastern Standard Time) on May 17, 2012.

•

On April 30, 2012, the province of Quebec informed us that it had granted an additional extension of the effective date to require us to transfer property of our Jim-Gray hydroelectric facility and the associated installation to the province for no consideration following the non-renewal of our water power lease on January 1, 2012. As extended, the transfer would be effective as of June 15, 2012. The province’s actions are not consistent with our understanding of the water power lease in question. We continue to evaluate our legal options. At this time, we believe that the remaining useful life of the assets remains unchanged. The carrying value of the hydroelectric assets and the intangible assets associated with the Jim-Gray installation as of March 31, 2012 was approximately $94 million. If we are unable to renew the water rights at this facility, we will reevaluate the remaining useful life of these assets, which may result in accelerated depreciation and amortization charges at that time. Additional information regarding our Jim-Gray hydroelectric facility is presented in Note 4, “Amortizable Intangible Assets, Net,” and Note 12, “Fixed Assets, Net,” included in our consolidated financial statements for the year ended December 31, 2011.

ABITIBIBOWATER INC.


ITEM 2.		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”) 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”) provides information that we believe is useful in understanding our results of operations, cash flows and financial condition for the three months ended March 31, 2012. This discussion should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited interim consolidated financial statements and related notes appearing in Item 1 of this Quarterly Report on Form 10-Q (“Unaudited Interim Consolidated Financial Statements”). On November 7, 2011, AbitibiBowater Inc. began doing business as Resolute Forest Products. We are seeking shareholder approval at the 2012 annual meeting of shareholders to amend our certificate of incorporation to change our legal name to Resolute Forest Products Inc.

Cautionary Statements Regarding Forward-Looking Information and Use of Third-Party Data

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) that are not reported financial results or other historical information of AbitibiBowater are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: efforts to continue to reduce costs and increase revenues and profitability, including our cost reduction initiatives regarding selling, general and administrative (“SG&A”) expenses; business outlook; assessment of market conditions; liquidity outlook, prospects, growth, strategies and the industry in which we operate; ongoing Fibrek Transaction (as defined below) and strategies for achieving our goals generally, including the strategies described under “Business Strategy and Outlook” below. 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-Q include risks associated with the consummation of the Fibrek Transaction, including that the businesses of Resolute and Fibrek may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected, the possible delay in the completion of the steps required to be taken for the eventual combination of the two companies and disruption from the proposed transaction making it more difficult to maintain relationships with customers, employees and suppliers and the risks enumerated under Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the United States Securities and Exchange Commission (the “SEC”) on February 29, 2012 (the “2011 Annual Report”).

All forward-looking statements in this Form 10-Q are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the 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-Q 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.

ABITIBIBOWATER INC.

Business Strategy and Outlook

We are guided by our vision and values, focusing on safety, profitability, accountability, sustainability and teamwork. As a result of aggressive cost reductions and mill rationalizations, today we compete as a leading, lower-cost North American producer, counting on efficient operations, strong economies of scale and access to competitive sources of energy and fiber. Our corporate strategy includes, on the one hand, a gradual retreat from certain paper grades, and on the other, using our strong financial position to act on opportunities to diversify and grow. That strategy focuses on three core themes: operational excellence, disciplined use of capital and strategic initiatives.

Operational excellence

We aim to improve our performance and margins by: (i) leveraging our lower-cost position, (ii) capitalizing on our economical access to international markets to compensate for the secular decline in North American newsprint demand, (iii) maintaining a stringent focus on reducing costs and optimizing our diversified asset base, (iv) maximizing the benefits of our access to virgin fiber and managing our exposure to volatile recycled fiber and (v) pursuing our strategy of not building inventory.

Corporate initiatives

We make capital management a priority. Building on our focus to reduce manufacturing costs, we will continue our efforts to decrease overhead and spend our capital in a disciplined, strategic and focused manner, concentrated on our most successful sites.

Reducing debt and associated interest charges is one of our primary financial goals. We believe this improves our financial flexibility and supports the implementation of our strategic objectives.

Strategic initiatives

We believe there will be continued consolidation in the paper and forest products industry as we and our competitors continue to explore ways to increase efficiencies and grow into more favorable markets. We believe in taking an opportunistic approach to strategic opportunities, pursuing only those opportunities that reduce our cost position, improve our product diversification or allow us to expand into future growth markets.

Specifically, on December 15, 2011, we announced an offer to purchase all of the issued and outstanding shares of Fibrek Inc. (“Fibrek”), a producer and marketer of virgin and recycled kraft pulp, operating three mills with a combined annual production capacity of approximately 760,000 metric tons. The aggregate consideration for the transaction (the “Fibrek Transaction”) consists of cash and shares of our common stock, up to approximately Cdn$72 million ($72 million, based on the exchange rate in effect on March 31, 2012) and 3.7 million shares, if consummated fully. The offer, which is more fully described in the bid circular and other ancillary documentation we filed with the SEC, as varied and extended, has been extended to 5:00 p.m. (Eastern Standard Time) on May 17, 2012. At this time, there can be no assurance that the offer will be fully consummated on the proposed terms. As of May 4, 2012, we had taken up and accepted for payment approximately 63.3% of the then outstanding Fibrek shares, and, as aggregate consideration for the shares, we distributed approximately 2.3 million newly-issued shares of our common stock and Cdn$45 million ($45 million) in cash.

Business and 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 in Canada and hydroelectric facilities in Quebec, Canada.

As discussed further below, newsprint, coated papers and specialty papers, particularly supercalendered high gloss papers and lightweight and directory grades, experienced a decrease in North American demand in the first quarter of 2012 compared to the first quarter of 2011. Global shipments of market pulp increased during the first quarter of 2012 compared to the same period of 2011, particularly in China. Our wood products segment continues to be impacted by low demand due to a weak U.S. housing market.

ABITIBIBOWATER INC.

Consolidated Results of Operations


	Three Months Ended March 31,
(Unaudited, in millions, except per share amounts)		2012		2011		Change
Average Canadian dollar to U.S. dollar exchange rate	$	0.999	$	1.015	$	(0.016	)

Sales	$	1,054	$	1,185	$	(131	)
Operating income		26		27		(1	)
Net income attributable to AbitibiBowater Inc.		23		30		(7	)
Net income per share attributable to AbitibiBowater Inc. – basic		0.23		0.31		(0.08	)
Net income per share attributable to AbitibiBowater Inc. – diluted		0.23		0.31		(0.08	)

Significant items that (unfavorably) favorably impacted operating income:
Product pricing and foreign exchange					$	(2	)
Shipments						(129	)


Change in sales	(131	)

Change in cost of sales, excluding depreciation, amortization and cost of timber harvested	86

Change in depreciation, amortization and cost of timber harvested	(3	)

Change in distribution costs	12

Change in selling, general and administrative expenses	5

Change in closure costs, impairment and other related charges	8

Change in net gain on disposition of assets	22
	$ (1)

Sales

Sales decreased $131 million, or 11.1%, from $1,185 million in the first quarter of 2011 to $1,054 million in the first quarter of 2012. The decrease was primarily due to lower shipments in all of our product lines and an unfavorable currency exchange on our Canadian dollar denominated sales. Lower transaction prices for market pulp and wood products were offset by higher transaction prices for newsprint and specialty papers. The impact of each of these items is discussed further below under “Segment Results of Operations.”

Operating income

Operating income decreased $1 million to $26 million in the first quarter of 2012 compared to $27 million in the first quarter of 2011. The above table presents the items that impacted operating income. A brief explanation of the major items follows.

Cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $86 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to lower volumes ($82 million), a favorable currency exchange ($8 million, primarily due to the Canadian dollar) and lower costs for wood and fiber ($3 million), fuel ($5 million) and labor and benefits ($4 million) and other favorable cost variances. These lower costs were partially offset by higher costs for energy ($3 million), chemicals ($4 million) and annual maintenance outages at two mills ($10 million).

Distribution costs decreased $12 million in the first quarter of 2012 compared to the first quarter of 2011 due to lower shipment volumes, partially offset by higher distribution costs per ton.

Selling, general and administrative costs decreased $5 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to a $9 million refund recorded in the first quarter of 2012 of certain group benefit premiums paid in prior years and $4 million of corporate employee termination costs recorded in the first quarter of 2011, partially offset by $4 million of transaction costs in connection with our acquisition of Fibrek and an accrual of $3 million for the short-term and long-term incentive plans recorded in the first quarter of 2012.

ABITIBIBOWATER INC.

We recorded $5 million of closure costs, impairment and other related charges in the first quarter of 2012 compared to $13 million in the first quarter of 2011. We recorded a net gain on disposition of assets of $23 million in the first quarter of 2012 compared to $1 million in the first quarter of 2011. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Non-operating items

Interest expense

Interest expense decreased $14 million from $30 million in the first quarter of 2011 to $16 million in the first quarter of 2012, primarily as a result of the redemption of $264 million of the 2018 Notes (as defined under “Liquidity and Capital Resources”) in the second and fourth quarters of 2011.

Other income, net

Other income, net in the first quarter of 2012 and 2011 was $13 million and $19 million, respectively, primarily comprised of foreign currency exchange gains of $12 million and $28 million, respectively, partially offset by costs for the resolution and settlement of disputed creditor claims and other post-emergence activities associated with the creditor protection proceedings of $2 million and $11 million, respectively.

Income tax benefit

In the first quarter of 2012, an income tax benefit of $10 million was recorded on income before income taxes of $23 million, resulting in an effective tax rate of (43)%. Our effective tax rate in the first quarter of 2012 was impacted by favorable adjustments related to research and development tax incentives, following annual filings and the conclusion of certain audits, as well as foreign exchange related items, offset by an unfavorable reorganization-related adjustment. In the first quarter of 2011, an income tax benefit of $14 million was recorded on income before income taxes of $16 million, resulting in an effective tax rate of (88)%. Our effective tax rate in the first quarter of 2011 was impacted by a $10 million favorable reorganization-related adjustment, as well as foreign exchange related items. For additional information, see Note 12, “Income Taxes,” to our Unaudited Interim Consolidated Financial Statements.

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 foreign subsidiaries whose unconsolidated local currency foreign exchange 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. We also have foreign exchange gains and losses on the conversion of foreign currency denominated items, for which no tax expense or benefit is recorded. 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.

Net income attributable to AbitibiBowater Inc.

Net income attributable to AbitibiBowater Inc. in the first quarter of 2012 was $23 million, or $0.23 per diluted common share, a decrease of $7 million, or $0.08 per diluted common share, compared to $30 million, or $0.31 per diluted common share, in the same period of 2011. The decrease was due to the decreases in operating income, other income, net and the income tax benefit, partially offset by the decrease in interest expense, all of which are discussed above.

Segment Results of Operations

We manage our business based on the products that we manufacture. Accordingly, our reportable segments correspond to our primary product lines: newsprint, coated papers, specialty papers, market pulp and wood products. None of the income or loss items following “Operating income” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, closure costs, impairment and other related charges, employee termination costs, net gain on dispositions of assets and other discretionary charges or credits are not allocated to our segments. Additionally, all SG&A expenses, excluding employee termination costs and certain discretionary charges and credits, are allocated to our segments. Depreciation expense is also allocated to our segments. For additional information regarding our segments, see Note 14, “Segment Information,” to our Unaudited Interim Consolidated Financial Statements.

ABITIBIBOWATER INC.

Newsprint


	Three Months Ended March 31,
		2012		2011		Change
Average price (per metric ton)	$	658	$	654	$	4
Average cost (per metric ton)	$	625	$	625	$	–
Shipments (thousands of metric tons)		633		656		(23	)
Downtime (thousands of metric tons)		85		22		63
Inventory at end of period (thousands of metric tons)		73		104		(31	)

(Unaudited, in millions)
Segment sales	$	416	$	429	$	(13	)
Segment operating income		21		19		2

Significant items that favorably (unfavorably) impacted segment operating income:
Product pricing and foreign exchange					$	3
Shipments						(16	)
Change in sales						(13	)

Change in cost of sales, excluding depreciation, amortization and cost of timber harvested						16

Change in depreciation, amortization and cost of timber harvested						2

Change in selling, general and administrative expenses						(3	)
					$	2

Segment sales decreased $13 million, or 3.0%, from $429 million in the first quarter of 2011 to $416 million in the first quarter of 2012 due to lower shipment volumes and an unfavorable currency exchange on our Canadian dollar denominated sales, partially offset by higher transaction prices. Shipments in the first quarter of 2012 decreased 23,000 metric tons, or 3.5%, compared to the first quarter of 2011.

In the first quarter of 2012, downtime at our facilities was primarily market related.

Segment operating income increased $2 million to $21 million in the first quarter of 2012 compared to $19 million in the first quarter of 2011. The above table presents the items that impacted segment operating income. A brief explanation of the major items follows.

Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $16 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to lower volumes ($7 million), a favorable currency exchange ($3 million, primarily due to the Canadian dollar) and lower costs for wood and fiber ($5 million, primarily old newspaper prices), labor and benefits ($4 million) and maintenance ($3 million), partially offset by higher costs for energy ($5 million) and other unfavorable cost variances.

Newsprint Third-Party Data: North American newsprint demand declined 2.6% and global newsprint demand declined 2.1% in the first quarter of 2012 compared to the same period of 2011. In the first quarter of 2012, North American net exports of newsprint were 19.5% lower than the same period of 2011. Inventories for North American mills as of March 31, 2012 were 188,000 metric tons, which was 27.1% lower than as of March 31, 2011. The North American operating rate for newsprint was 92% in the first quarter of 2012 compared to 89% in the same period of 2011.

ABITIBIBOWATER INC.

Coated Papers


	Three Months Ended March 31,
		2012			2011		Change
Average price (per short ton)	$	790		$	794	$	(4	)
Average cost (per short ton)	$	796		$	775	$	21
Shipments (thousands of short tons)		162			169		(7	)
Downtime (thousands of short tons)		12			2		10
Inventory at end of period (thousands of short tons)		22			21		1

(Unaudited, in millions)
Segment sales	$	128		$	134	$	(6	)
Segment operating (loss) income		(1	)		3		(4	)

Significant items that (unfavorably) favorably impacted segment operating (loss) income:
Product pricing						$	(1	)
Shipments							(5	)
Change in sales							(6	)

Change in cost of sales, excluding depreciation, amortization and cost of timber harvested							4

Change in depreciation, amortization and cost of timber harvested							(1	)

Change in selling, general and administrative expenses							(1	)
						$	(4	)

Segment sales decreased $6 million, or 4.5%, from $134 million in the first quarter of 2011 to $128 million in the first quarter of 2012 due to lower transaction prices and shipment volumes.

In the first quarter of 2012, downtime at our facility was primarily maintenance related, which included a cold mill outage, as well as the installation of an after coater dryer on one of our paper machines.

Segment operating (loss) income decreased $4 million to an operating loss of $1 million in the first quarter of 2012 compared to operating income of $3 million in the first quarter of 2011. The above table presents the items that impacted segment operating (loss) income. A brief explanation of the major items follows.

Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $4 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to lower volumes ($3 million) and lower costs for fuel ($2 million) and other favorable cost variances, offset by higher costs for chemicals ($3 million) and the cold mill outage ($2 million).

Coated Papers Third-Party Data: North American demand for coated mechanical papers decreased 8.3% in the first quarter of 2012 compared to the same period of 2011. The North American operating rate for coated mechanical papers was 90% in the first quarter of 2012 compared to 87% in the same period of 2011. North American coated mechanical mill inventories were at 20 days of supply as of both March 31, 2012 and 2011.

ABITIBIBOWATER INC.

Specialty Papers


	Three Months Ended March 31,
	2012		2011		Change
Average price (per short ton)	$	749	$	698	$	51
Average cost (per short ton)	$	706	$	698	$	8
Shipments (thousands of short tons)		363		473		(110	)
Downtime (thousands of short tons)		40		32		8
Inventory at end of period (thousands of short tons)		80		87		(7	)

(Unaudited, in millions)
Segment sales	$	272	$	330	$	(58	)
Segment operating income		15		–		15

Significant items that favorably (unfavorably) impacted segment operating income:
Product pricing and foreign exchange					$	18
Shipments						(76	)
Change in sales						(58	)

Change in cost of sales, excluding depreciation, amortization and cost of timber harvested						67

Change in depreciation, amortization and cost of timber harvested						(1	)

Change in distribution costs						7

					$	15

Segment sales decreased $58 million, or 17.6%, from $330 million in the first quarter of 2011 to $272 million in the first quarter of 2012 due to significantly lower shipment volumes, partially offset by higher transaction prices. Lower shipment volumes primarily resulted from the decision to cease paperboard production at our Coosa Pines, Alabama paper mill in the first quarter of 2011 and the permanent closure in December 2011 of a paper machine at our Kenogami, Quebec paper mill.

Segment operating income increased to $15 million in the first quarter of 2012 compared to zero in the first quarter of 2011. The above table presents the items that impacted segment operating income. A brief explanation of the major items follows.

Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $67 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to lower volumes ($57 million), a favorable Canadian dollar currency exchange ($2 million) and lower costs for energy ($3 million), fuel ($3 million) and other favorable cost variances, partially offset by higher costs for maintenance ($4 million).

Distribution costs decreased $7 million in the first quarter of 2012 compared to the first quarter of 2011 due to lower shipment volumes, partially offset by higher distribution costs per ton.

Specialty Papers Third-Party Data: In the first quarter of 2012 compared to the same period of 2011, North American demand for supercalendered high gloss papers was down 27.4%, for lightweight or directory grades was down 17.0%, for standard uncoated mechanical papers was down 9.9% and in total for all specialty papers was down 18.9%. The North American operating rate for all specialty papers was 90% in the first quarter of 2012 compared to 86% in the same period of 2011. North American uncoated mechanical mill inventories were at 18 days of supply as of March 31, 2012 compared to 20 days of supply as of March 31, 2011.

ABITIBIBOWATER INC.

Market Pulp


	Three Months Ended March 31,
	2012			2011			Change
Average price (per metric ton)		$	636		$	735		$	(99	)
Average cost (per metric ton)		$	743		$	639		$	104
Shipments (thousands of metric tons)			199			239			(40	)
Downtime (thousands of metric tons)			77			8			69
Inventory at end of period (thousands of metric tons)			54			48			6

(Unaudited, in millions)
Segment sales		$	127		$	176		$	(49	)
Segment operating (loss) income			(21)			23			(44	)

Significant items that (unfavorably) favorably impacted segment operating (loss) income:
Product pricing and foreign exchange								$	(20	)
Shipments									(29	)

	Chan	Chan		Chan
Change in sales				(49	)

Change in cost of sales, excluding depreciation, amortization and cost of timber harvested				4

Change in depreciation, amortization and cost of timber harvested				(1	)

Change in distribution costs				2
			$	(44	)

Segment sales decreased $49 million, or 27.8%, from $176 million in the first quarter of 2011 to $127 million in the first quarter of 2012 due to lower transaction prices and shipment volumes.

In the first quarter of 2012, downtime at our facilities was primarily market related.

Segment operating (loss) income decreased $44 million to an operating loss of $21 million in the first quarter of 2012 compared to operating income of $23 million in the first quarter of 2011. The above table presents the items that impacted segment operating (loss) income. A brief explanation of the major items follows.

Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $4 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to lower volumes ($12 million) and other favorable cost variances, partially offset by higher costs for labor and benefits ($2 million) and an annual maintenance outage advanced from a later quarter ($7 million).

Market Pulp Third-Party Data: World shipments for market pulp increased 2.1% in the first quarter of 2012 compared to the same period of 2011. Shipments were down 8.5% in Western Europe (the world’s largest pulp market), down 5.5% in North America, up 23.3% in China, up 5.0% in Latin America and up 7.3% in Africa and Asia (excluding China and Japan). World market pulp producers shipped at 95% of capacity in the first quarter of 2012 compared to 93% in the same period of 2011. World market pulp producer inventories of softwood and hardwood grades were at 29 days and 34 days, respectively, of supply as of March 31, 2012 compared to 24 days and 40 days, respectively, of supply as of March 31, 2011. World market pulp producer inventories of all grades were at 31 days of supply as of March 31, 2012 compared to 32 days of supply as of March 31, 2011.

ABITIBIBOWATER INC.

Wood Products


	Three Months Ended March 31,
	2012		2011		Change
Average price (per thousand board feet)	$	304	$	310	$	(6	)
Average cost (per thousand board feet)	$	320	$	319	$	1
Shipments (millions of board feet)		367		375		(8	)
Downtime (millions of board feet)		165		93		72
Inventory at end of period (millions of board feet)		131		159		(28	)

(Unaudited, in millions)
Segment sales	$	111	$	116	$	(5	)
Segment operating loss		(6)		(3)		(3	)

Significant items that (unfavorably) favorably impacted segment operating loss:
Product pricing and foreign exchange					$	(2	)
Shipments						(3	)
Change in sales						(5	)

Change in cost of sales, excluding depreciation, amortization and cost of timber harvested						2

Change in depreciation, amortization and cost of timber harvested						(2	)

Change in distribution costs						3

Change in selling, general and administrative expenses						(1	)
					$	(3	)

Segment sales decreased $5 million, or 4.3%, from $116 million in the first quarter of 2011 to $111 million in the first quarter of 2012 due to lower transaction prices and shipment volumes and an unfavorable currency exchange on our Canadian dollar denominated sales.

In the first quarter of 2012, downtime at our facilities was primarily market related.

Segment operating loss deteriorated by $3 million to $6 million in the first quarter of 2012 compared to $3 million in the first quarter of 2011. The above table presents the items that impacted segment operating loss. A brief explanation of the major items follows.

Segment cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $2 million in the first quarter of 2012 compared to the first quarter of 2011, primarily due to lower volumes ($1 million), a favorable Canadian dollar currency exchange ($1 million) and other favorable cost variances, partially offset by higher costs for wood and fiber ($3 million).

Segment distribution costs decreased $3 million in the first quarter of 2012 compared to the first quarter of 2011 due to lower shipment volumes and lower distribution costs per ton.

Wood Products Third-Party Data : Privately-owned housing starts in the U.S. increased 10.3% to a seasonally-adjusted annual rate of 654,000 units in March 2012 compared to 593,000 units in March 2011.

ABITIBIBOWATER INC.

Corporate and Other

The following table is included in order to facilitate the reconciliation of our segment operating income (loss) to our total operating income in our Consolidated Statements of Operations.


	Three Months Ended March 31,
(Unaudited, in millions)	2012				2011				Change

Cost of sales, excluding depreciation, amortization and cost of timber harvested		$	(6	)		$	1			$	(7	)

Selling, general and administrative expenses			6				(4	)			10

Closure costs, impairment and other related charges			(5	)			(13	)			8

Net gain on disposition of assets			23				1				22

Operating income (loss)		$	18			$	(15	)		$	33

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

Cost of sales, excluding depreciation, amortization and cost of timber harvested, in corporate and other included ongoing costs related to closed mills and other miscellaneous adjustments.

Selling, general and administrative expenses

In the first quarter of 2012, we recorded a $9 million refund of certain group benefit premiums paid in prior years, partially offset by $4 million of transaction costs in connection with our acquisition of Fibrek. In the first quarter of 2011, we recorded $4 million of corporate employee termination costs.

Closure costs, impairment and other related charges

In the first quarter of 2012, we recorded $5 million of closure costs, impairment and other related charges for severance costs and a pension curtailment loss as a result of a workforce reduction at our Baie-Comeau, Quebec paper mill, as well as an adjustment for severance and pension curtailment related to the permanent closure in December 2011 of a paper machine at our Kenogami paper mill. In the first quarter of 2011, we recorded $13 million of accelerated depreciation, long-lived asset impairment charges, severance costs and an other postretirement benefit plan curtailment loss as a result of the decision to cease paperboard production at our Coosa Pines paper mill.

For additional information, see Note 2, “Closure Costs, Impairment and Other Related Charges,” to our Unaudited Interim Consolidated Financial Statements.

Net gain on disposition of assets

During the first quarter of 2012, we recorded a net gain on disposition of assets of $23 million related to the sale of a portion of our Mersey timberlands in Nova Scotia and various other assets. During the first quarter of 2011, we recorded a net gain on disposition of assets of $1 million related to the sale of various assets.

For additional information, see Note 3, “Assets Held for Sale and Net Gain on Disposition of Assets,” to our Unaudited Interim Consolidated Financial Statements.

ABITIBIBOWATER INC.

Liquidity and Capital Resources

Overview

In addition to cash and cash equivalents and net cash provided by operations, our principal external source of liquidity is the ABL Credit Facility, which is defined and discussed below. As of March 31, 2012, we had cash and cash equivalents of $410 million and had $491 million of availability under the ABL Credit Facility. We believe that these sources provide us with adequate liquidity. In 2012, we anticipate that we may use cash on hand to redeem additional 2018 Notes pursuant to existing redemption features in the notes indenture. Subsequent to March 31, 2012, we used $45 million of cash on hand to pay the cash portion of the consideration in the Fibrek Transaction for the shares we acquired as of May 4, 2012. We will use cash on hand to pay the balance of the cash consideration, up to an aggregate of Cdn$72 million ($72 million, based on the exchange rate in effect on March 31, 2012), if consummated fully, and to repay Fibrek’s existing outstanding indebtedness. As of December 31, 2011, Fibrek had outstanding indebtedness of approximately Cdn$112 million ($112 million, based on the exchange rate in effect on March 31, 2012).

10.25% senior secured notes due 2018

Our 10.25% senior secured notes (the “2018 Notes”) have a maturity date of October 15, 2018. Interest is payable on the notes on April 15 and October 15 of each year until maturity. As of March 31, 2012 and December 31, 2011, the carrying value of the 2018 Notes was $620 million and $621 million, respectively, which included an unamortized premium of $34 million and $35 million, respectively.

ABL Credit Facility

ABITIBIBOWATER INC.

Flow of funds

Summary of cash flows

A summary of cash flows for the three months ended March 31, 2012 and 2011 was as follows:


(Unaudited, in millions)	2012			2011
Net cash provided by operating activities		$	57		$	58
Net cash used in investing activities			(16)			(18)
Net cash used in financing activities			–			(33)
Net increase in cash and cash equivalents		$	41		$	7

Cash provided by operating activities

Cash provided by operating activities in the first quarter of 2012 was comparable to the same period of 2011.

Cash used in investing activities

The $2 million decrease in cash used in investing activities in the first quarter of 2012 compared to the same period of 2011 was primarily due to higher proceeds from the disposition of assets and a decrease in restricted cash in the first quarter of 2012 compared to the first quarter of 2011, partially offset by an increase in cash invested in fixed assets in the first quarter of 2012 compared to the first quarter of 2011.

Capital expenditures for both periods include compliance, maintenance and value-added projects on efficient and lower-cost production facilities.

Cash used in financing activities

The $33 million decrease in cash used in financing activities in the first quarter of 2012 compared to the same period of 2011 was primarily due to the acquisition of the noncontrolling interest in Augusta Newsprint Company and dividends and distribution to noncontrolling interests in the first quarter of 2011.

Recent Accounting Guidance

There is no new accounting guidance issued which we have not yet adopted that is expected to materially impact our results of operations or financial condition.

ABITIBIBOWATER INC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosures about market risk is disclosed in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2011 Annual Report. There have been no material changes in our exposure to market risk as previously disclosed in our 2011 Annual Report.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures:

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in

Rules 13a–15(e) and 15d–15(e) of the Securities Exchange Act of 1934, as of March 31, 2012. Based on that evaluation, the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date in recording, processing, summarizing and timely reporting information required to be disclosed in our reports to the SEC.

(b) Changes in Internal Control over Financial Reporting:

In connection with the evaluation of internal control over financial reporting, there were no changes during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Information on our legal proceedings is presented under Part I, Item 3, “Legal Proceedings,” in our 2011 Annual Report. There have been no material changes to the legal proceedings described in our 2011 Annual Report.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors set forth under Part I, Item 1A, “Risk Factors,” in our 2011 Annual Report, which could materially affect our business, financial condition or future results. The risks described in this report and in our 2011 Annual Report are not the only risks we are facing. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially affect our business, financial condition or future results. There have been no material changes to the risk factors previously disclosed in our 2011 Annual Report.

ABITIBIBOWATER INC.

ITEM 6. EXHIBITS


Exhibit No.		Description

4.1 *		Second Supplemental Indenture, dated as of March 9, 2012, among AbitibiBowater Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.

†10.1 *		2012 AbitibiBowater Inc. Short-Term Incentive Plan.

†10.2 *		Offer Letter between Jacques Vachon and AbitibiBowater Inc., dated March 19, 2012.

†10.3 *		Resolute Forest Products DC Make-up Program, effective January 1, 2012.

10.4 *		Waiver and Amendment No. 3, dated as of March 21, 2012, under and to the ABL Credit Agreement, dated as of December 9, 2010, among AbitibiBowater Inc., the subsidiaries of AbitibiBowater party thereto, the lenders party thereto from time to time and Citibank, N.A., as administrative agent and collateral agent.

31.1 *		Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 *		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 *		Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 *		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS **		XBRL Instance Document.

101.SCH **		XBRL Taxonomy Extension Schema Document.

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document.

*	Filed with this Form 10-Q.

Interactive data files furnished with this Form 10-Q, which represent the following materials from this Form 10-Q formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statement of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Unaudited Interim Consolidated Financial Statements. Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions or other liability provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. In addition, users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

†	This is a management contract or compensatory plan or arrangement.

ABITIBIBOWATER INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


ABITIBIBOWATER INC.

By		/s/ Jo-Ann Longworth
		Jo-Ann Longworth
		Senior Vice President and Chief Financial Officer

By		/s/ Silvana Travaglini
		Silvana Travaglini
		Vice President and Chief Accounting Officer

Dated: May 10, 2012

ABITIBIBOWATER INC.

EXHIBIT INDEX


Exhibit No.		Description

4.1 *		Second Supplemental Indenture, dated as of March 9, 2012, among AbitibiBowater Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee.

†10.1 *		2012 AbitibiBowater Inc. Short-Term Incentive Plan.

†10.2 *		Offer Letter between Jacques Vachon and AbitibiBowater Inc., dated March 19, 2012.

†10.3 *		Resolute Forest Products DC Make-up Program, effective January 1, 2012.

10.4 *		Waiver and Amendment No. 3, dated as of March 21, 2012, under and to the ABL Credit Agreement, dated as of December 9, 2010, among AbitibiBowater Inc., the subsidiaries of AbitibiBowater party thereto, the lenders party thereto from time to time and Citibank, N.A., as administrative agent and collateral agent.

31.1 *		Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 *		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 *		Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 *		Certification of Senior Vice President and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS **		XBRL Instance Document.

101.SCH **		XBRL Taxonomy Extension Schema Document.

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document.

*	Filed with this Form 10-Q.

†	This is a management contract or compensatory plan or arrangement.

Exhibit 4.1

SECOND SUPPLEMENTAL INDENTURE

SECOND SUPPLEMENTAL INDENTURE (this “ Supplemental Indenture ”) dated as of March 9, 2012, among ABITIBIBOWATER INC., a Delaware corporation (the “ Issuer ”), the Guarantors party hereto and WELLS FARGO BANK, NATIONAL ASSOCIATION, as trustee under the Indenture referred to below (the “ Trustee ”).

W I T N E S S E T H :

WHEREAS, ABI Escrow Corporation (the “ Escrow Issuer ”) has heretofore executed and delivered to the Trustee an indenture (the “ Original Indenture ”) dated as of October 4, 2010, providing for the issuance of the Original Issuer’s 10.25% Senior Secured Notes due 2018 (the “ Notes ”);

WHEREAS, the Original Indenture was amended and supplemented pursuant to a First Supplemental Indenture dated as of December 9, 2010 (the “ Original First Supplemental Indenture ”), and substantially concurrently with the execution and delivery thereof, the Escrow Issuer merged into the Issuer, with the Issuer continuing as the surviving corporation, and certain Subsidiaries of the Issuer executed and delivered Note Guarantees;

WHEREAS, pursuant to an Amended and Restated Indenture, dated as of May 12, 2011 (the “ Amended and Restated Indenture ”), the Issuer, the Guarantors party thereto, and the Trustee amended and restated the Original Indenture, as modified by the Original First Supplemental Indenture, in its entirety;

WHEREAS, pursuant to a First Supplemental Indenture, dated as of June 30, 2011 (together with the Amended and Restated Indenture, as further amended or modified from time to time, the “ Indenture ”), the Issuer, the Guarantors party thereto and the Trustee amended the Amended and Restated Indenture to add Additional Guarantors as party thereto;

WHEREAS, the Issuer believes that the Notes are now freely tradable without restriction by non-affiliates of the Issuer pursuant to Rule 144(b)(1) of the Securities Act of 1933, as amended, and, therefore, that the Private Placement Legend is no longer required to be included on the Notes; and

WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the Issuer, and the Guarantors party hereto are authorized to execute and deliver this Supplemental Indenture without the consent of any Holder to amend, supplement, and modify Indenture as set forth herein;

NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Issuer, the Guarantors party hereto, and the Trustee mutually covenant and agree for the equal and ratable benefit of the holders of the Notes as follows:

1. Defined Terms . As used in this Supplemental Indenture, terms defined in the Indenture or in the preamble or recital hereto are used herein as therein defined, except that the term “ Holders ” in this Supplemental Indenture shall refer to the term “ Holders ” as defined in the Indenture and the Trustee acting on behalf of and for the benefit of such Holders. The words “ herein ,” “ hereof ” and “ hereby ” and

other words of similar import used in this Supplemental Indenture refer to this Supplemental Indenture as a whole and not to any particular section hereof.

2. Amendment to the Indenture .

(a) Section 2.06(g) of the Indenture is hereby amended by deleting the first sentence of subsection (1)(A) thereof in its entirety and replacing it with the following:

“(A) Except as permitted by subparagraphs (B) and (C) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:”

(b) Section 2.06(g) of the Indenture is hereby further amended by adding the following as a new subsection (1)(C) thereto:

“(C) Removal of Private Placement Legend

(i) If, on the date that is 366 days after the Issue Date, or the next succeeding Business Day if such date is not a Business Day, any Notes are represented by a Restricted Global Note, the Company may automatically exchange every beneficial interest in each Restricted Global Note for beneficial interests in Global Notes that are not subject to the restrictions set forth in the Private Placement Legend and in Section 2.06 hereof.

(ii) The Company may effect any such automatic exchange as follows: (A) deliver to the Depositary an instruction letter for the Depositary’s mandatory exchange process and (B) deliver to each of the Trustee and the Registrar a duly completed Free Transferability Certificate in the form attached hereto as Exhibit F . The first date on which both the Trustee and the Registrar have received the Free Transferability Certificate will be known as the “ Mandatory Exchange Date. ”

(iii) Immediately upon receipt of the Free Transferability Certificate by each of the Trustee and the Registrar the Private Placement Legend will be deemed removed from each of the Global Notes specified in such Free Transferability Certificate, and the CUSIP and the ISIN for such Restricted Global Note will be deemed removed from each of such Global Notes and deemed replaced with the unrestricted CUSIP and ISIN set forth in the Free Transferability Certificate (or, if required by the Depositary, the Company and the Trustee shall cooperate to cause the execution and authentication of a replacement Global Note bearing the unrestricted CUSIP and ISIN pursuant to the terms hereof).

(iv) Following receipt of the Free Transferability Certificate, the Trustee agrees to cooperate with the Company, at the Company’s expense, in its efforts to cause each Global Note to be identified by the unrestricted CUSIP in the facilities of the Depository and to authenticate a replacement Global Note bearing the unrestricted CUSIP and ISIN pursuant to the terms hereof. In connection therewith, the Trustee agrees to comply with all Applicable Procedures.”

(c) The Indenture is amended by adding the Free Transferability Certificate attached to this Supplemental Indenture as Annex A as Exhibit F thereto.

4. Effectiveness of Supplemental Indenture; Ratification of Indenture and Registration Rights Agreement; Supplemental Indentures Part of Indenture and Registration Rights Agreement . This

-2-

Supplemental Indenture shall become effective upon execution hereof by the Issuer, the Guarantors party hereto, and the Trustee. Except as expressly amended hereby, the Indenture, the Notes and the Registration Rights Agreement are in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture, the Registration Rights Agreement and the Notes for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

5. Governing Law . THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

6. Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.

7. Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

8. Effect of Headings . The Section headings herein are for convenience only and shall not effect the construction thereof.

[Signature Pages Follow]

-3-

IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.


ABITIBIBOWATER INC., as the Issuer

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer

AUGUSTA NEWSPRINT COMPANY LLC, as a Guarantor

By:	Abitibi Consolidated Sales LLC, its Sole Member and Manager

By:	AbitibiBowater Inc., its Sole Member

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer

AUGUSTA NEWSPRINT HOLDING LLC, as a Guarantor

By:	Abitibi Consolidated Sales LLC, its Member

By:	AbitibiBowater Inc., its Sole Member

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer

[Signature Page to Second Supplemental Indenture]


ABIBOW US INC., as a Guarantor

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer

BOWATER NEWSPRINT SOUTH LLC, as a Guarantor

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Manager

BOWATER NUWAY MID-STATES INC., as a Guarantor

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Vice President and Chief Financial Officer

LAKE SUPERIOR FOREST PRODUCTS INC., as a Guarantor

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Vice President and Chief Financial Officer

DONOHUE CORP., as a Guarantor

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Vice President and Chief Financial Officer

[Signature Page to Second Supplemental Indenture]


ABIBOW RECYCLING LLC, as a Guarantor

By:	AbitibiBowater Inc., its Sole Member

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer

ABITIBI CONSOLIDATED SALES LLC, as a Guarantor

By: AbitibiBowater Inc., its Sole Member

By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer

[Signature Page to Second Supplemental Indenture]


WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee and Collateral Agent

By:	/s/ Stefan Victory
	Name:	Stefan Victory
	Title:	Vice President

[Signature Page to Second Supplemental Indenture]

ANNEX A

FORM OF FREE TRANSFERABILITY CERTIFICATE

Wells Fargo Bank, National Association

Corporate Trust Services

7000 Central Parkway, Suite 550

Atlanta, Georgia 30328

Re:

10.25% Senior Secured Notes due 2018

Dear Sir/Madam:

Whereas the 10.25% Senior Secured Notes due 2018 of AbitibiBowater Inc., Inc. (the “ Notes ”) have become freely tradable without restriction by non-affiliates of AbitibiBowater Inc. (the “ Company ”) pursuant to Rule 144(b)(1) under the Securities Act of 1933, as amended, in accordance with Section 2.06(g) of the Indenture, pursuant to which the Notes were issued, the Company hereby instructs you that, unless otherwise later directed in writing by the Company:

(i)

the Private Placement Legend described in Section 2.06(g) of the Indenture and set forth on the Notes will be deemed removed from the Global Notes representing such securities, in accordance with the terms and conditions of the Notes and as provided in the Indenture, without further action on the part of holders; and

(ii)

the Restricted Global Notes CUSIP(s) and ISIN(s) ( / ) will be deemed removed from the Global Notes and replaced, respectively, with the following unrestricted CUSIP and ISIN, in accordance with the terms and conditions of the Notes and as provided in the Indenture, without further action on the part of holders.

CUSIP:

ISIN:

Capitalized terms used but not defined herein have the meanings set forth in the Indenture.


Very truly yours,

ABITIBIBOWATER INC.

By:
		Name:
		Title:

Exhibit 10.1


2012 Short-Term Incentive Plan


Purpose		As a means of rewarding employees for their contribution toward the success of the Company, a 2012 Short-Term Incentive Plan (STIP) has been instituted. The STIP is designed to link a portion of employees’ total compensation to the attainment of specific, measurable, and bottom-line oriented key company performance indicators.

Eligibility		The Plan applies to all non-unionized, regular, salaried, employees of the Company. Eligibility for or receipt of incentive pay should not be considered as automatic, retroactive or precedent based.

Performance Period		The STIP relates to the achievement of performance goals over the period from January 1, 2012 to December 31, 2012.

Plan Design		The STIP is designed to reflect the different employee accountabilities and diversity of positions. In order to tie incentive payouts to employee performance and the achievement of key performance indicators, the STIP’s design is adapted to all groups of employees: Operations, Sales and Corporate.

		The amount of award a participant is eligible to receive is expressed as a certain percentage of the employee’s base salary as determined by his grade level. Base salary is the rate in effect at December 31, 2012. The Company determines the threshold, target and maximum incentive payouts to participants, which payout levels vary per grade level. Supervisors are responsible to inform their employees of their respective threshold, target and maximum incentive award payouts.

Discretionary Plan and Plan Administration		• Incentive payouts are within the complete and sole discretion of the Company. • The Company will approve actual achievement of performance measures and individual awards based on actual achievement before awards are granted and paid, subject to the overall maximum incentive payout described below under “Maximum and Minimum Payout.”

		• The Company has the right to adjust any or all awards; this includes the right to eliminate any or all awards for any year despite achievement of performance measures, even if such decision is made after the end of the performance period.

		• The Company may modify, suspend, amend or terminate the STIP at any time.

		• With respect to any employee, the Company reserves the right to reduce or even cancel incentive awards in the event an employee has demonstrated a lower level of performance than expected, whether or not the Company or group performance levels have been met.

		• Each business unit needs to complete a performance review assessment for each employee to justify an award under the STIP.

		• Adjustments may be made to the financial metrics for closure costs, impairment charges and other related charges, severance costs, net loss or gain on the disposition of assets, and similar items.

		• Adjustments may be made to the cost metrics for specific reasons such as market downtime, major variation in grade mix, major changes in input price, restructuring or reorganization costs, and similar items.

		• Any adjustment to the performance metrics has to be formally approved before implementation. • Awards under the STIP are anticipated to be paid in a lump sum no later than March 15, 2013.



This plan text replaces and supercedes any and all prior versions and summary fact sheet. April 10, 2012			1


2012 Short-Term Incentive Plan


Performance Metrics		*Performance Metrics – Weighting*

		Performance Metrics




Criteria	Threshold	Target	Maximum
Income from operations (RFP)	80% of Budget	Budget	120% of Budget
Manufacturing costs ¹	2% > Budget	Budget	2% < Budget
SG&A cost ²	2% > Budget	Budget	2% < Budget
Profit per metric ton ³	80% of Budget	Budget	120% of Budget
Safety –OSHA rate ⁴	1.4 points	1.2 points	£ 1 point
Safety – Severity ⁵	36	32	£ 28

¹ Targets based on cost of goods sold are set for the Recycling division.
² Excluding equity compensation costs.
³ Sales targets shown are for combined paper and pulp sales. Specific targets are set for paper, pulp and wood products sales.
⁴ The calculation methodology for the mills/divisions varies from the calculation methodology for corporate.
⁵ Targets based on vehicle incident rate are set for the Recycling division.



		% of STIP




Weighting	Pulp/paper mills	Wood products division	Sales	Corporate functions
Income from operations (RFP)	40%	40%	50%	50%
Manufacturing costs (mill)	40%	40%
SG&A cost or profit/ metric ton			30%	30%
Safety – OSHA (mill/ division) (RFP)	15%	15%	15% (RFP)	15% (RFP)
Safety – Severity (mill/division) (RFP)	5%	5%	5% (RFP)	5% (RFP)



This plan text replaces and supercedes any and all prior versions and summary fact sheet. April 10, 2012			2


2012 Short-Term Incentive Plan


Maximum and Minimum Payout		The overall maximum incentive payout under the STIP cannot exceed 7% of the free cash flow (FCF) generated by the Company in 2012 (maximum available envelope). If the total payout determined based on actual achievement of performance metrics exceeds the maximum available envelope, all incentive awards are reduced on a prorata basis. If the total payout determined based on actual achievement of performance metrics is lower than the maximum available envelope, the excess envelope is not distributed to participants. There is no minimum payout under the STIP.

Cash Flow Measure		For purpose of the STIP, free cash flow is defined as net cash provided by operating activities, less maintenance capital expenditures, adjusted for: • Cash reorganization and restructuring costs • Accelerated and additional voluntary pension contributions towards past service • Other special items

Administrative Guidelines		New Hires An employee hired into a regular position on or before September 30, 2012 is eligible to participate on a prorated basis, effective upon his date of hire. An employee hired into a regular position on or after October 1, 2012 is not eligible for participation in the STIP.

		Promotion or Status Changes

		• If an employee is promoted or demoted to a position covered by a different incentive payout level, any incentive payout calculation will be prorated for time spent in respective positions. In either case, the base salary rate used to determine the prorated incentive payout will be the base salary rate in effect at December 31, 2012.

		• If an employee is transferred internally, any incentive payout calculation will be prorated for time spent in respective locations or groups. The base salary rate used to determine the prorated incentive payout will be the base salary rate in effect at December 31, 2012.

		• If an employee’s status changes from temporary salaried, unionized salaried or hourly to regular non-unionized salaried during the performance period, the employee will be eligible to participate for time spent as a regular non-unionized salaried employee, and any incentive payout calculation will be prorated for time spent as a regular non-unionized salaried employee. The base salary rate used to determine the prorated incentive payout will be the base salary rate in effect at December 31, 2012.

		Termination

		• An employee who retires or who dies during the performance period will be entitled to receive a prorated incentive payout, based on actual achievement for time as an active eligible employee, if and when the Board approves the incentive payouts and does not otherwise cancel payment. For the purpose of this plan, an employee is deemed to retire if he is age 55 or above on his last day of active work.

		• An employee who is involuntarily terminated and whose last day of active work is on or before June 30, 2012 will not be entitled to receive an incentive payout.

		• An employee who is involuntarily terminated and whose last day of active work is on or after July 1, 2012 will be entitled to receive a prorata amount of an incentive payout, based on actual achievement for time as an active eligible employee, if and when the Board approves the incentive payouts and does not otherwise cancel payment.

		• An employee who voluntarily resigns from the Company before payment is made will not be eligible to receive an award.



This plan text replaces and supercedes any and all prior versions and summary fact sheet. April 10, 2012			3


2012 Short-Term Incentive Plan


		• An employee who is terminated for cause, as determined by the Company or his specific employer, in their discretion, whether during the performance period or after the performance period and before actual payouts, will not receive an award.

Administrative Guidelines		Other leaves
		• Maternity/parental/adoption leave: The length of the leave is not included in the calculation of any incentive payout.

		• Leave without pay: The length of the leave is not included in the calculation of any incentive payout.

		• Short-term absence due to illness: The length of the absence is included in the calculation of the incentive payout if it is a bona fide absence pursuant to the disability medical leave procedure.

		• Long-term absence due to illness (time on long-term disability): The length of the absence is not included in the calculation of the incentive payout.

Approved by:

/s/ Richard Garneau

Richard Garneau

President and Chief Executive Officer



This plan text replaces and supercedes any and all prior versions and summary fact sheet. April 10, 2012			4

Exhibit 10.2

LOGO

111 Duke Street, Suite 5000

Montréal, Québec, H3C 2M1 Canada

T 514-875-2160 resolutefp.com

March 19, 2012

Mr. Jacques Vachon

484 Wood Avenue

Westmount, Quebec

H3Y 3J2

Re:

Terms and Conditions of Employment between Jacques Vachon and AbitibiBowater Inc.

Dear Jacques,

I am pleased to confirm our offer of employment regarding the position of Senior Vice President, Corporate Affairs and Chief Legal Officer in Resolute Forest Products, effective March 1, 2012.

The terms and conditions, as it applies to your compensation package, are described below:

Annual Base Salary

Your base salary has been increased, effective February 3, 2012, to an annual rate of CDN$325,000, payable in semi-monthly installments less applicable deductions. The semi-monthly installments will be deposited directly into your personal bank account.

Position Classification

Your position of Senior Vice President, Corporate Affairs and Chief Legal Officer, will be classified in Grade 43 under Resolute Forest Products’ Job/Salary Structure.

Short Term Incentive

You are eligible to incentive awards pursuant to short term incentive plans adopted by the Company from time to time. For 2012, any payout under the 2012 Short Term Incentive Plan will be calculated using an incentive target of 100% of your annual base salary, provided that the overall maximum incentive payout pursuant to this Plan may not exceed 7% of the free cash flow generated by the Company in 2012.

Long Term Incentive

You are eligible to receive grants under the AbitibiBowater Inc. 2010 Equity Incentive Plan, as determined by the Board of Directors from time to time, at its discretion. The target award for your job grade is current set at 125% of your annual base salary. Note that the Company has adopted Stock Ownership Guidelines. Pursuant to these guidelines, you are required to hold the equivalent of 2.5 times your annual base salary in Company stock. Please refer to the attached for more details.

LOGO

111 Duke Street, Suite 5000

Montréal, Québec, H3C 2M1 Canada

T 514-875-2160 resolutefp.com

Pension Plan

Your participation in the AbiBow DC Pension Plan and DC Make Up Program remains unchanged. As previously communicated, the AbitibiBowater 2010 DC Supplemental Executive Retirement Plan will be liquidated in the coming months and you are covered by the Security Protocol with respect to your benefits accrued under the AbitibiBowater 2010 Canadian DB Supplemental Executive Retirement Plan.

Health and Insurance Benefits

Your participation under the Company’s Health and Insurance Benefits through our Canadian FlexBenefits program remains unchanged.

Vacation

Effective January 1, 2012, you will be eligible to take 5 weeks of paid vacation per year, in accordance with the Company’s 2012 Vacation Policy.

Other Benefits

You will continue to be eligible to a company-paid parking and to receive a perquisite allowance of CDN$12,000 per year. Also, you and your spouse are eligible for an annual medical examination, up to $1,500 each. In addition, medical referral, including vaccination, for yourself, your spouse or a dependent child, is covered up to $1,000 per calendar year.

I look forward to your formal acceptance of this offer.

/s/ Richard Garneau

Richard Garneau

President and Chief Executive Officer

I have read the herein letter and hereby accept these terms and conditions.


/s/ Jacques Vachon				March 29, 2012
Jacques Vachon				Date

Exhibit 10.3

Resolute Forest Products DC Make-Up Program

For Salary Grades 29 and Above


Purpose		In general, the DC Make-Up Program (the “Program”) provides a cash payment to eligible employees who participate in a Canadian registered or US tax-qualified defined contribution plan (each a “Plan”) and who are limited in the amount of company contributions they receive under their Plan as a result of certain limitations prescribed by the Canadian Income Tax Act (“ITA”) or the US Internal Revenue Code, as applicable. The Program is effective January 1, 2012. The Program is not an incentive plan, a deferred compensation plan or a retirement plan that provides for income at termination of employment or beyond.

Eligibility		The Program applies to all non-union employees in grades 29 or above who participate in a Plan for the Program Year. To receive Make-Up contributions (defined below) in a Program Year, the employee must be making employee contributions to the applicable Plan and meet the other criteria for receipt of a Make-Up contribution (described below). It is possible that even if an otherwise eligible employee is limited in his receipt of company contributions under the Plan, no Make-up contributions will be made for a Program Year. Eligibility for and receipt of Make-Up contributions in one Program Year does not guarantee eligibility for and receipt of Make-Up contributions in any later Program Year.

Promotion or Status Changes		• If an employee is promoted to grade 29 or above during a Program Year, then the employee shall become eligible to the Program effective with the first payroll period that occurs on the later of the date that contributions would be made per the “Payment” section below or the date of the employee’s promotion is effective. • If an employee is demoted to a grade level below grade 29, then employee shall cease being eligible for the Program on the date of the demotion is effective.

Program Year		The Program operates on the calendar year.

Make-Up Contributions

Canadian Plan Participants		For a given Program Year, the Make-Up contribution will be an amount equal to:

		• For eligible employees whose employee and company contributions cease under the Plan for a Program Year because of limitations imposed by the ITA, an amount corresponding to the additional company contribution that would have been made under the Plan pursuant to its terms absent any limitations prescribed by the ITA.

		• Regardless of whether employee and company contributions for eligible employees have ceased under the Plan for a Program Year because of limitations imposed by the ITA, the applicable company contribution percentage for the eligible employee determined under the Plan in a Program Year multiplied by any incentive award paid under a regular short-term incentive plan adopted by the Company for the Program year.

		Make-Up contributions will not be calculated on any non-recurring or special incentive awards, such as retention awards.

US Plan Participants		For eligible employees whose participation under the Plan ceases for a Program Year because he has earned the maximum compensation permitted to be taken into account under the Plan pursuant to US Internal Revenue Code Section 401(a)(17), the Company will pay a “Make-Up” contribution. For a given Program Year, the Make-Up contribution will be an amount equal to

This plan text replaces and supercedes any and all prior versions and summary fact sheet.

Resolute Forest Products reserves the right to modify this Program at any time.

Date created: May 7, 2012

Resolute Forest Products DC Make-Up Program

For Salary Grades 29 and Above


		• the company matching contribution that would have been made under the Plan pursuant to its terms (based on the salary deferral percentage elected by the employee under the Plan for the Program Year of determination) for compensation in excess of the U.S. Internal Revenue Code 401(a)(17) limitation then in effect ($250,000 for 2012). The salary deferral percentage will be the percentage in effect when Make-Up contributions are scheduled to begin, and • if eligible for the automatic company contribution under the Plan, the automatic company contribution that would be made based on the schedule determined under the Plan as it applies to the employee for the Program Year and the compensation in excess of the U.S. Internal Revenue Code 401(a)(17) limitation then in effect ($250,000 for 2012)

		No Make-Up contributions will be paid because the eligible employee was limited in his benefits under the Plan by U.S. Internal Revenue Code Section 402(g) for pre-tax salary deferrals or U.S. Internal Revenue Code Section 415 limitations for total employee and employer contributions. In addition, (1) no Make-Up contributions based on company matching contributions will be paid if the eligible employee does not make any salary deferral elections under the Plan and (2) no Make-Up contributions based on automatic company contributions will be paid if the eligible employee is not eligible for the automatic company contribution under the Plan.

Payment		Once the employee is determined eligible for the Program, the Make-Up contributions will begin to be paid as soon as administratively feasible in the first payroll period following the payroll period in which the employee has reached the applicable limits under the Plan as described above. The only limit considered under the U.S. Plan is the compensation limit under Internal Revenue Code Section 401(a)(17). The Company will withhold all applicable taxes from any Make-Up contributions made per the Program.

Employment Changes

Termination		All Make-Up contributions will cease effective with the last payroll period that coincides with or next follows an employee’s date of termination. However, in the event severance is paid upon an involuntary termination of an eligible employee who is not subject to US tax laws and the eligible employee receives severance as salary continuation, Make-Up contributions will cease effective with the last payroll period for which salary continuation is provided.

Death		Make-Up contributions will cease effective with the last payroll period that coincides with or next follows an eligible employee’s death.

Leaves of Absence		• Leave without pay: Make-Up contributions will not be made during an unpaid leave.

		• Short-term absence due to illness: Make-Up contributions, if any, will be made during a short-term disability leave of absence to the extent that an eligible employee continues to participate in the Plan.

		• Long-term absence due to illness (time on long-term disability): Make-Up contributions, if any, will be made.

This plan text replaces and supercedes any and all prior versions and summary fact sheet.

Resolute Forest Products reserves the right to modify this Program at any time.

Date created: May 7, 2012

Resolute Forest Products DC Make-Up Program

For Salary Grades 29 and Above



General Provisions

Earnings		No earnings are credited on any Make-Up contributions because all contributions will be made on a current cash basis.

Plan		Nothing contained in the Program will limit the right of the Plan sponsor to amend or terminate the Plan. In this regard, to the extent formulas impacting company contributions are amended under the Plan, appropriate adjustments will apply to the determination of any Make-Up contributions, unless otherwise determined by the Company, the President and Chief Executive Officer or the Senior Vice President, Human Resources, as applicable.

Impact on Other Benefits		Any Make-Up contribution payable will not be used to determine any employee or company contributions under any Plan (whether defined benefit or defined contribution) or be used to determine any incentive award payments, equity award values or other elements of an eligible employee’s compensation package.

Vacation		Any payment made pursuant to this Program is deemed to include any and all vacation pay that may be owed pursuant to applicable minimum employment standards.

Right of Offset		If otherwise eligible, Make-Up contributions may be offset for any debts or liabilities owed to the Company, including any amounts misappropriated by the employee, subject to any limitations on applicable wage payment laws.

Unfunded Benefits		Make-Up contributions are made from general assets and are an unfunded obligation of each employee’s respective employer. The Program is not governed by any Canadian pension legislation or ERISA.

No Employment Rights		The right to or receipt of Make-Up contributions does not give any person a right to be employed or continue to be employed with the Company or any subsidiary or affiliated entity and does not, in any way, limit an employer’s right to terminate the employment of any eligible employee, with or without cause.

Discretionary Plan and Plan Administration		• The Company has complete discretion to administer the terms of the Program. • The Company may modify, suspend, amend or terminate the Program at any time.

/s/ Pierre Laberge

Pierre Laberge

Senior Vice President, Human Resources

This plan text replaces and supercedes any and all prior versions and summary fact sheet.

Resolute Forest Products reserves the right to modify this Program at any time.

Date created: May 7, 2012

Exhibit 10.4

Execution Version

WAIVER AND AMENDMENT NO. 3

WAIVER AND AMENDMENT NO. 3 (this “ Amendment ”), dated as of March 21, 2012, under and to the ABL Credit Agreement dated as of December 9, 2010 (as heretofore amended, the “ Credit Agreement ”) among AbitibiBowater Inc., a Delaware corporation (“ AbitibiBowater ”), the Subsidiaries of AbitibiBowater party thereto (together with AbitibiBowater, collectively, the “ Borrowers ”), the Lenders party thereto from time to time and Citibank, N.A., as Administrative Agent (the “ Administrative Agent ”) and Collateral Agent.

WHEREAS, AbitibiBowater has advised the Administrative Agent and the Lenders that it may acquire all or a portion of the outstanding common shares of Fibrek Inc., a Canadian corporation listed on the Toronto Stock Exchange (“ Fibrek ” and, together with its Subsidiaries, the “ Fibrek Group Members ”); and

WHEREAS, the Borrowers have requested that the Lenders (i) waive certain Events of Default that may arise under Section 11.01(f) of the Credit Agreement and (ii) make certain amendments to the Credit Agreement;

NOW THEREFORE, the parties hereto agree as follows:

Section 1. Defined Terms; References. Unless otherwise specifically defined herein, each term used herein that is defined in the Credit Agreement has the meaning assigned to such term in the Credit Agreement. Each reference to “hereof”, “hereunder”, “herein” and “hereby” and each other similar reference and each reference to “this Agreement” and each other similar reference contained in the Credit Agreement shall, after this Amendment becomes effective, refer to the Credit Agreement as amended hereby.

Section 2. Limited Waiver. The Lenders hereby waive (the “ Waiver ”) any Event of Default which may arise under Section 11.01(f) of the Credit Agreement, solely to the extent that the Indebtedness that would give rise to such Event of Default is Indebtedness of Fibrek Group Members (any such Indebtedness that would give rise to such an Event of Default, “ Applicable Fibrek Indebtedness ”); provided , that the Waiver shall automatically expire and cease to be effective on the earliest of (x) the occurrence of any date on which the sum of (i) the aggregate amount of cash and Permitted Investments held by the Loan Parties plus (ii) Excess Availability shall be less than the aggregate outstanding principal amount of all Applicable Fibrek Indebtedness, (y) the date which is 180 days after the date on which Fibrek first becomes a Subsidiary of AbitibiBowater and (z) October 31, 2012. The Waiver shall be limited precisely as written, and shall not extend to any other Default or Event of Default under any other provision of the Credit Agreement or to any Default or Event of Default which may exist (including under Section 11.01(f) of the Credit Agreement) after the expiration of this Waiver. For the avoidance of doubt, any default or other circumstance that may exist under or with respect to Indebtedness of any Person that is not a Fibrek Group Member shall not be subject to the Waiver.

Section 3. Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:

(a) Clause (a) of the definition of “ U.S. Subsidiary Guarantors ” in Section 1.01 of the Credit Agreement is amended by inserting “(other than a Domestic Subsidiary that is a Subsidiary of a Foreign Subsidiary)” immediately following “Domestic Subsidiary”.

(b) Section 9.09(b) of the Credit Agreement is amended by inserting “(other than a Domestic Subsidiary that is a Subsidiary of a Foreign Subsidiary)” immediately following “Domestic Subsidiary” in clauses (i) and (ii) thereof.

(d) Section 10.02 of the Credit Agreement is amended by (A) deleting “and” at the end of clause (xix), (B) deleting “.” at the end of clause (xx) and replacing it with “; and” and (C) inserting a new clause (xxi) as follows:

“(xxi) Liens in favor of a Loan Party securing Indebtedness permitted under Section 10.01(c) and which, if on assets of a Loan Party, have been subordinated to the Liens of the Collateral Agent on terms reasonably satisfactory to the Collateral Agent.”

Section 4. Representations of the Borrowers. Each of the Borrowers represents and warrants that (a) the representations and warranties of the Borrowers set forth in Section 8 of the Credit Agreement and in the Loan Documents will be true and correct in all material respects on and as of the Amendment Effective Date (as defined below) with the same effect as though such representations and warranties had been made on and as of the Amendment Effective Date (it being understood and agreed that (x) any representation or warranty which by its terms is made as of a specified date shall be required to be true and correct in all material respects only as of such specified date and (y) any representation or warranty that is qualified as to “materiality”, “Material Adverse Effect” or similar language shall be true and correct in all respects on such date) and (b) no Default or Event of Default will have occurred and be continuing on the Effective Date.

Section 5. Counterparts. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Delivery of an executed counterpart hereof by facsimile or electronic transmission shall be as effective as delivery of an original executed counterpart hereof.

Section 6. Effectiveness. This Amendment shall become effective on the date when the following conditions have been met (the “ Amendment Effective Date ”):

(a) The Administrative Agent shall have received from each of the Loan Parties and the Lenders party hereto, which Lenders constitute the Required Lenders, (i) a counterpart hereof signed by such party or (ii) evidence satisfactory to the Administrative Agent (which may include a facsimile or other electronic transmission) that such party has signed a counterpart of this Amendment; and

(b) The Administrative Agent shall have received (i) for the account of each Lender consenting hereto on or prior to such date, a consent fee in an amount equal to 0.025% of the sum of (A) such Lender’s U.S. Facility Commitment plus (B) such Lender’s Canadian Facility Commitment, in each case as of the Amendment Effective Date and (ii) all out-of-pocket costs and expenses required to be paid by the Borrowers pursuant to Section 13.01 of the Credit Agreement for which invoices have been presented not later than the Business Day preceding the Amendment Effective Date.

Section 7. Reference To and Effect Upon the Loan Documents.

(a) Except as expressly set forth herein, all terms, conditions, covenants, representations and warranties contained in the Credit Agreement and the other Loan Documents and all rights of the Agents, the Issuing Lenders, the Swingline Lenders and the Lenders and all obligations of the Loan Parties, shall remain in full force and effect. The Loan Parties hereby confirm that the Credit Agreement and the other Loan Documents are in full force and effect.

(b) This Amendment shall constitute a Loan Document for all purposes of the Loan Documents.

Section 8. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.


LOAN PARTIES:

ABITIBIBOWATER INC.

By:		/s/ Jo-Ann Longworth
Name:		Jo-Ann Longworth
Title:		Senior Vice President and Chief Financial Officer

ABIBOW US INC., as successor to Bowater Incorporated, as a U.S. Borrower

By:		/s/ Jo-Ann Longworth
Name:		Jo-Ann Longworth
Title:		Vice President and Chief Financial Officer

ABIBOW RECYCLING LLC, as successor to Abitibi-Consolidated Corp., as a U.S. Borrower

By:		/s/ Jo-Ann Longworth
Name:		Jo-Ann Longworth
Title:		Senior Vice President and Chief Financial Officer

ABIBOW CANADA INC., as successor to Abitibi-Consolidated Inc., as a Canadian Borrower

By:		/s/ Jo-Ann Longworth
Name:		Jo-Ann Longworth
Title:		Vice President and Chief Financial Officer

[Signature page to Waiver and Amendment No. 3]


ABITIBI CONSOLIDATED SALES LLC

By:	AbitibiBowater, Inc., its sole member

	By:	/s/ Jo-Ann Longworth
	Name:	Jo-Ann Longworth
	Title:	Senior Vice President and Chief Financial Officer


AUGUSTA NEWSPRINT COMPANY LLC

By:	Abitibi Consolidated Sales LLC, its Manager

	By:	AbitibiBowater, Inc., its sole member

		By:	/s/ Jo-Ann Longworth
		Name:	Jo-Ann Longworth
		Title:	Senior Vice President and Chief Financial Officer


AUGUSTA NEWSPRINT HOLDING LLC

By:	Abitibi Consolidated Sales LLC, its Member

	By:	AbitibiBowater, Inc., its sole member

		By:	/s/ Jo-Ann Longworth
		Name:	Jo-Ann Longworth
		Title:	Senior Vice President and Chief Financial Officer


BOWATER NEWSPRINT SOUTH LLC

By:		/s/ Jo-Ann Longworth
Name:		Jo-Ann Longworth
Title:		Manager

[Signature page to Waiver and Amendment No. 3]


BOWATER NEWSPRINT SOUTH LLC BOWATER NUWAY MID-STATES INC. DONOHUE CORP. LAKE SUPERIOR FOREST PRODUCTS INC. ABITIBIBOWATER CANADA INC. BOWATER CANADIAN LIMITED BOWATER LAHAVE CORPORATION

By:		/s/ Jo-Ann Longworth
Name:		Jo-Ann Longworth
Title:		Vice President and Chief Financial Officer

[Signature page to Waiver and Amendment No. 3]


LENDERS :

CITIBANK, N.A., as Administrative Agent and Lender

By:		/s/ Thomas Halsch
Name:		Thomas Halsch
Title:		Vice President

CITIBANK, N.A., Canadian Branch, as Lender

By:		/s/ Isabelle Cote
Name:		Isabelle Cote
Title:		Authorized Officer

Barclays Bank PLC, as Lender

By:		/s/ Lisa Minigh
Name:		Lisa Minigh
Title:		Assistant Vice President

JP MORGAN CHASE BANK, N.A., as Lender

By:		/s/ Peter S. Predun
Name:		Peter S. Predun
Title:		Executive Director

Wells Fargo Capital Finance, LLC, as Lender

By:		/s/ David Klagos
Name:		David Klagos
Title:		Vice President

Wells Fargo Capital Finance Corporation Canada, as Lender

By:		/s/ Raymond Eghobamien
Name:		Raymond Eghobamien
Title:		Vice President

[Signature page to Waiver and Amendment No. 3]


Bank of Montreal, as a U.S. Lender

By:		/s/ William J. Kennedy
Name:		William J. Kennedy
Title:		Vice President

Bank of Montreal, as a Canadian Lender

By:		/s/ Sean P. Gallaway
Name:		Sean P. Gallaway
Title:		Vice President

CIBC Inc., as Lender

By:		/s/ Dominic Sorresso
Name:		Dominic Sorresso
Title:		Executive Director

By:		/s/ Eoin Roche
Name:		Eoin Roche
Title:		Executive Director

Canadian Imperial Bank of Commerce, as Lender

By:		/s/ Deepak Dave
Name:		Deepak Dave
Title:		Director

By:		/s/ Peter Rawlins
Name:		Peter Rawlins
Title:		Executive Director

[Signature page to Waiver and Amendment No. 3]


EXPORT DEVELOPMENT CANADA

By:		/s/ Talal M. Kairouz
Name:		Talal M. Kairouz
Title:		Senior Asset Manager

By:		/s/ Shaun Enright
Name:		Shaun Enright
Title:		Sr. Asset Manager

THE BANK OF NOVA SCOTIA, as Lender

By:		/s/ Denis Lapalme
Name:		Denis Lapalme
Title:		Director

By:		/s/ David R. Loewen
Name:		David R. Loewen
Title:		Director

Siemens Financial Services, Inc., as Lender

By:		/s/ John Finone
Name:		John Finone
Title:		Vice President

By:		/s/ April Greaves-Bryan
Name:		April Greaves-Bryan
Title:		Vice President

ROYAL BANK OF CANADA, as Lender

By:		/s/ Robert Kizell
Name:		Robert Kizell
Title:		Attorney in Fact

By:		/s/ Michael Petersen
Name:		Michael Petersen
Title:		Attorney in Fact

EXHIBIT 31.1

Certification

I, Richard Garneau, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2012 of ABITIBIBOWATER INC.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2012

/s/ Richard Garneau

Richard Garneau

President and Chief Executive Officer

EXHIBIT 31.2

Certification

I, Jo-Ann Longworth, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 31, 2012 of ABITIBIBOWATER INC.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2012

/s/ Jo-Ann Longworth

Jo-Ann Longworth

Senior Vice President and Chief Financial Officer

EXHIBIT 32.1

Certification

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of ABITIBIBOWATER INC. (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 10, 2012

/s/ Richard Garneau

Name: Richard Garneau

Title: President and Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AbitibiBowater Inc. and will be retained by AbitibiBowater Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being filed as part of the Report or as a separate disclosure document.

EXHIBIT 32.2

Certification

Dated: May 10, 2012

/s/ Jo-Ann Longworth

Name: Jo-Ann Longworth

Title: Senior Vice President and Chief Financial Officer

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