UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

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

FOR THE TRANSITION PERIOD FROM           TO

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)

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

(Address of principal executive offices) (Zip Code)

(514) 875-2160

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(g) of the Act: Common stock, $1.00 par value per share

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

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

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

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

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

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(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 Act).     Yes o No þ

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2009) was approximately $6 million. For purposes of the foregoing calculation only, all directors, executive officers and 5% beneficial owners have been deemed affiliates.

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

As of February 28, 2010, there were 54,703,212 shares of AbitibiBowater Inc. common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement or amendment to this Annual Report on Form 10-K to be filed within 120 days of December 31, 2009 are incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

 

TABLE OF CONTENTS

Part I
Item 1.		Business			2
Item 1A.		Risk Factors			17
Item 1B.		Unresolved Staff Comments			28
Item 2.		Properties			28
Item 3.		Legal Proceedings			28
Item 4.		(Removed and Reserved)			30
Part II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			31
Item 6.		Selected Financial Data			32
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			69
Item 8.		Financial Statements and Supplementary Data			71
Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			136
Item 9A.		Controls and Procedures			136
Item 9B.		Other Information			136
Part III
Item 10.		Directors, Executive Officers and Corporate Governance			136
Item 11.		Executive Compensation			136
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			137
Item 13.		Certain Relationships and Related Transactions, and Director Independence			137
Item 14.		Principal Accounting Fees and Services			137
Part IV
Item 15.		Exhibits, Financial Statement Schedules			138
Signatures					149
EX-10.28
EX-10.37
EX-10.46
EX-10.53
EX-10.56
EX-10.57
EX-10.79
EX-10.81
EX-12.1
EX-21.1
EX-23.1
EX-24.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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

Statements in this Annual Report on Form 10-K that are not reported financial results or other historical information of AbitibiBowater Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “AbitibiBowater,” “we,” “our,” “us” or the “Company”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: Creditor Protection Proceedings (as defined below); debtor in possession financing arrangements and reorganization process; ability to successfully restructure our debt and other obligations; efforts to reduce costs and increase revenues and profitability, including our cost reduction initiatives regarding selling, general and administrative expenses; business outlook; curtailment of production of certain of our products; assessment of market conditions; and ability to sell non-core assets in light of the current global economic conditions and the requirements under the Creditor Protection Proceedings to obtain court approval for certain asset sales; and strategies for achieving our goals generally. Forward-looking statements may be identified by the use of forward-looking terminology such as the words “should,” “would,” “could,” “will,” “may,” “expect,” “believe,” “anticipate,” “attempt” 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. These risks and uncertainties include, but are not limited to the following: (i) risks and uncertainties relating to our Creditor Protection Proceedings including, among other things: (a) risks associated with our ability to: continue as a going concern; stabilize the business to maximize the chances of preserving all or a portion of the enterprise; develop a comprehensive restructuring plan in an effective and timely manner; resolve ongoing issues with creditors and other third parties whose interests may differ from ours; obtain court orders or approvals with respect to motions filed from time to time, including court approvals for asset sales; obtain alternative or replacement financing to replace our debtor in possession financing arrangements and restructure our substantial indebtedness and other obligations in a manner that allows us to obtain confirmation of a plan or plans of reorganization by the courts in order to successfully exit our Creditor Protection Proceedings, especially in light of the current decline in the global economy and credit conditions; renew or extend our current debtor in possession financing arrangements and/or accounts receivable securitization program, as the case may be, if the need to do so should arise; successfully implement a comprehensive restructuring plan and a plan or plans of reorganization; generate cash from operations and maintain cash-on-hand; operate within the restrictions and limitations of our current and any future debtor in possession financing arrangements; realize full or fair value for any assets or business we may divest as part of our comprehensive restructuring plan; attract and retain customers; maintain market share as our competitors move to capitalize on customer concerns; maintain current relationships with customers, vendors and trade creditors by actively and adequately communicating on and responding to events, media and rumors associated with the Creditor Protection Proceedings that could adversely affect such relationships; resolve claims made against us in connection with the Creditor Protection Proceedings for amounts not exceeding our recorded liabilities subject to compromise; prevent third parties from obtaining court orders or approvals that are contrary to our interests; and reject, repudiate or terminate certain contracts; and (b) risks and uncertainties associated with: limitations on actions against any debtor during the Creditor Protection Proceedings and the values, if any, that will be ascribed in our Creditor Protection Proceedings to our various pre-petition liabilities, common stock and other securities; and (ii) risks and uncertainties relating to our business including: industry conditions generally and further growth in alternative media; our capital intensive operations and the adequacy of our capital resources; the prices and terms under which we would be able to sell assets; the relative volatility of the U.S. dollar and the Canadian dollar; the costs of raw materials such as energy, chemicals and fiber; the success of our implementation of additional measures to enhance our operating efficiency and productivity; our ability to obtain fair compensation for our expropriated assets in the province of Newfoundland and Labrador, Canada and the possibility that we could lose any or all of our equity interest in Augusta Newsprint Company (“ANC”). Additional risks that could cause actual results to differ from forward-looking statements are enumerated in Item 1A of this Annual Report on Form 10-K, “Risk Factors” (“Item 1A”). All forward-looking statements in this Annual Report on Form 10-K are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the United States Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities. We disclaim any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

Market and Industry Data

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

PART I

ITEM 1. BUSINESS

We are a leading producer of newsprint and coated and specialty papers. In addition, we produce and sell market pulp and wood products. As of December 31, 2009, excluding facilities we have permanently closed as of such date, we owned or operated 23 pulp and paper manufacturing facilities located in Canada, the United States, the United Kingdom and South Korea and 26 wood products facilities located in Canada. We are also among the world’s largest recyclers of newspapers and magazines and have third-party certified all of our managed forest lands to one or more globally-recognized sustainable forest management standards. Effective as of February 2, 2010, our Bridgewater Paper Company Limited (“BPCL”) subsidiary filed for administration pursuant to U.K. insolvency law, as discussed below under “Bridgewater Administration.”

AbitibiBowater Inc. is a Delaware corporation incorporated on January 25, 2007. On October 29, 2007, pursuant to a Combination Agreement and Agreement and Plan of Merger, dated as of January 29, 2007 (“Combination Agreement”), Abitibi-Consolidated Inc. (“Abitibi”) and Bowater Incorporated (“Bowater”) combined in a merger of equals (the “Combination”) with each becoming a subsidiary of AbitibiBowater Inc. Bowater was deemed to be the “acquirer” of Abitibi for accounting purposes and AbitibiBowater Inc. was deemed to be the successor to Bowater for purposes of U.S. securities laws and financial reporting. Therefore, unless otherwise indicated, the financial information included in this Annual Report on Form 10-K reflects the results of operations and financial position of Bowater for the periods before October 29, 2007 and those of both Abitibi and Bowater for the periods beginning on or after October 29, 2007.

Creditor Protection Proceedings

U.S. and Canadian filings for creditor protection

Our Abitibi and Bowater subsidiaries experienced significant recurring losses in recent years, which resulted in significant negative operating cash flows. As global economic conditions dramatically worsened beginning in 2008, these entities each experienced significant pressure on their business and a deterioration of their liquidity. The extreme volatility in the global equity and credit markets further compounded the situation by limiting our ability to refinance our debt obligations. During the first quarter of 2009, both Abitibi and Bowater experienced severe liquidity crises due to the continued negative operating cash flows resulting from lower sales activity, due principally to conditions in the industry and the global economy, and faced large impending debt maturities and repayment obligations. Both Abitibi and Bowater attempted various refinancing efforts in the first quarter of 2009, which were ultimately unsuccessful.

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

We initiated the Creditor Protection Proceedings in order to enable us to pursue reorganization efforts under the protection of Chapter 11 and the CCAA, as applicable. The Creditor Protection Proceedings allow us to reassess our business strategy with a view to developing a comprehensive financial and business restructuring plan. We remain in possession of our assets and properties and are continuing to operate our business and manage our properties as “debtors in possession” under the jurisdiction of the Courts and in accordance with the applicable provisions of Chapter 11 and the CCAA. In general, the Debtors are authorized to continue to operate as ongoing businesses, but may not engage in transactions outside the ordinary course of business without the approval of the applicable Court(s) or the Monitor (as defined below), as applicable.

The commencement of the Creditor Protection Proceedings constituted an event of default under substantially all of our pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligations is stayed as a result of the commencement of the Creditor Protection Proceedings. See Note 4, “Creditor Protection Proceedings Related Disclosures - Liabilities subject to compromise,” and Note 17, “Liquidity and Debt,” to our consolidated financial statements and related notes (“Consolidated Financial Statements”) appearing in Item 8 of this Annual Report on Form 10-K, “Financial Statements and Supplementary Data” (“Item 8”).

Debtor in possession financing arrangements

In the Creditor Protection Proceedings, we have sought and obtained: (i) final approval by the Courts to enter into a debtor in possession financing facility for the benefit of AbitibiBowater Inc., Bowater and certain of Bowater’s subsidiaries, (ii) final approval by the Canadian Court to enter into a debtor in possession financing facility for the benefit of Abitibi and Donohue Corp. (“Donohue”) which, on December 9, 2009, was terminated, repaid and replaced with a debtor in possession financing facility for the benefit of Abitibi with a wholly-owned subsidiary of ACCC, and (iii) final approval by the Courts to amend and restate, in its entirety, the Abitibi and Donohue accounts receivable securitization program. Each of these financing arrangements is discussed in further detail in Item 7 of this Annual Report on Form 10-K, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“Item 7”), under “Liquidity and Capital Resources.”

Reorganization process

General

The Courts have issued a variety of orders on either a final or interim basis intended to support our business continuity throughout the restructuring process. These orders include, among other things, authorization to:

	•		make payments relating to certain employees’ pre-petition wages, salaries and benefit programs in the ordinary course;
	•		ensure the continuation of existing cash management systems;
	•		honor certain ongoing customer obligations;
	•		repudiate or reject certain customer, supplier and other contracts;
	•		enter into our debtor in possession financing arrangements and the Abitibi and Donohue second amended and restated accounts receivable securitization program, which are discussed under “Liquidity and Capital Resources” in Item 7;
	•		conduct certain asset sales, including our interest in Manicouagan Power Company (“MPCo”), as discussed in Note 8, “Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets,” to our Consolidated Financial Statements and under “Liquidity and Capital Resources” in Item 7;
	•		settle certain intercompany obligations; and
	•		restructure our European sales structure.

We also obtained an order from the Canadian Court on May 8, 2009 specifying that the payment of special contributions for past service to Canadian pension plans maintained by Abitibi and Bowater could be suspended. Abitibi and Bowater continue to make their respective Canadian pension plan contributions for current service costs. Special contributions to our Canadian pension plans for past service that were suspended amounted to approximately $102 million for Abitibi and approximately $57 million for Bowater on an annual basis. We have continued to meet our obligations to our U.S. pension plans in the ordinary course.

We have retained legal and financial professionals to advise us on the Creditor Protection Proceedings and may, from time to time, retain additional professionals, subject to any applicable Court approval.

On April 28, 2009, the United States Trustee for the District of Delaware appointed an official committee of unsecured creditors (the “Creditors’ Committee”) in the Chapter 11 Cases pursuant to the requirements of Chapter 11. The Creditors’ Committee and its legal representatives have a right to be heard on all matters that come before the U.S. Court with respect to us.

Under the terms of a Canadian Court order, Ernst & Young Inc. serves as the court-appointed monitor under the CCAA Proceedings (the “Monitor”) and is assisting us in formulating our CCAA restructuring plan.

Stay of proceedings

Subject to certain exceptions under Chapter 11 and the CCAA, our filings (and in Canada, the Initial Order, as defined below) automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us and our property to recover, collect or secure a claim arising prior to the filing of the Creditor Protection Proceedings. Thus, for example, most creditor actions to obtain possession of property from us, or to create, perfect or enforce any lien against our property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a pre-petition claim, are enjoined unless and until the Courts lift such stay.

We began notifying all known current or potential creditors regarding these filings shortly after the commencement of the Creditor Protection Proceedings. We have successfully applied on several occasions to the Courts in order to enforce the stay of proceedings against creditors acting in breach of the stay.

Rejection and repudiation of contractual obligations

Under Section 365 and other relevant sections of Chapter 11, we may assume, assign or reject certain executory contracts and unexpired leases, including leases of real property and equipment, subject to the approval of the U.S. Court and certain other conditions. Similarly, pursuant to the initial order issued by the Canadian Court on April 17, 2009 (the “Initial Order”), we have the right to, among other things, repudiate or reject agreements, contracts or arrangements of any nature whatsoever, whether oral or written, subject to the approval of the Monitor or further order of the Canadian Court. Any description of an agreement, contract, unexpired lease or arrangement in this Annual Report on Form 10-K must be read in light of these overriding rights pursuant to Section 365 of Chapter 11 and to the CCAA, as applicable.

Since initiating the Creditor Protection Proceedings, we have engaged and will continue to engage in a review of our various agreements in light of the overriding rights described above. We have rejected and repudiated a number of leases, including leases of real estate and equipment, and have assumed or assigned certain others. Some of the more significant agreements we repudiated or rejected, as the case may be, include the following:

	•		We repudiated certain supply contracts between Abitibi and SFK Pate S.E.N.C. and on May 21, 2009, the Canadian Court rejected a motion by SFK Pate S.E.N.C. to overturn that repudiation.
	•		On June 15, 2009, we filed a motion with the U.S. Court to reject an amended and restated call agreement (the “Call Agreement”) in respect of Augusta Newsprint Inc. (“ANI”), an indirect subsidiary of The Woodbridge Company Limited (“Woodbridge”) and our partner in ANC. ANC is the partnership that owns and operates the Augusta, Georgia newsprint mill. The Call Agreement obligated Abitibi Consolidated Sales Corporation, an indirect, wholly-owned subsidiary of AbitibiBowater Inc. (“ACSC”), to either buy out ANI at a price well above market, or risk losing all of its equity in the joint venture pursuant to forced sale provisions. The U.S. Court granted our motion on October 27, 2009 and approved our rejection of the Call Agreement. Our counterparties to the Call Agreement filed a Notice of Appeal with the U.S. Court on November 3, 2009. Also, on March 9, 2010, Woodbridge filed a motion in the U.S. Court to force ACSC to reject the partnership agreement governing ANC.
	•		Effective July 13, 2009, Bowater Canadian Forest Products Inc. (“BCFPI,” an indirect subsidiary of Bowater), Abitibi and ACCC repudiated contracts with Boralex Dolbeau Inc. and on July 28, 2009, we obtained a motion De Bene Esse to confirm our repudiation of those contracts in light of injunctions issued by the Canadian Court and the Court of Appeal of Quebec on January 22, 2008 and October 8, 2008, respectively, initially preventing such actions. Following the repudiation of these contracts, our Dolbeau, Quebec facility has been effectively idled since July 7, 2009.
	•		On July 7, 2009, we repudiated a parental guarantee issued by Abitibi in favor of NPower Cogen Limited relating to BPCL’s obligations under an energy supply contract for the Bridgewater, United Kingdom newsprint mill.
	•		On September 14, 2009, we repudiated certain of Abitibi’s shipping contracts with Spliethoff Transport B.V. based on expected savings and more favorable contractual terms with a new shipper. The Canadian Court rejected Spliethoff Transport B.V.’s motion to overturn the repudiation on November 24, 2009.
	•		We rejected a number of pre-petition engagement letters with financial advisors retained to provide advisory services on an exclusive basis in connection with pre-petition restructuring activities and certain transactions that ultimately were not consummated.

For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net and – Liabilities subject to compromise,” to our Consolidated Financial Statements.

Procedures for the filing, review and determination of creditors’ claims in the U.S. and in Canada

On August 26, 2009 and September 3, 2009, the Canadian Court and the U.S. Court, respectively, granted our motions to establish November 13, 2009 (the “General Claims Bar Date”) as the bar date for the filing of such claims, generally representing the majority of our creditors. We notified the majority of our creditors and potential creditors of the General Claims Bar Date and the requirement to file a proof of claim with the Courts before that deadline in order for a claimant to receive any distribution in the Creditor Protection Proceedings. Individuals who were employed by us as of April 16, 2009 (the date on which we filed for creditor protection in the U.S.) or thereafter (“Post-filing Employees”) were excluded from the General Claims Bar Date in the U.S. and Canada, as were certain other “Excluded Claims” in Canada.

On January 18, 2010, the Canadian Court issued an order setting out the process for the review, determination and adjudication of contested claims with a view to determining their amounts for an eventual vote by the holders of such claims on a plan of arrangement to be presented by us. No such order has been issued in the U.S., where the applicable procedure for the investigation of discrepancies between liability amounts estimated by us and claims filed by our creditors and for the valuation of liabilities is generally governed by the rules under Chapter 11.

On February 18, 2010, the U.S. Court granted our motion to establish April 7, 2010 (the “Second Claims Bar Date”) as the date by which Post-filing Employees are required to file employee proofs of claim against us on account of: (i) any claim against us owing as of April 16, 2009 and (ii) any claim or expense asserted against us for the period from April 16, 2009 through and including February 28, 2010 (but excluding amounts owed for ordinary course payroll obligations that are scheduled to be paid on the next pay date occurring after February 28, 2010, or for the reimbursement of expenses scheduled to be paid in the ordinary course).

On February 23, 2010, the Canadian Court granted our motion to establish an identical Second Claims Bar Date of April 7, 2010 for Post-filing Employees and most previously Excluded Claims, including a category of claims that includes claims arising out of contract repudiation after August 31, 2009 (“Restructuring Claims”). A “rolling bar date,” being the later of the Second Claims Bar Date or 30 days after the issuance of a notice giving rise to any Restructuring Claim, was established for those Restructuring Claims that arise between the Second Claims Bar Date of April 7, 2010 and emergence from the CCAA Proceedings.

There have been approximately 4,500 and 5,200 claims filed against the Chapter 11 filers and the CCAA filers, respectively, that total, together with the Chapter 11 filers’ scheduled liabilities, approximately $43 billion (which, for the claims filed against the CCAA filers in Canadian dollars, reflects the exchange rate to U.S. dollars on the date of the commencement of the CCAA Proceedings). We are currently in the process of reconciling such claims to the amounts we have recorded in “Liabilities subject to compromise” as of December 31, 2009 in our Consolidated Balance Sheets included in our Consolidated Financial Statements (“Consolidated Balance Sheets”). Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Courts, where appropriate. We have identified, and expect to continue to identify, many claims that we believe should be disallowed by the Courts because they are duplicative, have been later amended or superseded, are without merit, are overstated or for other reasons. In addition, as a result of this process, we may identify additional liabilities that will need to be recorded or reclassified to liabilities subject to compromise. In light of the substantial number and amount of claims filed, the claims resolution process may take considerable time to complete.

In both the U.S. and Canada, the determination of how claims will ultimately be treated, as well as how each class of affected claims will be settled, including payment terms, if applicable, cannot be made until the Courts approve a plan or plans of reorganization. Accordingly, the ultimate number and amount of allowed claims, as well as the ultimate treatment and recovery of allowed claims, is not determinable at this time. Given the magnitude of the claims asserted, it is possible that allowed claims may be materially in excess of the amounts recorded as liabilities subject to compromise as of December 31, 2009 and adjustments to these liabilities may be recorded as “Reorganization items, net” in our Consolidated Statements of Operations included in our Consolidated Financial Statements (“Consolidated Statements of Operations”) in future periods. Classification for purposes of our Consolidated Financial Statements of any pre-petition liabilities on any basis other than liabilities subject to compromise is not an admission against interest or legal conclusion by the Debtors as to the manner of classification, treatment, allowance or payment in the Creditor Protection Proceedings, including in connection with any plan or plans of reorganization that may be confirmed by the Courts and that may become effective pursuant to the Courts’ orders.

For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net and – Liabilities subject to compromise,” to our Consolidated Financial Statements.

Plan or plans of reorganization

In order to successfully exit from Chapter 11 and the CCAA, we will be required to propose and obtain approval from affected creditors and confirmation by the Courts of a plan or plans of reorganization that satisfies the requirements of Chapter 11 and the CCAA. An approved plan or plans of reorganization would resolve our pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance following our exit from Chapter 11 and the CCAA.

In the United States, Chapter 11 provides that we have the exclusive right for 120 days after the filing of the Creditor Protection Proceedings to file a plan or plans of reorganization with the U.S. Court. On August 4, 2009, the U.S. Court entered an order extending our exclusive right to file a plan or plans of reorganization and solicit votes thereon until December 14, 2009 and February 10, 2010, respectively, which the U.S. Court further extended to April 15, 2010 and June 11, 2010, respectively. We will likely file additional motions to request extensions of this exclusivity period, which we believe are routinely granted for up to 18 months in cases of this size and complexity. If our exclusivity period were to lapse, any party in interest would be able to file a plan or plans of reorganization. In addition to being voted on by holders of impaired claims and equity interests, a plan or plans of reorganization must satisfy certain requirements of Chapter 11 and must be approved or confirmed by the U.S. Court in order to become effective.

Similarly, in Canada, the Initial Order provides for a general stay of proceedings for an initial period of 30 days. The Canadian Court extended the stay of proceedings on each of May 14, 2009, September 4, 2009, December 11, 2009 and March 12, 2010 through September 4, 2009, December 15, 2009, March 15, 2010 and June 18, 2010, respectively. We will likely file additional motions to request further extensions of this stay of proceedings, which we believe are routinely granted for up to 18 months in cases of this size and complexity. The Initial Order provides that a plan or plans of reorganization under the CCAA must be filed with the Canadian Court before the termination of the stay of proceedings or such other time or times as may be allowed by the Canadian Court. Third parties could thereafter seek permission to file a plan or plans of reorganization. In addition to being voted on by the required majority of affected creditors, a plan or plans of reorganization must satisfy certain requirements of the CCAA and must be approved or confirmed by the Canadian Court in order to become effective.

The timing of filing a plan or plans of reorganization by us will depend on the timing and outcome of numerous other ongoing matters in the Creditor Protection Proceedings. There can be no assurance that a plan or plans of reorganization will be supported and approved by affected creditors and confirmed by the Courts or that any such plan will be implemented successfully. The maturity date of the Bowater DIP Agreement, defined in “Liquidity and Capital Resources” in Item 7, will extend by three months if we file with the Courts a plan or plans of reorganization that is (are) reasonably acceptable to the requisite lenders before the current maturity date of April 21, 2010, and a further three months if, as of the last day of the extension, we are using best efforts to pursue confirmation of the plan or plans of reorganization and seeking confirmation thereof by the Courts. Multi-party pension deficit discussions are continuing between the CCAA filers and various governments and unions in Canada as we work on developing the reorganization strategy.

Under the priority scheme established by Chapter 11 and the CCAA, unless creditors agree otherwise, pre-petition liabilities and post-petition liabilities must be satisfied in full before shareholders are entitled to receive any distribution or retain any property under a plan or plans of reorganization. The ultimate recovery to creditors and/or shareholders, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed to each of these constituencies or what types or amounts of distributions, if any, they will receive. A plan or plans of reorganization could result in holders of our liabilities and/or securities, including our common stock and exchangeable shares, receiving no distribution on account of their interests and cancellation of their holdings. A plan or plans of reorganization could also result in holders of our common stock and exchangeable shares being materially diluted or result in the cancellation of all of our equity securities for nominal or no consideration. Because of such possibilities, the value of our liabilities and securities, including our common stock and exchangeable shares, is highly speculative. Appropriate caution should be exercised with respect to existing and future investments in any of our liabilities and/or securities. At this time, there can be no assurance that we will be able to restructure as a going concern, as described below, or successfully propose or implement a plan or plans of reorganization.

See Item 1A, “Risk Factors – Risks Related to Our Creditor Protection Proceedings,” for, among other things, the strategic, financial, operational and procedural risks resulting from the Creditor Protection Proceedings.

Further information pertaining to our Creditor Protection Proceedings may be obtained through our website at www.abitibibowater.com. Certain information regarding the CCAA Proceedings, including the reports of the Monitor, is available at the Monitor’s website at www.ey.com/ca/abitibibowater. Documents filed with the U.S. Court and other general information about the Chapter 11 Cases are available at http://chapter11.epiqsystems.com/abh. Information contained on these websites does not constitute a part of this Annual Report on Form 10-K.

Listing and trading of our common stock and the exchangeable shares of AbitibiBowater Canada Inc.

Due to the commencement of the Creditor Protection Proceedings, each of the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) suspended the trading of our common stock at the opening of business on April 16, 2009 and delisted our common stock at the opening of business on May 21, 2009 and the close of market on May 15, 2009, respectively. Our common stock is currently traded in the over-the-counter market and is quoted on the Pink Sheets Quotation Service (the “Pink Sheets”) and on the OTC Bulletin Board under the symbol “ABWTQ.” In addition, the TSX suspended the trading of the exchangeable shares of AbitibiBowater Canada Inc. at the opening of business on April 16, 2009 and delisted such shares at the close of market on May 15, 2009.

Reporting requirements

Effective upon the commencement of the Creditor Protection Proceedings, we applied the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations” (“FASB ASC 852”), in preparing our Consolidated Financial Statements and we continue to apply this guidance while we operate under the Creditor Protection Proceedings. The guidance in FASB ASC 852 does not change the manner in which financial statements are prepared. However, it requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain expenses (including professional fees), charges related to indefinite idlings and permanent closures and other provisions for losses directly associated with or resulting from the reorganization and restructuring of the business that have been realized or incurred in the Creditor Protection Proceedings have been recorded in “Reorganization items, net” in our Consolidated Statements of Operations. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements. The timing of recognition of Reorganization items, net is in accordance with United States generally accepted accounting principles (“U.S. GAAP”) related to accounting for severance and termination benefits and accounting for costs associated with exit and disposal activities (including costs incurred in a restructuring). Pre-petition obligations that may be impaired by the reorganization process have been classified in our Consolidated Balance Sheets as “Liabilities subject to compromise.” These liabilities have been reported at the amounts expected to be allowed by the Courts, even if they may be settled for lesser amounts. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Liabilities subject to compromise,” to our Consolidated Financial Statements. Additionally, we have continued to record interest expense on certain of our pre-petition debt obligations. For additional information, see “Liquidity and Capital Resources” in Item 7.

As a result of the Creditor Protection Proceedings, we are required to periodically file various documents with and provide certain information to the Courts, the Monitor and the Creditors’ Committee. Depending on the jurisdiction, such documents and information include statements of financial affairs, schedules of assets and liabilities, monthly operating reports and information relating to forecasted cash flows, as well as certain other financial information. Such documents and information, to the extent they are prepared or provided by us, are prepared and provided according to the requirements of the relevant legislation, subject to variation as approved by an order of the applicable Court. Such documents and information are prepared or provided on an unconsolidated, unaudited or preliminary basis, or in a format different from that used in the consolidated financial statements and the Debtors’ condensed combined financial statements included in our periodic reports filed with the SEC. Accordingly, the substance and format of these documents and information does not allow meaningful comparison with our regular publicly disclosed consolidated financial statements. Moreover, such documents and information are not prepared for the purpose of providing a basis for an investment decision relating to our securities or for comparison with other financial information filed with the SEC.

Going Concern

Our Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the Creditor Protection Proceedings raise substantial doubt about our ability to continue as a going concern.

The Creditor Protection Proceedings and our debtor in possession financing arrangements, which are discussed under “Liquidity and Capital Resources” in Item 7, provide us with a period of time to stabilize our operations and financial condition and develop a comprehensive restructuring plan. Management believes that these actions make the going concern basis of presentation appropriate. However, it is not possible to predict the outcome of these proceedings and as such, the realization of assets and discharge of liabilities are each subject to significant uncertainty. Further, our ability to continue as a going concern is dependent on market conditions and our ability to successfully develop and implement a comprehensive restructuring plan, improve profitability, obtain alternative financing to replace our debtor in possession financing

arrangements, renew or extend our current debtor in possession financing arrangements and/or accounts receivable securitization program, as the case may be, if the need to do so should arise, and restructure our obligations in a manner that allows us to obtain confirmation of a plan or plans of reorganization by the Courts. However, it is not possible to predict whether the actions taken in our restructuring will result in improvements to our financial condition sufficient to allow us to continue as a going concern. If the going concern basis is not appropriate, adjustments will be necessary to the carrying amounts and/or classification of our assets and liabilities.

Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in our Consolidated Financial Statements and could result in additional long-lived asset impairment charges. The assets and liabilities in our Consolidated Financial Statements do not reflect any adjustments related to such a comprehensive restructuring plan, except for the charges related to indefinite idlings and permanent closures, as discussed in Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net,” to our Consolidated Financial Statements.

Bridgewater Administration

On February 2, 2010, BPCL filed for administration in the United Kingdom pursuant to the United Kingdom Insolvency Act 1986, as amended (the “BPCL Administration”). BPCL’s board of directors appointed Ernst & Young LLP as joint administrators for the BPCL Administration, whose responsibilities are to manage the affairs, business and assets of BPCL. The joint administrators have indicated that they are exploring various options for BPCL and will determine how the BPCL Administration will unfold. As a result of the filing for administration, we no longer have control over or the ability to influence BPCL’s operations. As a result, effective as of the date of the BPCL Administration filing, we will no longer consolidate BPCL in our consolidated financial statements and will account for BPCL using the cost method of accounting.

Following the BPCL Administration, the administrators announced their decision to cease operation of the Bridgewater newsprint mill while they continue to explore all options. BPCL is a party to a contract with NPower Cogen Limited for the cogeneration building and equipment lease and for the purchase of steam and electricity to operate the paper mill. For additional information, reference is made to Note 19, “Derivative Financial Instruments and Other Embedded Derivatives – Cogeneration contract embedded derivative,” to our Consolidated Financial Statements. Abitibi had provided a guarantee in favor of NPower Cogen Limited as it relates to BPCL’s obligations under this agreement, which it repudiated on July 7, 2009. As a result of the BPCL Administration, in the first quarter of 2010, we will record a liability for this repudiated claim. NPower Cogen Limited filed a related claim against Abitibi in November 2009. However, the estimated amount of our obligation under the claim does not exceed the obligation recorded by BPCL as of December 31, 2009 under the terms of the contract.

We do not expect that the net effect of all of the above will have a material impact on our operating income (loss) in 2010.

Transactions within the Consolidated Group of Companies

Prior to April 1, 2008, Donohue was a wholly-owned subsidiary of ACCC. On April 1, 2008, ACCC transferred all of the outstanding common and preferred stock of Donohue to AbitibiBowater US Holding LLC (“Holding”), a direct subsidiary of AbitibiBowater Inc., for a combination of cash and notes issued or assumed by Holding. As a result, Donohue is no longer a subsidiary of Abitibi, but remains an indirect, wholly-owned subsidiary of AbitibiBowater Inc. Donohue, through its subsidiaries, owns 52.5% of ANC, the Alabama River, Alabama newsprint mill and the U.S. recycling operations and, prior to its sale on April 10, 2008, the Snowflake, Arizona newsprint mill. On January 5, 2010, we sold the material recycling facilities located in Arlington, Houston and San Antonio, Texas, but we continue to operate the recycling programs in those three cities, as well as in 20 other metropolitan areas across North America.

On May 12, 2008, AbitibiBowater Inc. contributed to Bowater, as additional paid-in capital, a promissory note executed by AbitibiBowater Inc. in favor of Bowater. On May 15, 2008, Bowater transferred the ownership interest it held in its wholly-owned subsidiary, Bowater Newsprint South LLC (“Newsprint South”), to AbitibiBowater Inc. As a result, Newsprint South is no longer a subsidiary of Bowater, but is now a direct, wholly-owned subsidiary of AbitibiBowater Inc. Newsprint South, through its subsidiaries, owns the Coosa Pines, Alabama and Grenada, Mississippi mills and, prior to its sale on January 28, 2010, the Westover, Alabama sawmill.

These transfers of businesses between subsidiary companies that are under common control of AbitibiBowater Inc., the ultimate parent, were accounted for at the AbitibiBowater Inc. level at historical costs and accordingly, there was no impact on the financial position or results of operations of AbitibiBowater.

Expropriation

On December 16, 2008, following our December 4, 2008 announcement of the permanent closure of our Grand Falls newsprint mill, the Government of Newfoundland and Labrador, Canada passed the Abitibi-Consolidated Rights and Assets Act, S.N.L. 2008, c.A-1.01 (“Bill 75”) to expropriate, among other things, all of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, whether partially or wholly owned through our subsidiaries and affiliated entities. The Government of Newfoundland and Labrador also announced that it does not plan to compensate us for the loss of the water and timber rights, but has indicated that it may compensate us for certain of our hydroelectric assets. However, it has made no commitment to ensure that such compensation would represent the fair market value of such assets. As a result of the expropriation, in the fourth quarter of 2008, we recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.

We have retained legal counsel to review all legal options relating to the expropriation. On April 23, 2009, we filed a Notice of Intent to Submit a Claim to Arbitration under the North American Free Trade Agreement (“NAFTA”), relating to the expropriation of these assets specifying what we believe to be violations by the Government of Newfoundland and Labrador under the terms of NAFTA, for which the Government of Canada is responsible. We filed a notice of arbitration (the “Notice of Arbitration”) on February 25, 2010 to formally launch the NAFTA dispute resolution proceedings. Although there is no guarantee regarding the outcome and receipt of fair compensation under the terms of NAFTA, we believe that the Government of Newfoundland and Labrador has violated the terms of NAFTA, and that we (a U.S. domiciled company) should be fairly compensated for the expropriation. Under the terms of NAFTA, compensation for expropriated assets is based on fair market value. The Notice of Arbitration asserts that the expropriation was arbitrary, discriminatory and illegal. Our claim seeks direct compensation for damages of approximately Cdn$500 million, plus additional costs and relief deemed just and appropriate by the Arbitral Tribunal. We have asserted in the Notice of Arbitration that the expropriation breaches Canada’s NAFTA obligations on a number of grounds, including among others: (i) the criteria for expropriation are not met in Bill 75; (ii) Bill 75 does not ensure payment for the fair market value of the expropriated rights and assets; (iii) Bill 75 purports to strip us of any rights to access the courts, which is independently a violation of NAFTA, and (iv) Bill 75 is retaliatory in nature and discriminates against us.

Although we believe that the Canadian Government will be required to compensate us for the fair market value of the expropriated assets, there can be no assurance that it will and we have not recognized an asset for such claim in our Consolidated Financial Statements. We continue to reach out to the Canadian Government in an effort to come to a negotiated settlement and avoid protracted NAFTA proceedings.

Product Lines

We manage our business based on the products that we manufacture and sell to external customers. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products. In general, our products are globally-traded commodities and are marketed in more than 90 countries. Pricing and the level of shipments of these products will continue to be influenced by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates.

Certain segment and geographical financial information, including sales by segment and by geographic area, operating income (loss) by segment, total assets by segment and long-lived assets by geographic area, can be found in Note 26, “Segment Information,” to our Consolidated Financial Statements.

Newsprint

In 2009, we produced newsprint at 15 facilities in North America, South Korea and the United Kingdom. We are the largest producer of newsprint in the world by capacity, with worldwide capacity of approximately 4.9 million metric tons, or approximately 12% of worldwide capacity. Our North American capacity of approximately 4.4 million metric tons represents approximately 42% of North American capacity.

We supply leading publishers with top-quality newsprint, including products made of up to 100% recycled fiber. We distribute newsprint by rail, truck and ship. Our North American newsprint is sold directly by our regional sales offices. Export markets are serviced primarily through our international offices located in or near the markets we supply or through international agents. In 2009, approximately 43% of our total newsprint shipments were to markets outside of North America.

We sell newsprint to various joint venture partners (partners with us in the ownership of certain mills we operate). During 2009, these joint venture partners purchased approximately 431,000 metric tons from our consolidated entities, which represented approximately 14% of the total newsprint tons we sold in 2009.

Coated papers

We produce coated mechanical paper at one facility in North America. We are one of the largest producers of coated mechanical paper in North America, with a capacity of approximately 658,000 metric tons in 2009, or approximately 15% of North American capacity. Our coated papers are used in magazines, catalogs, books, retail advertising, direct mail and coupons.

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

Specialty papers

We produce specialty papers at 11 facilities in North America. We are one of the largest producers of specialty papers, including supercalendered, superbright, high bright, bulky book and directory papers in North America, with a capacity of approximately 2.4 million metric tons in 2009, or approximately 36% of North American capacity. Our specialty papers are used in books, retail advertising, direct mail, coupons and other commercial printing applications.

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

Market pulp

We produce market pulp at five facilities in North America, with a capacity of approximately 1.1 million metric tons, or approximately 7% of North American capacity. Market pulp is used to make a range of consumer products including tissue, packaging, specialty paper products, diapers and other absorbent products.

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

Wood products

We operate 20 sawmills in Canada that produce construction-grade lumber that is sold in North America. In addition, our sawmills are a major source of wood chips for our pulp and paper mills. We also operate six facilities in Canada that remanufacture or engineer wood for greater strength for specialized applications such as bedding components, roofing and flooring material, and other products.

Pulp and paper manufacturing facilities

The following table provides a listing of the pulp and paper manufacturing facilities we owned or operated as of December 31, 2009 and production information by product line (which represents all of our reportable segments except wood products). This table excludes facilities which have been permanently closed as of December 31, 2009. Beginning in the first quarter of 2009, we implemented rotating monthly downtime at several facilities across the organization until market conditions improved. The table below represents these facilities’ actual 2009 production, which reflects the impact of the rotating downtime, and 2010 total capacity.

		Number				2010				2009				2009 Production by Product Line
		of Paper				Total				Total												Specialty
(In 000s of metric tons)		Machines				Capacity				Production				Newsprint				Coated Papers				Papers				Market Pulp
Canada
Alma, Quebec			3				380				327				–				–				327				–
Amos, Quebec			1				209				115				115				–				–				–
Baie-Comeau, Quebec			4				542				429				429				–				–				–
Beaupre, Quebec (1)			2				241				103				–				–				103				–
Clermont, Quebec (2)			2				347				310				310				–				–				–
Dolbeau, Quebec (3)			2				244				106				–				–				106				–
Fort Frances, Ontario (1)			3				410				305				–				–				217				88
Gatineau, Quebec			2				358				247				217				–				30				–
Iroquois Falls, Ontario			2				271				206				182				–				24				–
Kenogami, Quebec			2				216				203				–				–				203				–
Laurentide, Quebec			2				354				259				–				–				259				–
Liverpool, Nova Scotia (4)			2				259				148				122				–				26				–
Thorold, Ontario (5)			2				414				280				280				–				–				–
Thunder Bay, Ontario (6)			3				740				406				128				–				–				278
United States
Alabama River, Alabama (7)			1				261				–				–				–				–				–
Augusta, Georgia (8)			2				419				368				368				–				–				–
Calhoun, Tennessee (7) (9)			5				950				601				185				–				274				142
Catawba, South Carolina			3				889				789				–				516				46				227
Coosa Pines, Alabama (1)			2				628				453				210				–				–				243
Grenada, Mississippi			1				244				148				148				–				–				–
Usk, Washington (10)			1				260				234				234				–				–				–
United Kingdom
Bridgewater, England (11)			2				223				207				207				–				–				–
South Korea
Mokpo, South Korea			1				253				235				235				–				–				–
			50				9,112				6,479				3,370				516				1,615				978

(1)		In September 2009, we announced the indefinite idling of the following: our Beaupre specialty paper mill (representing 241,000 metric tons of capacity); a specialty paper machine at our Fort Frances facility (representing 70,000 metric tons of capacity) and a newsprint machine at our Coosa Pines paper mill (representing 170,000 metric tons of capacity).
(2)		Donohue Malbaie Inc. (“DMI”), which owns one of Clermont’s paper machines, is owned 51% by us and 49% by NYT Capital Inc. We manage the facility and wholly own all of the other assets at the site. Manufacturing costs are transferred between us and DMI at agreed-upon transfer costs. DMI’s paper machine produced 214,000 metric tons of newsprint in 2009. The amounts in the above table represent the mill’s total capacity and production including DMI’s paper machine.
(3)		We repudiated contracts with Boralex Dolbeau Inc. (see “Business – Creditor Protection Proceedings – Reorganization process” above) and following these repudiations, our Dolbeau facility has been effectively idled since July 7, 2009 (representing 244,000 short tons of specialty papers capacity).
(4)		The Bowater Mersey Paper Company Limited (“Mersey”) is located in Liverpool, Nova Scotia and is owned 51% by us and 49% by The Daily Herald Company, a wholly-owned subsidiary of The Washington Post. We manage the facility. The amounts in the above table represent the mill’s total capacity and production.
(5)		On March 11, 2010, we announced the indefinite idling of one of our newsprint machines at our Thorold facility,

		effective April 12, 2010 (representing approximately 207,000 metric tons of capacity).
(6)		In August 2009, we announced the indefinite idling of our two newsprint machines at our Thunder Bay facility effective August 21, 2009 (representing 392,000 metric tons of capacity), one of which was restarted in February 2010.
(7)		In the fourth quarter of 2008, we announced the immediate idling, until further notice, of our Alabama River newsprint mill (representing 265,000 metric tons of capacity) and two paper machines (No. 1 and No. 2) at our Calhoun facility (representing 120,000 metric tons of newsprint capacity and 110,000 metric tons of specialty papers capacity).
(8)		ANC, which operates our newsprint mill in Augusta is owned 52.5% by us and 47.5% by an indirect subsidiary of Woodbridge. We manage the facility. The amounts in the above table represent the mill’s total capacity and production.
(9)		Calhoun Newsprint Company (“CNC”), which owns one of Calhoun’s paper machines (No. 5), Calhoun’s recycled fiber plant and a portion of the thermomechanical pulp (“TMP”) mill, is owned 51% by us and 49% by Herald Company, Inc. We manage the facility and wholly own all of the other assets at the site, including the remaining portion of the TMP mill, a kraft pulp mill, a market pulp dryer, four other paper machines (two of which are still operating) and other support equipment. Pulp, other raw materials, labor and other manufacturing services are transferred between us and CNC at agreed-upon transfer costs. CNC’s paper machine produced 185,000 metric tons of newsprint in 2009. The amounts in the above table represent the mill’s total capacity and production including CNC’s paper machine.
(10)		The Ponderay Newsprint Company is located in Usk, Washington and is an unconsolidated partnership in which we have a 40% interest and, through a wholly-owned subsidiary, we are the managing partner. The balance of the partnership is held by subsidiaries of four newspaper publishers. The amounts in the above table represent the mill’s total capacity and production.
(11)		Effective as of February 2, 2010, BPCL filed for administration pursuant to U.K. insolvency law. The joint administrators are not currently operating this newsprint mill. See “Bridgewater Administration” above.

Wood products facilities

The following table provides a listing of the sawmills we owned or operated as of December 31, 2009 and their respective capacity and lumber production. This table excludes facilities which have been permanently closed as of December 31, 2009.

		2010				2009
(In million board feet)		Total Capacity				Total Production
Comtois, Quebec			140				30
Girardville-Normandin, Quebec			175				141
La Dore, Quebec			155				154
La Tuque, Quebec (1)			130				15
Mackenzie, British Columbia (2 facilities) (2)			500				13
Maniwaki, Quebec			125				39
Mistassini, Quebec			175				122
Oakhill, Nova Scotia (3)			151				64
Obedjiwan, Quebec (4)			30				23
Pointe-aux-Outardes, Quebec			175				12
Roberval, Quebec			100				20
Saguenay Produits Forestiers Saguenay, Quebec (2 facilities)			163				23
Saint-Felicien, Quebec			100				70
Saint-Hilarion, Quebec			35				24
Saint-Ludger-de-Milot, Quebec (5)			80				68
Saint-Thomas, Quebec			90				82
Senneterre, Quebec			85				52
Thunder Bay, Ontario			280				159
			2,689				1,111

(1)		Produits Forestiers Mauricie L.P. is located in La Tuque, Quebec and is a consolidated subsidiary in which we have a 93.2% interest. The amounts in the above table represent the mill’s total capacity and production.
(2)		In the fourth quarter of 2007, we announced the indefinite idling of our two Mackenzie sawmills. We are currently in the process of selling these two sawmills and other assets located in Mackenzie.
(3)		The Oakhill, Nova Scotia sawmill is owned by Mersey, which is a consolidated subsidiary in which we have a 51% interest. The amounts in the above table represent the mill’s total capacity and production.
(4)		Societe en Commandite Scierie Opitciwan is located in Obedjiwan, Quebec and is an unconsolidated entity in which we have a 45% interest. The amounts in the above table represent the mill’s total capacity and production.
(5)		Produits Forestiers Petit-Paris Inc. is located in Saint-Ludger-de-Milot, Quebec and is an unconsolidated entity in which we have a 50% interest. The amounts in the above table represent the mill’s total capacity and production.

The following table provides a listing of our remanufacturing and engineered wood facilities we owned or operated as of December 31, 2009 and their respective capacity and wood production. This table excludes facilities which have been permanently closed as of December 31, 2009.

		2010				2009
(In million board feet, except where otherwise stated)		Total Capacity				Total Production
Remanufacturing Wood Facilities
Chateau-Richer, Quebec			63				40
La Dore, Quebec			15				12
Manseau, Quebec			20				8
Saint-Prime, Quebec			28				26
Total Remanufacturing Wood Facilities			126				86
Engineered Wood Facilities
Larouche and Saint-Prime, Quebec (million linear feet) (1)			145				80

(1)		Abitibi-LP Engineering Wood Inc. and Abitibi-LP Engineering Wood II Inc. are located in Larouche, Quebec and Saint-Prime, Quebec, respectively, and are unconsolidated entities in which we have a 50% interest in each entity. We operate the facilities and our joint venture partners sell the products. The amounts in the above table represent the mills’ total capacity and production.

On October 12, 2006, an agreement regarding Canada’s softwood lumber exports to the U. S. became effective (the “2006 Softwood Lumber Agreement”). The 2006 Softwood Lumber Agreement provides for, among other things, softwood lumber to be subject to one of two ongoing border restrictions, depending upon the province of first manufacture with several provinces, including Nova Scotia, being exempt from these border restrictions. Volume quotas have been established for each company within the provinces of Ontario and Quebec based on historical production, and the volume quotas are not transferable between provinces. U.S. composite prices would have to rise above $355 composite per thousand board feet before the quota volume restrictions would be lifted, which had not occurred as of December 31, 2009. For additional information, reference is made to Note 22, “Commitments and Contingencies – Lumber duties,” to our Consolidated Financial Statements.

Other products

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

Raw Materials

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

Wood

Our sources of wood include property we own or lease, property on which we possess cutting rights and purchases from local producers, including sawmills that supply residual wood chips. As of December 31, 2009, we owned or leased approximately 0.1 million and 0.8 million acres of timberlands in the southeastern United States and Canada, respectively. We also have contractual cutting rights on approximately 43.1 million acres of Crown-owned land in Canada. The cutting rights contracts are approximately 20-25 years in length and automatically renew every five years, contingent upon our continual compliance with environmental performance and reforestation requirements.

In accordance with our values, our environmental vision statement and forestry policies and in the interests of our customers and other stakeholders, we are committed to implementing and maintaining environmental management systems at our woodlands and wood procurement operations to promote the conservation and sustainable use of forests and other natural resources. All of our managed forest lands are third-party certified to one or more globally recognized sustainable forest management standards, including those of the Sustainable Forestry Initiative, Canadian Standards Association and Forest Stewardship Council. We have implemented fiber tracking systems at our mills to ensure that our wood fiber supply comes

from acceptable sources such as certified forests and legal harvesting operations. At several of our mills, these systems are third-party certified to recognize chain of custody standards and others are in the process of being certified.

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

Recovered paper

We are among the largest recyclers of newspapers and magazines in the world. We have a number of recycling plants that utilize advanced mechanical and chemical processes to manufacture high quality pulp from a mixture of old newspapers and old magazines (“recovered paper”). The resulting products, which include recycled fiber newsprint and uncoated specialty paper, are comparable in quality to paper produced with 100% virgin fiber pulp. We produce more than 30 grades with recycled content. The Coosa Pines, Thorold and Mokpo operations produce newsprint containing 100% recycled fiber. In 2009, we used 1.7 million metric tons of recovered paper worldwide, the average de-inking yield in our recycling facilities was approximately 78% and our recycled fiber content in newsprint averaged 39%.

In 2009, our North American recycling division collected or purchased 1.3 million metric tons of recovered paper. Our trademarked Paper Retriever^® program collects recovered fiber through a combination of community drop-off containers and recycling programs with businesses and commercial offices. The recovered paper we physically purchase is from suppliers generally within the region of our recycling plants, primarily under long-term agreements.

Energy

Steam and electrical power are the primary forms of energy used in pulp and paper production. Process steam is produced in boilers using a variety of fuel sources. All of our mills produce 100% of their own steam requirements, except our Alabama River, Iroquois Falls and Dolbeau mills, which purchase their steam from third-party suppliers. In 2009, our Alma, Calhoun, Catawba, Coosa Pines, Fort Frances, Gatineau, Iroquois Falls, Kenogami, Mersey and Thunder Bay operations collectively consumed approximately 26% of their electrical requirements from internal sources, notably on-site cogeneration and hydroelectric stations. The balance of our energy needs was purchased from third parties.

We have seven sites which operate cogeneration facilities and six of these sites generate “green energy” from carbon-neutral biomass. In addition, we utilize alternative fuels such as methane from landfills, used oil, tire-derived fuel and black liquor to reduce consumption of virgin fossil fuels.

The following table provides a listing of our hydroelectric facilities as of December 31, 2009 and their respective capacity and generation.

																						Share of
						Installed				Share of								Share of				Generation
						Capacity				Capacity				Generation				Generation				Received
		Ownership				(MW)				(MW)				(GWh)				(GWh)				(GWh)
Hydro Saguenay			100%				162				162				942				942				942
Fort Frances (1)			75%				27				20				183				137				137
Kenora (1)			75%				18				14				89				67				67
Iroquois Falls (1)			75%				92				69				554				416				416
							299				265				1,768				1,562				1,562

(1)		The amounts in the above table represent the facility’s total installed capacity and power generation.

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

Hydroelectric assets and water rights at the Grand Falls facility, Star Lake Hydro Partnership and Exploits River Hydro Partnership were among the assets expropriated in the fourth quarter of 2008 by the Government of Newfoundland and Labrador, Canada, as discussed above under “Expropriation” and have been excluded from the above table.

Competition

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

Newsprint, one of our principal products, is produced by numerous manufacturers worldwide. The five largest North American producers represent approximately 84% of North American capacity for newsprint. The five largest global producers represent approximately 38% of global newsprint capacity. Our annual production capacity is approximately 12% of worldwide capacity. We face competition from both large global producers and numerous smaller regional producers. In recent years, a number of global producers of newsprint based in Asia, particularly China, have grown their production capacity. Price, quality, customer relationships and the ability to produce paper with recycled fiber are important competitive determinants.

We compete with eight other coated mechanical paper producers with operations in North America. The five largest North American producers represent approximately 78% of North American capacity for coated mechanical paper. In addition, several major offshore suppliers of coated mechanical paper compete for North American business. Offshore imports represent approximately 11% of North American demand. As a major supplier to printers, end users (such as magazine publishers, catalogers and retailers) and brokers/merchants in North America, we compete with numerous worldwide suppliers of other grades of paper such as coated freesheet and supercalendered paper. We compete on the basis of price, quality and service.

We produced approximately 33% of North American uncoated mechanical paper demand in 2009, comprised mainly of supercalendered, superbright, high bright, bulky book and directory papers. We compete with numerous uncoated mechanical paper producers with operations in North America. In addition, imports from overseas represented approximately 6% of North American demand in 2009 and were primarily concentrated in the supercalendered paper market where they represent approximately 13% of North American demand. We compete on the basis of price, quality, service and breadth of product line.

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

In 2008, we fulfilled our commitment to obtain third-party certification for all of our managed forest lands to globally-recognized sustainable forest management standards, such as the Sustainable Forestry Initiative and the Z809 standard of the Canadian Standards Association. In 2009, to further differentiate our products from those of the competition and to better position ourselves to meet increasing demand for products certified to the Forest Stewardship Council, we achieved third-party certification for two forests, one in Quebec and one in Ontario.

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

Trends in advertising, electronic data transmission and storage and the Internet could have further adverse effects on traditional print media, including our products and those of our customers, but neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper publishing customers in North America use and compete with businesses that use other forms of media and advertising, such as direct mailings and newspaper inserts (both of which are end uses for several of our products), television and the Internet. U.S. consumption of newsprint declined in 2009 as a result of continued declines in newspaper circulation, declines in newspaper advertising volume and publishers’ conservation measures, which include increased usage of lighter basis-weight newsprint and web-width and page count reductions. Our newsprint, magazine and catalog publishing customers are also subject to the effects of competing media, including the Internet.

Employees

As of December 31, 2009, we employed approximately 12,100 people, of whom approximately 8,800 were represented by bargaining units. Our unionized employees are represented predominantly by the Communications, Energy and Paperworkers Union in Canada and predominantly by the United Steelworkers Union in the U.S. We expect to have further declines in employment as we develop and implement our plan or plans of reorganization and respond to the need to further reduce capacity in some product lines. For additional information, see “Employees” in Item 7.

Trademarks

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

Environmental Matters

We are subject to a variety of federal, state, provincial and local environmental laws and regulations in the jurisdictions in which we operate. We believe our operations are in material compliance with current applicable environmental laws and regulations. While it is impossible to predict future environmental regulations that may be established, we believe that we will not be at a competitive disadvantage with regard to meeting future Canadian, United States or South Korean standards. For additional information, see “Environmental Matters” in Item 7.

Internet Availability of Information

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

Corporate Governance

We have adopted Corporate Governance Principles related to certain key areas such as director qualifications and responsibilities, responsibilities of key board committees and director compensation designed to be consistent with the corporate governance rules of the NYSE. We have also adopted a Board of Directors Code of Business Conduct and Ethics and a Code of Business Conduct for our executive officers and employees. Our Board of Directors Corporate Governance Principles, our Board of Directors Code of Business Conduct and Ethics, our Code of Business Conduct and the charters of our Audit Committee, Human Resources and Compensation Committee, Nominating and Governance Committee and Environmental, Health and Safety Committee are available through our website. We will disclose any amendments to our Board of Directors Code of Business Conduct and Ethics, our Code of Business Conduct or waivers of any provision thereof on our website within four business days following the date of the amendment or waiver, and that information will remain available for at least a twelve-month period. We will provide any shareholder with printed versions of any of the foregoing guidelines, codes or committee charters upon request.

Executive Officers

Our executive officers are elected by the Board of Directors. There are no family relationships among officers or directors and no arrangements or understandings between any officer and any other person under which the officer was selected other than any provision contained in the Combination Agreement. Set forth below are the names, positions, ages and a brief description of the business experiences of our executive officers as of March 31, 2010:

Name		Age				Position		Officer Since
David J. Paterson			55			President and Chief Executive Officer		2007
Alain Grandmont			54			Executive Vice President, Human Resources and Supply Chain		2007
William G. Harvey			52			Executive Vice President and Chief Financial Officer		2007
Pierre Rougeau			52			Executive Vice President, Operations and Sales		2007
Joseph B. Johnson			47			Senior Vice President, Finance and Chief Accounting Officer		2009
Yves Laflamme			54			Senior Vice President, Wood Products		2007
Jacques P. Vachon			50			Senior Vice President, Corporate Affairs and Chief Legal Officer		2007

Mr. Paterson served as Chairman, President and Chief Executive Officer of Bowater from January 2007 to October 2007 and as President and Chief Executive Officer and a Director of Bowater from May 2006 to January 2007. Previously, Mr. Paterson worked for Georgia-Pacific Corporation from 1987 through 2006, where he was most recently Executive Vice President in charge of its Building Products Division. He has also been responsible for its Pulp and Paperboard Division, its Paper and Bleached Board Division and its Communications Papers Division.

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

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

Mr. Rougeau previously served as Senior Vice President, Newsprint from October 2007 to July 2009. He served as Senior Vice President, Corporate Development and Chief Financial Officer of Abitibi from 2001 to October 2007.

Mr. Johnson previously served as Vice President and Controller from October 2007 to July 2009. He served as Vice President and Controller of Bowater from January 2006 to October 2007 and as Director of Accounting and Compliance Reporting of Bowater from 2003 to 2006.

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

Mr. Vachon served as Senior Vice President, Corporate Affairs and Secretary of Abitibi from 1997 to October 2007.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Annual Report on Form 10-K, you should carefully consider the following factors which could materially affect our business, results of operations or financial condition. The Creditor Protection Proceedings have had a direct impact on our business and have exacerbated these risks and uncertainties. In particular, the risks described below could cause actual events to differ materially from those contemplated in our forward-looking statements.

We have organized our risks into the following categories:

	•		Risks Relating to Our Creditor Protection Proceedings and
	•		Risks Relating to Our Business

Risks Relating to Our Creditor Protection Proceedings

AbitibiBowater Inc., and many of its direct and indirect subsidiaries, are currently subject to Creditor Protection Proceedings and additional subsidiaries could become subject to similar proceedings. Our business, operations and financial position are subject to the risks and uncertainties associated with such proceedings.

Actions and decisions of our creditors and other third parties with interest in our Creditor Protection Proceedings may be inconsistent with our plans. For the duration of the Creditor Protection Proceedings, our business, operations and financial position will be subject to the risks and uncertainties associated with such proceedings. These risks, without limitation and in addition to the risks otherwise noted in this Annual Report on Form 10-K, include:

     Strategic risks, including risks associated with our ability to:

	•		continue as a going concern;
	•		stabilize the business to maximize the chances of preserving all or a portion of the enterprise;
	•		develop a comprehensive restructuring plan in an effective and timely manner;
	•		resolve ongoing issues with creditors and other third parties whose interests may differ from ours;
	•		obtain Court approval with respect to motions in the Creditor Protection Proceedings filed from time to time;
	•		obtain creditor, Court and any other requisite third-party approvals for a comprehensive restructuring plan;
	•		successfully implement a comprehensive restructuring plan and plan or plans of reorganization; and
	•		obtain Court approval for asset sales, as required.

     Financial risks, including risks associated with our ability to:

	•		generate cash from operations and maintain adequate cash-on-hand;
	•		operate within the restrictions and limitations of our current debtor in possession financing arrangements and the amended accounts receivable securitization program;
	•		renew or extend our current debtor in possession financing arrangements and/or accounts receivable securitization program, as the case may be, if the need to do so should arise;
	•		continue to maintain currently approved intercompany lending and transfer pricing arrangements and ongoing deployment of cash resources throughout the Company in connection with ordinary course intercompany trade obligations and requirements;
	•		continue to maintain our cash management arrangements and obtain any further approvals from the Monitor, the Courts or other third parties, as necessary to continue such arrangements;
	•		raise capital to satisfy claims, including our ability to sell assets to satisfy claims against us;
	•		obtain alternative or replacement financing to replace our debtor in possession financing and restructure our substantial indebtedness and other obligations in a manner that allows us to obtain confirmation of a plan or plans of reorganization by the Courts in order to successfully exit our Creditor Protection Proceedings; and
	•		realize full or fair value for any assets or business we may divest as part of a comprehensive restructuring plan.

     Operational risks, including risks associated with our ability to:

	•		attract and retain customers despite the uncertainty caused by the Creditor Protection Proceedings;
	•		avoid reduction in, or delay or suspension of, customer orders as a result of the uncertainty caused by the Creditor Protection Proceedings;
	•		maintain market share as our competitors move to capitalize on customer concerns;
	•		operate our business effectively in consultation with the Creditors’ Committee and the Monitor;
	•		actively and adequately communicate on and respond to events, media and rumors associated with the Creditor Protection Proceedings that could adversely affect our relationships with customers, suppliers, partners and employees;

	•		retain and incentivize key employees, attract new employees and avoid labor disputes;
	•		retain, or if necessary, replace major suppliers on acceptable terms;
	•		avoid disruptions in our supply chain as a result of uncertainties related to our Creditor Protection Proceedings; and
	•		maintain current relationships with customers, vendors and trade creditors.

     Procedural risks, including risks associated with our ability to:

	•		obtain Court orders or approvals with respect to motions we file from time to time, including motions seeking extensions of the applicable stays of actions and proceedings against us, or obtain timely approval of transactions outside the ordinary course of business, or other events that may require a timely reaction by us or present opportunities for us;
	•		resolve the claims made against us in such proceedings for amounts not exceeding our recorded liabilities subject to compromise;
	•		prevent third parties from obtaining Court orders or approvals that are contrary to our interests, such as the termination or shortening of the exclusivity period in the Chapter 11 Cases during which we can propose and seek confirmation of a comprehensive restructuring plan or the conversion of our Chapter 11 Cases to Chapter 7 liquidation cases; and
	•		reject, repudiate or terminate adverse contracts.

These risks and uncertainties could affect our business and operations in various ways. For example, negative events or publicity associated with our Creditor Protection Proceedings could adversely affect our sales and relationships with our customers, as well as with vendors and employees, which in turn could adversely affect our operations and financial condition, particularly if the Creditor Protection Proceedings are protracted. Also, transactions outside the ordinary course of business are subject to the prior approval of the Courts, which may limit our ability to respond timely to certain events or take advantage of certain opportunities.

The Creditor Protection Proceedings raise substantial doubt about our ability to continue as a going concern.

The Creditor Protection Proceedings raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on market conditions and our ability to successfully develop and implement a comprehensive restructuring plan, improve profitability, obtain alternative financing to replace our debtor in possession financing arrangements, renew or extend our current debtor in possession financing arrangements and/or accounts receivable securitization program, as the case may be, if the need to do so should arise, and restructure our obligations in a manner that allows us to obtain confirmation of a plan or plans of reorganization by the Courts. However, it is not possible to predict whether the actions taken in our restructuring will result in improvements to our financial condition sufficient to allow us to continue as a going concern. Even assuming a successful emergence from the Creditor Protection Proceedings, there can be no assurance as to the long-term viability of all or any part of the enterprise. In addition, a long period of operating under the Creditor Protection Proceedings may exacerbate the potential harm to our business and further restrict our ability to pursue certain business strategies or require us to take actions that we otherwise would not. These challenges are in addition to business, operational and competitive challenges that we would normally face even absent the Creditor Protection Proceedings.

We must restructure and transform our business and the assumptions underlying these efforts may prove to be inaccurate. We may not be able to successfully develop, obtain all requisite approvals for or implement a comprehensive restructuring plan. Failure to obtain the requisite approvals for, or failure to successfully develop and implement our comprehensive restructuring plan within the time granted by the Courts would, in all likelihood, lead to the liquidation of all of our assets.

We are working to develop a comprehensive restructuring plan to successfully emerge from the Creditor Protection

Proceedings. Our senior management spends significant amounts of time developing the comprehensive restructuring plan instead of focusing exclusively on business operations.

In connection with the development of the restructuring plan, we have made, and will continue to make, judgments as to whether we should further reduce, relocate or otherwise change our workforce. Costs incurred in connection with workforce reduction efforts may be higher than estimated. Furthermore, our workforce efforts may impair our ability to achieve our current or future business objectives. Any further workforce efforts including reductions may not occur on the expected timetable and may result in the recording of additional charges.

Further, we have made, and will continue to make, judgments as to whether we should limit investment in, exit or dispose of certain businesses. The Creditor Protection Proceedings and the development of a restructuring plan may result in the sale or divestiture of assets or businesses, but we can provide no assurance that we will be able to complete any sale or divestiture on acceptable terms or at all. Any decision by management to further limit investment in, or exit or dispose of businesses may result in the recording of additional charges.

We also must obtain the approvals of the respective Courts, creditors, the Creditors’ Committee and the Monitor, as applicable. We may not receive the requisite approvals and even if we do, a dissenting holder of a claim against us may challenge and ultimately delay the final approval and implementation of a comprehensive restructuring plan. If we are not successful in developing a comprehensive restructuring plan, or if we are successful in developing it but do not receive the requisite approvals, it is unclear whether we would be able to reorganize our businesses and what distributions, if any, holders of claims against us would receive. Should the exclusivity period or stay or moratorium period and any subsequent extension thereof not be sufficient to develop and implement a comprehensive restructuring plan or should such plan not be approved by creditors and the Courts and, in any such case, should we lose the protection of such stay or moratorium, substantially all of our debt obligations will become due and payable immediately, or subject to acceleration, creating an immediate liquidity crisis that in all likelihood would lead to the liquidation of all of our assets, in which case it is likely that holders of claims would receive substantially less favorable treatment than they would receive if we were able to emerge as a viable, reorganized entity.

A plan or plans of reorganization could result in holders of our liabilities and/or securities receiving no distribution.

The ultimate recovery to creditors and/or shareholders, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed to each of these constituencies or what types or amounts of distributions, if any, they will receive. A plan or plans of reorganization could result in holders of our liabilities and/or securities, including our common stock and exchangeable shares, receiving no distribution on account of their interests and cancellation of their holdings. A plan or plans of reorganization could also result in holders of our common stock and exchangeable shares being materially diluted or result in the cancellation of all of our equity securities for nominal or no consideration. Because of such possibilities, the value of our liabilities and securities, including our common stock and exchangeable shares, is highly speculative. Appropriate caution should be exercised with respect to existing and future investments in any of our liabilities and/or securities. At this time, there can be no assurance that we will be able to restructure as a going concern, as described above, or successfully propose or implement a plan or plans of reorganization.

The terms of our current and any future financing arrangements may severely limit our ability to plan for or respond to changes in our business.

We are subject to a number of significant restrictions under our debtor in possession financing arrangements and the accounts receivable securitization program. These restrictions limit our ability to:

	•		incur additional debt;
	•		incur liens or make negative pledges on our assets;
	•		merge, consolidate or sell our assets;
	•		pay dividends or repurchase or redeem capital stock;
	•		make investments and acquisitions;
	•		enter into certain transactions with shareholders and affiliates;
	•		make capital expenditures;

	•		materially change our business;
	•		amend our debt and other material agreements; or
	•		make investments in unrestricted subsidiaries.

Our failure to comply with these covenants, or similar covenants in future financing arrangements, could result in our being required to repay these borrowings before their due date. If we are unable to make these repayments or otherwise refinance these borrowings, our lenders could foreclose on our assets and could force us into a liquidation.

Our common stock and the exchangeable shares of AbitibiBowater Canada Inc. are no longer traded on a national securities exchange and as a result, it is more difficult for shareholders to sell our common stock or the exchangeable shares of AbitibiBowater Canada Inc. and to obtain accurate quotations of the price of these securities.

Due to the commencement of the Creditor Protection Proceedings, each of the NYSE and the TSX suspended the trading of our common stock at the opening of business on April 16, 2009 and delisted our common stock at the opening of business on May 21, 2009 and at the close of market on May 15, 2009, respectively. Our common stock is currently traded in the over-the-counter market and is quoted on the Pink Sheets and on the OTC Bulletin Board under the symbol “ABWTQ.” In addition, the TSX suspended the trading of the exchangeable shares of AbitibiBowater Canada Inc. at the opening of business on April 16, 2009 and delisted such shares at the close of market on May 15, 2009.

We can provide no assurance that we will be able to re-list our common stock or exchangeable shares on a national securities exchange or that the common stock will continue being quoted on the Pink Sheets. The trading of our common stock over-the-counter negatively impacts the trading price of our common stock. In addition, securities that trade over-the-counter are not eligible for margin loans and make our common stock subject to the provisions of Rule 15g-9 under the Securities Exchange Act of 1934, as amended, commonly referred to as the “penny stock rule.”

Over-the-counter transactions involve risks in addition to those associated with transactions on a stock exchange. Many over-the-counter stocks trade less frequently and in smaller volumes than stocks listed on an exchange. Accordingly, over-the-counter-traded shares are less liquid and are likely to be more volatile than exchange-traded stocks. The price of our common stock is currently electronically displayed in the U.S. on the Pink Sheets, which is a quotation medium that publishes market maker quotes for over-the-counter securities. It is not a stock exchange or listing service and is not owned, operated or regulated by any exchange. Investors are advised that we have not taken any steps to have our securities quoted on the Pink Sheets; there is no relationship, contractual or otherwise, between an issuer whose securities are quoted on the Pink Sheets and Pink Sheets LLC, which operates that market; and Pink Sheets LLC exercises no regulatory oversight over us. Our status on the Pink Sheets is dependent on market makers’ willingness to continue to provide the service of accepting trades of our common stock.

During the pendency of the Creditor Protection Proceedings, our financial results may be volatile and may not reflect historical trends.

During the pendency of the Creditor Protection Proceedings, we expect our financial results to continue to be volatile as asset impairments, asset dispositions, restructuring activities (including mill and paper machine closures and idlings), contract terminations, repudiations and rejections and claims assessments may significantly impact our Consolidated Financial Statements. As a result, our historical financial performance is likely not indicative of our financial performance following the dates we initiated the Creditor Protection Proceedings. Further, we may sell or otherwise dispose of assets or businesses and liquidate or settle liabilities, with Court approval, for amounts other than those reflected in our historical financial statements. Any such sale or disposition and any comprehensive restructuring plan could materially change the amounts and classifications reported in our Consolidated Financial Statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of a comprehensive restructuring plan.

Our liquidity position imposes significant risks to our operations.

Because of the public disclosure of our liquidity issues, and despite the liquidity provided by our debtor in possession financing arrangements and the accounts receivable securitization program, our ability to maintain credit terms with our suppliers may become impaired. We may be required to pay cash in advance to additional vendors and may experience restrictions on the availability of trade credit, which would further reduce our liquidity. If liquidity problems persist, our suppliers could refuse to provide key products and services in the future. In addition, due to public perception of our financial condition and results of operations, in particular with regard to our potential failure to meet our debt obligations, some customers could become reluctant to enter into long-term agreements with us.

The Bowater DIP Agreement, defined in “Liquidity and Capital Resources” in Item 7, provides for term loans in an aggregate principal amount of $206 million (the “Initial Advance”). Subject to the approval of the requisite lenders, the Bowater DIP Agreement also provides for an incremental term loan facility (the “Incremental Facility”) and an asset-based revolving credit facility (the “ABL Facility”) provided that the aggregate principal amount of the Initial Advance and the Incremental Facility may not exceed $360 million and the aggregate principal amount of the Initial Advance, Incremental Facility and the ABL Facility may not exceed $600 million. The outstanding principal amount of loans under the Bowater DIP Agreement, plus accrued and unpaid interest, will be due and payable on April 21, 2010, but is subject to an earlier maturity date under certain circumstances. The maturity date of the Bowater DIP Agreement, defined in “Liquidity and Capital Resources” in Item 7, will extend by three months if we file with the Courts a plan or plans of reorganization that is (are) reasonably acceptable to the requisite lenders before the current maturity date of April 21, 2010, and a further three months if, as of the last day of the extension, we are using best efforts to pursue confirmation of the plan or plans of reorganization and seeking confirmation thereof by the Courts. The Abitibi and Donohue accounts receivable securitization program has a maximum purchase limit of approximately $270 million and expires on June 16, 2010, but may be terminated earlier with the occurrence of certain events of termination or the substantial consummation of a plan or plans of reorganization or a plan of compromise or arrangement confirmed by order of the Courts. We have the option to extend the termination date of the accounts receivable securitization program: (i) from June 16, 2010 to September 16, 2010 if we have filed a plan or plans of reorganization with the Courts that provide for the full repayment thereof in cash upon consummation and we have met certain other conditions and (ii) from September 16, 2010 to December 16, 2010 if we have not withdrawn the plan or plans of reorganization, and those plans have not been denied by either Court before September 16, 2010 and we have met certain other conditions. Upon the sale of our interest in MPCo, a portion of the proceeds was used to fund a $218 million ULC DIP Facility, as defined and discussed under “Liquidity and Capital Resources” in Item 7, of which we had drawn $123 million as of December 31, 2009. The ULC DIP Facility will terminate on December 31, 2010, but is subject to earlier termination under certain circumstances.

There can be no assurance that cash generated from operations together with amounts available under these agreements will be sufficient to fund operations. In the event that cash flows and amounts available under these agreements are not sufficient to meet our liquidity requirements or if we are unable to meet the conditions to extend the financing arrangements if and when needed, we may be required to seek additional financing. There can be no assurance that such additional financing would be available or, if available, offered on acceptable terms. Failure to secure any necessary additional financing could have a material adverse impact on our operations. For additional information on our liquidity, see “Liquidity and Capital Resources” in Item 7.

Risks Related to Our Business

Developments in alternative media could continue to adversely affect the demand for our products, especially in North America, and our responses to these developments may not be successful.

Trends in advertising, electronic data transmission and storage and the Internet could have further adverse effects on traditional print media, including our products and those of our customers, but neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper, magazine and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, including television and the Internet, instead of newsprint, coated papers, uncoated specialty papers or other products made by us. The demand for certain of our products weakened significantly over the last several years. For example, industry statistics indicate that North American newsprint demand has been in decline for several years and has experienced annual declines of 5.6% in 2005, 6.1% in 2006, 10.3% in 2007, 11.2% in 2008 and 25.3% in 2009. Third-party forecasters indicate that these declines in newsprint demand could continue in 2010 or beyond due to conservation measures taken by publishers, reduced North American newspaper circulation, less space devoted to advertising and substitution to other uncoated mechanical grades.

One of our responses to the declining demand for our products has been to curtail our production capacity. See “Business Strategy and Outlook” in Item 7 for further information regarding the actions we took in 2007, 2008 and 2009 to reduce our production capacity, such as permanent closures or indefinite idling of certain facilities and machines, as well as market-related downtime at other facilities. It may become necessary to curtail even more production or permanently shut down even more machines or facilities. Such further curtailments and shutdowns would become increasingly likely as North American newsprint demand continues to decline or if market conditions otherwise worsen. Curtailments or shutdowns could result in goodwill or asset impairments and additional costs at the affected facilities, and could negatively impact our cash flows and materially affect our results of operations and financial condition.

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

Trends discussed in the immediately preceding risk factor continue to impact the operations of our newsprint customers. If a customer is forced into bankruptcy as a result of these trends, any pre-petition receivables related to that customer may not be realized. In addition, such a customer may choose to reject its contracts with us, which could result in a larger pre-petition claim.

Currency fluctuations may adversely affect our results of operations and financial condition, and changes in foreign currency exchange rates can affect our competitive position, selling prices and manufacturing costs.

We compete with North American, European and Asian producers in most of our product lines. Our products are sold and denominated in U.S. dollars, Canadian dollars and selected foreign currencies. A substantial portion of our manufacturing costs are denominated in Canadian dollars. In addition to the impact of product supply and demand, changes in the relative strength or weakness of such currencies, particularly the U.S. dollar, may also affect international trade flows of these products. A stronger U.S. dollar may attract imports into North America from foreign producers, increase supply and have a downward effect on prices, while a weaker U.S. dollar may encourage U.S. exports and increase manufacturing costs that are in Canadian dollars or other foreign currencies. Variations in the exchange rates between the U.S. dollar and other currencies, particularly the Euro and the currencies of Canada, Sweden and certain Asian countries, will significantly affect our competitive position compared to many of our competitors.

We are particularly sensitive to changes in the value of the Canadian dollar versus the U.S. dollar. The impact of these changes depends primarily on our production and sales volume, the proportion of our production and sales that occur in Canada, the proportion of our financial assets and liabilities denominated in Canadian dollars, our hedging levels and the magnitude, direction and duration of changes in the exchange rate. We expect exchange rate fluctuations to continue to impact costs and revenues; however, we cannot predict the magnitude or direction of this effect for any quarter, and there can be no assurance of any future effects. During the last two years, the relative value of the Canadian dollar ranged from US$1.02 in March 2008 to US$0.77 in October 2008 and back to US$0.95 as of December 31, 2009. Based on exchange rates and operating conditions projected for 2010, and prior to the impact of our plan or plans of reorganization, we project that a one-cent increase in the Canadian-U.S. dollar exchange rate would decrease our pre-tax income (loss) for 2010 by approximately $22 million.

If the Canadian dollar continues to remain strong versus the U.S. dollar, it could influence the foreign exchange rate assumptions that are used in our evaluation of long-lived assets for impairment and consequently, result in asset impairment charges. See the discussion under “Critical Accounting Estimates — Long-lived assets, other than goodwill” in Item 7.

We may not be successful in our strategy of increasing our share of coated and specialty papers and competing in growth markets with higher returns.

One of the components of our long-term strategy is to improve our portfolio of businesses by focusing on coated and specialty papers and competing more aggressively in growth markets with higher returns. There are risks associated with the implementation of this strategy, which is complicated and involves a substantial number of mills, machines and personnel. To the extent we are unsuccessful in achieving this strategy, our results of operations may be adversely affected.

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

We compete with numerous forest products companies, many of which have greater financial resources than we do. There has been a continued trend toward consolidation in the forest products industry, leading to new global producers. These global producers are typically large, well-capitalized companies that may have greater flexibility in pricing and financial resources for marketing, investment and expansion than we do. The markets for our products are all highly competitive. Actions by competitors can affect our ability to sell our products and can affect the volatility of the prices at which our products are sold. While the principal basis for competition is price, we also compete on the basis of customer service, quality and product type. There has also been an increasing trend toward consolidation among our customers. With fewer customers in the market for our products, our negotiation position with these customers could be weakened. In addition, the Creditor Protection Proceedings and their associated risks and uncertainties may be used by our competitors in an attempt to divert our existing customers or may discourage future customers from purchasing our products under long-term agreements.

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

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

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

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

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

Wood fiber is a commodity and prices historically have been cyclical, are subject to market influences and may increase in particular regions due to market shifts. Pricing of recycled fiber is also subject to market influences and has experienced significant fluctuations. During the last two years, the prices of old newspapers have ranged from a high of $195 average per ton during the third quarter of 2008 to a low of $76 average per ton during the first quarter of 2009 and averaged $131 per ton during the fourth quarter of 2009. There can be no assurance that prices of recycled fiber will remain at their current level. Any sustained increase in fiber prices would increase our operating costs and we may be unable to increase prices for our products in response.

Although we believe that the balance of fiber supply between our internal sources and the open market is adequate to support our current wood products and paper and pulp production requirements, there can be no assurance that access to fiber will continue at the same levels achieved in the past. The cost of softwood fiber and the availability of wood chips may be affected. If our cutting rights pursuant to the forest licenses or forest management agreements are reduced or if any third-party supplier of wood fiber stops selling or is unable to sell wood fiber to us, our financial condition or operating results could suffer.

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

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

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

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

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

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

We believe we are the largest employer in the Canadian pulp and paper sector and have the sector’s largest representation by unions. A significant number of our collective bargaining agreements with respect to our paper operations in Eastern Canada expired at the end of April 2009, as have those for the Calhoun and Catawba facilities. The Communications, Energy and Paperworkers Union of Canada (the “CEP”) has selected contract talks with us to set the industry-wide pattern for contracts that will replace current expired agreements. We recently reached an agreement in principle with representatives of both the CEP and the Confederation des syndicats nationaux (the “CSN”), subject to a ratification vote of their members and to the resolution of multi-party pension deficit discussions that are continuing between the CCAA filers and various governments and unions in Canada. The members of the CSN have ratified that agreement. The employees at the Mokpo facility have complied with all conditions necessary to strike, but the possibility of a strike or lockout of those employees is not clear; we served the six-month notice necessary to terminate the collective bargaining agreement related to the Mokpo facility on June 19, 2009. While negotiations with the unions in the past have resulted in collective bargaining agreements, as is the case with any negotiation, we may not be able to negotiate acceptable new agreements, which could result in strikes or work stoppages by affected employees. Renewal of collective bargaining agreements could also result in higher wage or benefit costs. Therefore, we could experience a disruption of our operations or higher ongoing labor costs which could have a material adverse effect on our business, financial condition or results of operations.

While negotiations are either underway or will begin shortly in each of the foregoing cases, we are currently reviewing all of our collective bargaining agreements in the context of the Creditor Protection Proceedings with a view to reducing costs. At this time, we cannot predict the impact of the Creditor Protection Proceedings on our labor costs, labor relations or any potential disruption of operations.

Our operations require substantial capital and we may not have adequate capital resources to provide for all of our capital requirements.

Our businesses are capital intensive and require that we regularly incur capital expenditures in order to maintain our equipment, increase our operating efficiency and comply with environmental laws. In addition, significant amounts of capital may be required to modify our equipment to produce alternative grades with better demand characteristics or to make significant improvements in the characteristics of our current products. If our available cash resources and cash generated from operations are not sufficient to fund our operating needs and capital expenditures, we would have to obtain additional funds from borrowings or other available sources or reduce or delay our capital expenditures. Current global credit conditions and the downturn in the global economy have resulted in a significant decline in the credit markets and the overall availability of credit. We may not be able to obtain additional funds on favorable terms or at all. If we cannot maintain or upgrade our equipment as we require, we may become unable to manufacture products that compete effectively. At this time, we cannot predict the impact of the Creditor Protection Proceedings on our capital expenditure program.

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

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

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

We manufacture products in Canada, the United States and South Korea and sell products throughout the world. Paper prices are tied to the health of the economies of North and South America, Asia and Europe, as well as to paper inventory levels in these regions. The economic and political climate of each region has a significant impact on our costs and the prices of, and demand for, our products. Changes in regional economies or political instability, including acts of war or terrorist activities, can affect the cost of manufacturing and distributing our products, pricing and sales volume, directly affecting our results of operations. Such changes could also affect the availability or cost of insurance.

We may be required to record additional environmental liabilities.

We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment, including those governing air emissions, wastewater discharges, timber harvesting, the storage, management and disposal of hazardous substances and waste, the clean-up of contaminated sites, landfill operation and closure, forestry operations, endangered species habitat, and health and safety. As an owner and operator of real estate and manufacturing and processing facilities, we may be liable under environmental laws for cleanup and other costs and damages, including tort liability and damages to natural resources, resulting from past or present spills or releases of hazardous or toxic substances on or from our current or former properties. We may incur liability under these laws without regard to whether we knew of, were responsible for, or owned the property at the time of, any spill or release of hazardous or toxic substances on or from our property, or at properties where we arranged for the disposal of regulated materials. Claims may arise out of currently unknown environmental conditions or aggressive enforcement efforts by governmental or private parties. As a result of the above, we may be required to record additional environmental liabilities. For additional information, see “Environmental Matters” in Item 7.

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

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

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

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

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

For information regarding long-lived asset impairment charges recorded in 2009, 2008 and 2007, see Note 4, “Creditor Protection Proceedings Related Disclosures – Reorganization items, net,” and Note 7, “Closure Costs, Impairment of Assets Other than Goodwill and Other Related Charges,” to our Consolidated Financial Statements. It is possible that we could record additional non-cash long-lived asset impairment charges in future periods when there is a triggering event.

We have net liabilities with respect to our pension plans and the actual cost of our pension plan obligations could exceed current provisions.

As of December 31, 2009, our defined benefit pension plans were under-funded by an aggregate of approximately $424 million on a financial accounting basis. Our future funding obligations for the defined benefit pension plans depend upon changes to the level of benefits provided by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum funding levels, actuarial data and demographic experience (e.g., mortality and retirement rates) and any changes in government laws and regulations. Any adverse change to any of these

factors may require us to increase our cash contributions to our pension plans and those additional contributions could have a material adverse effect on our cash flows and results of operations.

We obtained an order from the Canadian Court on May 8, 2009 specifying that the payment of special contributions for past service to Canadian pension plans maintained by Abitibi and Bowater could be suspended. Abitibi and Bowater continue to make their respective Canadian pension plan contributions for current service costs.

The determination of projected benefit obligations and the recognition of expenses related to our pension plan obligations are dependent on assumptions used in calculating these amounts. These assumptions include, among other things, expected rates of return on plan assets, which are developed using our historical experience applied to our target allocation of investments in conjunction with market-related data for each individual country in which such plans exist. All assumptions are reviewed periodically with third-party actuarial consultants and adjusted as necessary. Any deterioration in the global securities markets could impact the value of the assets included in our defined benefit pension plans, which could materially impact future minimum cash contributions. We continue to evaluate our pension and other postretirement benefit obligations in the context of the Creditor Protection Proceedings and as a result, our current expectations regarding such obligations in 2010 and beyond are uncertain at this time and are subject to change. Multi-party pension deficit discussions are continuing between the CCAA filers and various governments and unions in Canada as we work on developing the reorganization strategy.

We may not be compensated for the expropriation of certain assets by the Government of Newfoundland and Labrador.

On December 16, 2008, following our December 4, 2008 announcement of the permanent closure of our Grand Falls newsprint mill, the Government of Newfoundland and Labrador, Canada passed legislation under Bill 75 to expropriate, among other things, all of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, whether partially or wholly owned through our subsidiaries and affiliated entities. The Government of Newfoundland and Labrador also announced that it does not plan to compensate us for the loss of the water and timber rights, but has indicated that it may compensate us for certain of our hydroelectric assets. However, it has made no commitment to ensure that such compensation would represent the fair market value of such assets.

On February 25, 2010, we filed a Notice of Arbitration under NAFTA, which asserts that the expropriation was arbitrary, discriminatory and illegal. Our claim seeks direct compensation for damages of approximately Cdn$500 million, plus additional costs and relief. Although we believe that the Canadian Government will be required to compensate us for the fair market value of the expropriated assets, there can be no assurance that it will and we have not recognized an asset for such claim in our Consolidated Financial Statements. We continue to reach out to the Canadian Government in an effort to come to a negotiated settlement and avoid protracted NAFTA proceedings. See Item 1, “Business – Expropriation,” for additional information.

We could be compelled to remediate certain sites we formerly owned and/or operated in the province of Newfoundland and Labrador.

On November 12, 2009, the province of Newfoundland and Labrador issued five orders under section 99 of its Environmental Protection Act, which we appealed unsuccessfully, to require us to proceed immediately with the environmental remediation of various sites formerly owned or operated by us (some of which the province has expropriated with Bill 75). It also filed a motion with the Canadian Court for a declaratory judgment to the effect that its remediation orders are not subject to the stay of proceedings granted pursuant to the Initial Order and are not subject to compromise under a plan of arrangement because they consist of non-monetary injunctive orders. The province also contends that the definition of “claim” in the Initial Order is overly broad and inconsistent with the definition in the CCAA, and therefore unconstitutional. The province of British Columbia intervened to the proceedings in support of Newfoundland and Labrador’s constitutional argument. We contest vigorously the motion on the grounds that the remediation orders are essentially monetary in nature (or, if anything, contingent claims) and that the province should have filed a claim in the Creditor Protection Proceedings to recover the estimated costs of the remediation work. If the Canadian Court rules in favor of the province of Newfoundland and Labrador, we could be compelled to remediate those sites, which could require us to, among other things, prepare a plan of remediation, obtain the province’s approval of the plan and finance and carry out the remediation work to the satisfaction of the province by January 15, 2011, or by a later date acceptable to the province. We cannot provide a reliable estimate of the potential costs of any remediation at this time, but the financial impact of an adverse decision could materially affect our results of operations and financial position. The hearing took place on February 24, 25 and 26, 2010; the matter is currently before the Canadian Court and the parties expect a decision imminently.

The continued decline in the global economy and the Creditor Protection Proceedings may significantly inhibit our ability to sell assets.

Non-core asset sales have been and may continue to be a source of additional liquidity, subject to the approval of the applicable Court or the Monitor, as applicable. We periodically review timberlands and other assets and sell such assets as a source of additional liquidity. However, as a result of the current global economy and credit conditions, it may be difficult for potential purchasers to obtain the financing necessary to buy such assets. As a result, we may be forced to sell the assets for significantly lower amounts than planned or may not be able to sell them at all. No assurances can be provided that the Courts or the Monitor, as applicable, will approve such sales or as to the timing of any such approvals.

We could lose any or all of our equity interest in ANC.

On June 15, 2009, we filed a motion with the U.S. Court to reject the Call Agreement in respect of ANI, an indirect subsidiary of Woodbridge and our partner in ANC. ANC is the partnership that owns and operates the Augusta newsprint mill. The Call Agreement obligated ACSC to either buy out ANI at a price well above market, or risk losing all of its equity in the joint venture pursuant to forced sale provisions. The U.S. Court granted our motion on October 27, 2009 and approved our rejection of the Call Agreement. Our counterparties to the Call Agreement filed a Notice of Appeal with the U.S. Court on November 3, 2009. If the U.S. Court does not uphold the U.S. Court’s judgment and a forced sale is consummated, there can be no assurance that we would be able to recover any or all of our 52.5% equity interest in ANC, which as of December 31, 2009, was approximately $42 million.

Also, on March 9, 2010, Woodbridge filed a motion in the U.S. Court to force ACSC to reject the partnership agreement governing ANC. If ACSC were forced to reject the partnership agreement, the future of the Augusta mill would be uncertain.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Information regarding our owned properties is included in Item 1, “Business,” of this Annual Report on Form 10-K.

In addition to the properties that we own, we also lease under long-term leases certain timberlands, office premises and office and transportation equipment and have cutting rights with respect to certain timberlands. Information regarding timberland, capital and operating leases and cutting rights is included in Note 24, “Timberland, Capital and Operating Leases and Purchase Obligations,” to our Consolidated Financial Statements. The commencement of the Creditor Protection Proceedings constituted an event of default with respect to certain contracts, including without limitation certain leases of real property. However, as a result of the Creditor Protection Proceedings, all actions against us have been stayed and no action may be undertaken against us for these defaults during the stay period. We conducted a review of certain of our executory contracts in order to determine which contracts, if any, would be assumed in the Creditor Protection Proceedings and which contracts would be rejected or repudiated by us. As such, we have rejected and repudiated a number of leases, including leases of real estate and equipment, and have assumed or assigned certain others.

ITEM 3. LEGAL PROCEEDINGS

Creditor Protection Proceedings

As previously discussed, on April 16, 2009 and December 21, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions for relief under Chapter 11. In addition, on April 17, 2009, certain of AbitibiBowater Inc.’s Canadian subsidiaries sought creditor protection under the CCAA. On April 17, 2009, Abitibi and ACCC each filed Chapter 15 Cases to obtain recognition and enforcement in the United States of certain relief granted in the CCAA Proceedings and also on that date, AbitibiBowater Inc. and certain of its subsidiaries in the Chapter 11 Cases obtained orders under the 18.6 Proceedings. Our wholly-owned subsidiaries that operate the Bridgewater, United Kingdom (which is under administration) and Mokpo, South Korea operations and almost all of our less than wholly-owned subsidiaries continue to operate outside of the Creditor Protection Proceedings. For additional information, see Item 1, “Business – Creditor Protection Proceedings and – Bridgewater Administration.”

Expropriation

As previously discussed, on December 16, 2008, following our December 4, 2008 announcement of the permanent closure of our Grand Falls newsprint mill, the Government of Newfoundland and Labrador, Canada passed legislation under Bill 75 to expropriate, among other things, all of our timber rights, water rights, leases and hydroelectric assets in the province of Newfoundland and Labrador, whether partially or wholly owned through our subsidiaries and affiliated entities. The Government of Newfoundland and Labrador also announced that it does not plan to compensate us for the loss of the water and timber rights, but has indicated that it may compensate us for certain of our hydroelectric assets. However, it has made no commitment to ensure that such compensation would represent the fair market value of such assets. As a result of the expropriation, in the fourth quarter of 2008, we recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.

On February 25, 2010, we filed a Notice of Arbitration under NAFTA, which asserts that the expropriation was arbitrary, discriminatory and illegal. Our claim seeks direct compensation for damages of approximately Cdn$500 million, plus additional costs and relief. Although we believe that the Canadian Government will be required to compensate us for the fair market value of the expropriated assets, there can be no assurance that it will and we have not recognized an asset for such claim in our Consolidated Financial Statements. We continue to reach out to the Canadian Government in an effort to come to a negotiated settlement and avoid protracted NAFTA proceedings. For additional information, see Item 1, “Business – Expropriation.”

Legal Items

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

Subject to certain exceptions, all litigation against the Debtors that arose or may arise out of pre-petition conduct or acts is subject to the automatic stay provisions of Chapter 11 and the CCAA and the orders of the Courts rendered thereunder. In addition, any recovery by the plaintiffs in those matters will be treated consistent with all other general unsecured claims in the Creditor Protection Proceedings. We believe that these matters will not have a material adverse effect on our results of operations or financial position.

On November 12, 2009, the province of Newfoundland and Labrador issued five orders under section 99 of its Environmental Protection Act, which we appealed unsuccessfully, to require us to proceed immediately with the environmental remediation of various sites formerly owned or operated by us (some of which the province has expropriated with Bill 75). It also filed a motion with the Canadian Court for a declaratory judgment to the effect that its remediation orders are not subject to the stay of proceedings granted pursuant to the Initial Order and are not subject to compromise under a plan of arrangement because they consist of non-monetary injunctive orders. The province also contends that the definition of “claim” in the Initial Order is overly broad and inconsistent with the definition in the CCAA, and therefore unconstitutional. The province of British Columbia intervened to the proceedings in support of Newfoundland and Labrador’s constitutional argument. We contest vigorously the motion on the grounds that the remediation orders are essentially monetary in nature (or, if anything, contingent claims) and that the province should have filed a claim in the Creditor Protection Proceedings to recover the estimated costs of the remediation work. If the Canadian Court rules in favor of the province of Newfoundland and Labrador, we could be compelled to remediate those sites, which could require us to, among other things, prepare a plan of remediation, obtain the province’s approval of the plan and finance and carry out the remediation work to the satisfaction of the province by January 15, 2011, or by a later date acceptable to the province. We cannot provide a reliable estimate of the potential costs of any remediation at this time, but the financial impact of an adverse decision could materially affect our results of operations and financial position. The hearing took place on February 24, 25 and 26, 2010; the matter is currently before the Canadian Court and the parties expect a decision imminently.

On June 15, 2009, we filed a motion with the U.S. Court to reject the Call Agreement in respect of ANI, an indirect subsidiary of Woodbridge and our partner in ANC. ANC is the partnership that owns and operates the Augusta newsprint mill. The Call Agreement obligated ACSC to either buy out ANI at a price well above market, or risk losing all of its equity in the joint venture pursuant to forced sale provisions. The U.S. Court granted our motion on October 27, 2009 and approved our rejection of the Call Agreement. Our counterparties to the Call Agreement filed a Notice of Appeal with the U.S. Court on November 3, 2009. Also, on March 9, 2010, Woodbridge filed a motion in the U.S. Court to force ACSC to reject the partnership agreement governing ANC. If ACSC were forced to reject the partnership agreement, the future of the Augusta mill would be uncertain. Our counterparties to the Call Agreement filed proofs of claim for approximately Cdn$260 million (which reflects the exchange rate to Canadian dollars on the date of the commencement of the Creditor Protection Proceedings) and $214 million in the CCAA and Chapter 11 claims process, respectively.

Following the announcement of the permanent closure of our Donnacona, Quebec paper mill, on December 3, 2008, the Centrale Syndicale Nationale (“CSN”) and the employees of the Donnacona mill filed against us, Investissement Quebec and the Government of the province of Quebec a civil lawsuit before the Superior Court of the district of Quebec. The CSN and the employees also filed a grievance claim for labor arbitration on the same basis. The CSN and the employees are claiming an amount of approximately $48 million in salary through April 30, 2011, as well as moral and exemplary damages, arguing that we failed to respect the obligations subscribed in the context of a loan made by Investissement Quebec. The CSN and the employees are also claiming that Investissement Quebec and the Government are solidarily responsible for the loss allegedly sustained by the employees. We believe our defense is meritorious and intend to contest this matter vigorously. This litigation is now stayed as a result of the CCAA Proceedings.

On June 18, 2007, The Levin Group, L.P. filed a complaint against Bowater in the Supreme Court of New York, New York County, asserting claims for breach of contract and related claims relating to certain advisory services purported to have been provided by the plaintiff in connection with the Combination. The Levin Group, L.P. seeks damages of not less than $70 million, related costs and such other relief as the court deems just and proper. We believe this claim is entirely without merit and intend to continue to contest this matter vigorously. This complaint was dismissed and, prior to the commencement of the Chapter 11 Cases, the complaint was pending before the Court of Common Pleas in Greenville County, South Carolina. This litigation is now stayed as a result of the commencement of the Chapter 11 Cases. We filed a motion with the U.S. Court on December 15, 2009 to reject the engagement letter entered into with The Levin Group, L.P. The Levin Group, L.P. has filed a proof of claim for $88 million in the Chapter 11 claims process.

On April 26, 2006, we received a notice of violation from the U.S. Environmental Protection Agency alleging four violations of the Clean Air Act at our Calhoun newsprint mill for which penalties in excess of $100,000 could have been imposed. We settled this matter with the U.S. Environmental Protection Agency and the Department of Justice in 2009 for a civil penalty of $30,000 and mutually agreeable permit limits.

Since late 2001, Bowater, several other paper companies, and numerous other companies have been named as defendants in asbestos personal injury actions. These actions generally allege occupational exposure to numerous products. We have denied the allegations and no specific product of ours has been identified by the plaintiffs in any of the actions as having caused or contributed to any individual plaintiff’s alleged asbestos-related injury. These suits have been filed by approximately 1,800 claimants who sought monetary damages in civil actions pending in state courts in Delaware, Georgia, Illinois, Mississippi, Missouri, New York and Texas. Approximately 1,000 of these claims have been dismissed, either voluntarily or by summary judgment, and approximately 800 claims remain. Any pending actions against Bowater are currently stayed as a result of the commencement of the Chapter 11 Cases.

For a discussion of environmental matters we are subject to, see “Environmental Matters” in Item 7.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock began trading under the symbol “ABH” on both the NYSE and the TSX on October 29, 2007, following the consummation of the Combination. As a result of the Creditor Protection Proceedings, each of the NYSE and the TSX delisted our common stock at the opening of business on May 21, 2009 and at the close of market on May 15, 2009, respectively. Our common stock is currently traded in the over-the-counter market and is quoted on the Pink Sheets and on the OTC Bulletin Board under the symbol “ABWTQ.”

The high and low prices of our common stock for 2009 and 2008, by quarter, are set forth below. The data after May 21, 2009 reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

		High				Low
2008
First quarter		$	26.13			$	4.70
Second quarter		$	14.89			$	8.65
Third quarter		$	9.76			$	3.75
Fourth quarter		$	4.24			$	0.24
2009
First quarter		$	1.25			$	0.31
Second quarter		$	0.60			$	0.11
Third quarter		$	0.18			$	0.10
Fourth quarter		$	0.34			$	0.10

As of February 28, 2010, there were 3,017 holders of record of our common stock.

During the fourth quarter of 2007, the payment of a quarterly dividend to shareholders was suspended indefinitely. Additionally, under the terms of our debtor in possession financing arrangements and our Creditor Protection Proceedings, we cannot pay dividends on our common stock for the duration of our Creditor Protection Proceedings.

See Item 12 of this Annual Report on Form 10-K, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” for information regarding our equity compensation plans.

ITEM 6. SELECTED FINANCIAL DATA

The following table presents summary historical consolidated financial information for each of the last five years. The selected financial information for the years ended December 31, 2009, 2008 and 2007 and as of December 31, 2009 and 2008 under the captions “Statement of Operations Data,” “Segment Sales Information” and “Financial Position” shown below has been derived from our audited Consolidated Financial Statements. All other data under the above-referenced sections has been derived from Bowater’s audited consolidated financial statements not included in this Annual Report on Form 10-K. This table should be read in conjunction with Items 7 and 8. On October 29, 2007, Abitibi and Bowater became subsidiaries of AbitibiBowater Inc. See information regarding the Combination in Note 1, “Organization and Basis of Presentation,” and Note 5, “Business Combination,” to our Consolidated Financial Statements. The data set forth below reflects the results of operations and financial position of Bowater for the periods before October 29, 2007 and those of both Abitibi and Bowater for periods beginning on or after October 29, 2007, and may not be indicative of our future financial condition or results of operations (see “Risk Factors” in Item 1A).

(In millions, except per share amounts or
otherwise indicated)			2009				2008				2007				2006				2005
Statement of Operations Data
Sales		$	4,366			$	6,771			$	3,876			$	3,530			$	3,484
Operating (loss) income (1)			(375	)			(1,430	)			(400	)			41				99
Reorganization items, net (2)			(639	)			–				–				–				–
Loss before extraordinary item and cumulative effect of accounting changes (3)			(1,682	)			(1,951	)			(491	)			(130	)			(130	)
Net loss attributable to AbitibiBowater Inc. (4)			(1,553	)			(2,234	)			(490	)			(138	)			(121	)
Basic and diluted net loss per share attributable to AbitibiBowater Inc. common shareholders			(26.91	)			(38.79	)			(14.11	)			(4.64	)			(4.05	)
Dividends declared per common share(5)			–				–				1.15				1.54				1.54
Segment Sales Information
Newsprint		$	1,802			$	3,238			$	1,574			$	1,438			$	1,429
Coated papers			416				659				570				612				625
Specialty papers			1,331				1,829				800				570				477
Market pulp			518				626				600				559				534
Wood products			290				418				318				332				385
Other			9				1				14				19				34
		$	4,366			$	6,771			$	3,876			$	3,530			$	3,484
Financial Position
Fixed assets, net (6)		$	3,897			$	4,507			$	5,733			$	2,939			$	3,134
Total assets			7,112				8,072				10,287				4,646				5,152
Long-term debt, net of current portion (7)			274				5,293				5,059				2,267				2,422
Total debt (7)			1,465				5,970				5,648				2,267				2,477
Additional Information
Cash flow provided by (used in) operating activities		$	46			$	(420	)		$	(247	)		$	182			$	169
Cash invested in fixed assets		$	101			$	186			$	128			$	199			$	168
Employees (number)			12,100				15,900				18,000				7,400				8,000

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

The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) provides information that we believe is useful in understanding our results of operations, cash flows and financial condition for the years ended December 31, 2009, 2008 and 2007.

Our Financial Information and the Going Concern Assumption

This discussion should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements, which have been prepared assuming that AbitibiBowater will continue as a going concern. For a discussion of the going concern assumption, as well as the ramifications if the going concern basis is not appropriate, see Item 1, “Business – Going Concern.”

Creditor Protection Proceedings

As previously discussed, on April 16, 2009 and December 21, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions for relief under Chapter 11. In addition, on April 17, 2009, certain of AbitibiBowater Inc.’s Canadian subsidiaries sought creditor protection under the CCAA. On April 17, 2009, Abitibi and ACCC each filed Chapter 15 Cases to obtain recognition and enforcement in the United States of certain relief granted in the CCAA Proceedings and also on that date, AbitibiBowater Inc. and certain of its subsidiaries in the Chapter 11 Cases obtained orders under the 18.6 Proceedings. Our wholly-owned subsidiaries that operate the Bridgewater, United Kingdom (which is under administration, as discussed in Item 1, “Business – Bridgewater Administration”) and Mokpo, South Korea operations and almost all of our less than wholly-owned subsidiaries continue to operate outside of the Creditor Protection Proceedings.

See Item 1, “Business – Creditor Protection Proceedings,” for information regarding the following as it relates to our Creditor Protection Proceedings:

	•		U.S. and Canadian filings for creditor protection;
	•		Debtor in possession financing arrangements (which are discussed in further detail below in “Liquidity and Capital Resources”);
	•		Reorganization process;
	•		Listing and trading of our common stock and the exchangeable shares of AbitibiBowater Canada Inc.; and
	•		Reporting requirements.

Bridgewater Administration

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

Our Financial Information and the Combination of Bowater and Abitibi

As discussed in more detail in Item 1, “Business,” on October 29, 2007, Bowater and Abitibi combined in a merger of equals with each becoming a subsidiary of AbitibiBowater Inc. Bowater was deemed to be the “acquirer” of Abitibi for accounting purposes; therefore, the financial information and discussion below reflect the results of operations and cash flows of Bowater for the periods before October 29, 2007 and those of both Abitibi and Bowater for periods beginning on or after October 29, 2007.

Business Fundamentals

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 and wood products facilities in Canada. Our reportable segments, which correspond to our primary product lines, are newsprint, coated papers, specialty papers, market pulp and wood products.

We manufacture approximately six million metric tons annually of a broad range of mechanical-based printing papers – newsprint, coated mechanical and mechanical specialty papers. These products are sold to leading publishers, commercial printers and advertisers. We also sell pulp that is not used in the production of our newsprint, coated and specialty printing papers to paper, tissue and toweling manufacturers who do not have a sufficient supply of pulp for their own needs. We are involved in the recovery of old paper, which fulfills part of our recycled fiber needs. We operate sawmills that can produce approximately three billion board feet of lumber annually and provide a source of residual wood chips that we use to manufacture pulp and paper. We also operate remanufacturing and engineered wood facilities. Our wood products are sold to a diversified group of customers, including large retailers, buying groups, distributors, wholesalers and industrial accounts.

To produce our pulp and paper products, as of December 31, 2009, excluding facilities we have permanently closed as of such date, we owned or operated 23 pulp and paper mills, 20 of which are located in eastern North America. Mills outside of eastern North America included a newsprint mill in the state of Washington for which we are the managing partner, a newsprint mill in the United Kingdom, and a newsprint mill in South Korea that provides access to the growing Asian markets.

Our North American manufacturing facilities are located near key domestic markets and many have access to export markets. They are supported by approximately 44 million acres of timberland – approximately 1 million acres are owned or leased and the balance of 43 million acres is under long-term cutting rights on Crown-owned land in Canada.

In general, our products are globally-traded commodities. Pricing and the level of shipments of these products will continue to be influenced by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates. North American demand for newsprint continued to decline in 2009 and there is no indication as to whether or when the demand will stabilize.

The manufacturing facilities we operate are capital intensive and require significant amounts of cash to maintain. Our ability to generate positive cash flow is dependent on achieving revenues that exceed manufacturing and interest costs and on the amount of cash that must be reinvested in the business.

A significant portion of our manufacturing facilities are located outside the U.S.; however, the majority of our sales are denominated in U.S. dollars. Therefore, fluctuations in currency rates can have a significant impact on our revenues, costs, relative cost competitiveness and cash flows. In particular, our results can be materially influenced by the movement of the Canadian dollar. A stronger Canadian dollar will typically weaken our results, whereas a weaker Canadian dollar will tend to strengthen our earnings. We can also be subject to government imposed trade restrictions that can limit shipments or increase costs.

Significant cost components of manufacturing our products can be highly volatile, particularly the cost of wood, recycled fiber (old newspapers and magazines), energy, and commodity and specialty chemicals.

The current weakness in the global economy has reduced the level and extent of publishing and advertising, which in turn has adversely affected the demand for our pulp and paper products. The current weakness in the construction and real estate markets has reduced the level of building and remodeling, which has adversely impacted the demand for our wood products. Declines in demand for our products could in turn have a negative effect on prices. Changes in the level of supply caused by capacity additions or contractions could also influence the supply and demand balance for our products and have a direct impact on shipment levels and pricing.

Business Strategy and Outlook

We are attempting to stabilize our business by preserving all or a portion of the enterprise and evaluating our various operations, corporate structure and headcount to develop a comprehensive restructuring plan in an effective and timely manner, all in consultation with our business and financial advisors. As we develop a comprehensive restructuring plan, we are also consulting with the Monitor and the Creditors’ Committee and any such plan will be subject to the approval of the affected creditors and the Courts. There can be no assurance that any such plan will be confirmed or approved by any of the affected creditors or the Courts, or that any such plan will be implemented successfully.

Since the fourth quarter of 2007, we have experienced significant recurring losses and negative operating cash flows, and have taken numerous actions to mitigate these losses and negative cash flows, including, among other things: (i) the permanent closures and indefinite idling of certain non-profitable facilities, as well as market-related downtime at other facilities, to reduce our production, (ii) the idling of more than 50% of our lumber production and the consolidation of certain of our wood products operations in Eastern Canada, which materially improved our cost competitiveness and has reduced our loss on the business as the business segment continues to be challenged by severe economic conditions and (iii) the successful implementation in 2008 of price increases in newsprint, coated papers, specialty papers and market pulp.

However, as noted below under “Business and Financial Review,” there was a precipitous decline in demand for all of our products and a corresponding decline in selling prices starting in the fourth quarter of 2008, which continued in 2009 as a result of the global economy and weakness in our North American market. In response to these conditions, we announced several actions in the fourth quarter of 2008, including:

	•		The permanent closure of our Grand Falls newsprint mill, representing 205,000 metric tons annually;
	•		The indefinite idling of our Alabama River newsprint mill, representing 265,000 metric tons annually;
	•		The immediate idling of two paper machines at our Calhoun facility, representing 230,000 metric tons of capacity, including 120,000 metric tons of newsprint and 110,000 metric tons of specialty grades; and
	•		Rotating monthly downtime at other facilities across the organization until market conditions improved.

Market and pricing conditions continued to worsen subsequent to the commencement of our Creditor Protection Proceedings for most of our paper grades. Therefore, in response to these continued declining conditions and in developing our comprehensive restructuring plan, we have taken the following actions:

	•		We repudiated contracts with Boralex Dolbeau Inc. (see Note 3, “Creditor Protection Proceedings – Reorganization process,” to our Consolidated Financial Statements), and following the repudiations, our Dolbeau facility has been effectively idled since July 7, 2009, representing 244,000 short tons of specialty papers annually;
	•		We announced the indefinite idling of our two newsprint machines at our Thunder Bay facility effective August 21, 2009, representing 392,000 metric tons annually, one of which was restarted in February 2010.
	•		In August 2009, we announced that we would continue to work on selling, general and administrative (“SG&A”) austerity measures with a target reduction of approximately $100 million on an annualized basis, as compared to 2008. The SG&A reduction efforts included, among other items, a 25% corporate headcount reduction and the suspension of 2009 incentive compensation plans, including special equity awards; and
	•		In September 2009, we announced our intent to implement further production curtailments by indefinitely idling (either immediately or by October 31, 2009) certain additional non-profitable facilities and machines, including:

	o		Our Beaupre paper mill, representing 241,000 metric tons of specialty papers annually;
	o		A specialty paper machine at our Fort Frances facility, representing 70,000 metric tons annually;
	o		A newsprint machine at our Clermont facility, representing 130,000 metric tons annually; and
	o		A newsprint machine at our Coosa Pines paper mill, representing 170,000 metric tons annually.

•

In March 2010, we announced the indefinite idling of one of our newsprint machines at our Thorold facility, effective April 12, 2010, representing approximately 207,000 metric tons of newsprint annually.

As a result of increased customer orders, the Clermont newsprint machine has not been idled and the Fort Frances paper machine ran six weeks beyond its originally scheduled idling date.

Further non-profitable capacity curtailments for 2010 may become necessary if newsprint demand declines or if global conditions worsen

for all of our product lines. In our wood products business segment, we expect our 2010 operating rate to continue at extremely low levels and we will continue to take curtailment and other actions to minimize the financial impact as a result of the economic conditions.

Although the price of newsprint in North America collapsed to extremely low levels in the summer of 2009, as reported by third-party sources, we announced North American newsprint price increases of $35 per metric ton in each of September and October 2009 and $25 per metric ton in March 2010. We also announced an additional North American newsprint price increase of $25 per metric ton to be implemented in April 2010.

We continue to divest non-core assets, subject to the approval of the Courts or the Monitor, as applicable, as a source of additional liquidity. For information regarding significant asset sales we completed in 2009, see “Liquidity and Capital Resources – Overview” below. For the duration of the Creditor Protection Proceedings, any divestiture not subject to certain de minimis asset sale thresholds under the Creditor Protection Proceedings must be approved by the applicable Court or the Monitor, as applicable. No assurances can be provided that such approvals will be obtained or as to the timing of any such approvals. Proceeds generated as a result of any divestiture: (i) may be deposited in trust with the Monitor, and require Court approval to release the proceeds or (ii) may have to be used to repay amounts outstanding pursuant to the terms of our debtor in possession financing arrangements or pre-petition secured indebtedness.

We continue to take a restricted approach to capital spending until market conditions improve and translate into positive cash flow. In light of the Creditor Protection Proceedings, any significant capital spending is subject to the approval of the applicable Court, and there can be no assurance that such approval would be granted.

In 2009, we recorded $276 million of alternative fuel mixture tax credits, which were included in “Cost of sales, excluding depreciation, amortization and cost of timber harvested” in our Consolidated Statements of Operations. This tax credit expired at the end of 2009.

Business and Financial Review

     Overview

In 2009, all of our paper product lines experienced significant demand declines due to trends in the newsprint industry and global economic conditions. North American newsprint consumption continued to decline in 2009 due to a significant decline in circulation and advertising. Demand for coated mechanical papers continued to decline in 2009 primarily due to sharp declines in advertising. The specialty papers industry experienced declines in 2009 in North American demand for standard uncoated mechanical papers, lightweight or directory grades and supercalendered high gloss papers. Global demand for market pulp increased slightly in 2009, despite significant declines in North America and Western Europe, which were partially offset by increased demand from China. Our wood products segment continues to be negatively impacted by lower demand due to a weak U.S. housing market.

For purposes of this “Business and Financial Review” section, Abitibi’s results include Donohue and Bowater’s results include Newsprint South for all periods presented.

Due to the Creditor Protection Proceedings and the significant uncertainties associated therewith, our past operating results and financial condition are not likely to be indicative of our future operating results and financial condition.

     Consolidated Results of Operations

Year Ended December 31, 2009 versus December 31, 2008

		Years Ended December 31,
(In millions, except per share amounts)			2009				2008				Change
Sales		$	4,366			$	6,771			$	(2,405	)
Operating loss			(375	)			(1,430	)			1,055
Net loss attributable to AbitibiBowater Inc.			(1,553	)			(2,234	)			681
Net loss per share attributable to AbitibiBowater Inc. – basic and diluted			(26.91	)			(38.79	)			11.88
Significant items that (unfavorably) favorably impacted operating loss:
Product pricing										$	(838	)
Shipments											(1,567	)
Change in sales											(2,405	)
Change in cost of sales and depreciation, amortization and cost of timber harvested											1,925
Change in distribution costs											270
Change in selling and administrative expenses											134
Change in impairment of goodwill											810
Change in closure costs, impairment of assets other than goodwill and other related charges											279
Change in net gain on disposition of assets											42
										$	1,055

Sales

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

Operating loss

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

Manufacturing costs decreased $1,925 million in 2009 compared to 2008, primarily due to lower volumes ($931 million), favorable currency exchange ($194 million), alternative fuel mixture tax credits ($276 million) and lower costs for labor and benefits ($135 million), depreciation ($124 million), wood and fiber ($109 million), maintenance ($49 million), energy ($20 million), fuel ($13 million) and other favorable cost variances. These lower costs were partially offset by higher costs for chemicals ($18 million). For additional information regarding the alternative fuel mixture tax credits, see “Alternative Fuel Mixture Tax Credits” below.

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

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

In 2008, we recorded an $810 million non-cash impairment charge for goodwill. Additionally, in 2009 and 2008, we recorded $202 million and $481 million, respectively, in closure costs, impairment of assets other than goodwill and other related

charges, which are not associated with our work towards a comprehensive restructuring plan. We realized $91 million in net gains on disposition of assets in 2009 compared to $49 million in 2008. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Net loss attributable to AbitibiBowater Inc.

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

Fourth Quarter of 2009 versus Fourth Quarter of 2008

Sales decreased $491 million, or 30.4%, from $1,617 million in the fourth quarter of 2008 to $1,126 million in the fourth quarter of 2009. The decrease was primarily due to significantly lower transaction prices for newsprint, coated papers and specialty papers, as well as significantly lower shipments of newsprint, coated papers and specialty papers.

Operating loss decreased $1,016 million from $1,059 million in the fourth quarter of 2008 to $43 million in the fourth quarter of 2009. The decrease was primarily due to the following:

	•		a decrease in manufacturing costs of $291 million, primarily due to lower volumes ($129 million), alternative fuel mixture tax credits ($75 million) and lower costs for labor and benefits ($29 million), depreciation ($23 million), wood and fiber ($36 million), energy ($20 million), chemicals ($9 million) and other favorable cost variances, partially offset by unfavorable currency exchange ($82 million);
	•		a decrease in distribution costs of $41 million, due to significantly lower shipment volumes and lower distribution costs per ton;
	•		a decrease in selling and administrative costs of $29 million, primarily due to our cost reduction initiatives;
	•		an $810 million non-cash impairment charge for goodwill recorded in 2008; and
	•		a decrease in closure costs, impairment of assets other than goodwill and other related charges, which are not associated with our work towards a comprehensive restructuring plan, of $340 million.

The decreases discussed above were partially offset by the impact of the decrease in sales, as discussed above.

Interest expense decreased $51 million from $187 million in the fourth quarter of 2008 to $136 million in the fourth quarter of 2009, primarily as a result of the Creditor Protection Proceedings.

Other expense, net was $15 million in the fourth quarter of 2009 compared to other income, net of $42 million in the fourth quarter of 2008, primarily due to an unfavorable currency exchange as a result of a stronger Canadian dollar versus the U.S. dollar in the fourth quarter of 2009 compared to the fourth quarter of 2008.

Net loss attributable to AbitibiBowater Inc. for the fourth quarter of 2009 was $314 million, or $5.43 per common share, compared to $1,433 million, or $24.85 per common share, in the fourth quarter of 2008. The decrease was primarily due to the decreases in operating loss and interest expense, as discussed above, a decrease in income taxes, as well as the extraordinary loss on expropriation of assets of $256 million recorded in the fourth quarter of 2008. These decreases were partially offset by the increase in other (expense) income, net, as discussed above, as well as $239 million of reorganization items, net we expensed in the fourth quarter of 2009.

Year Ended December 31, 2008 versus December 31, 2007

		Years Ended December 31,
(In millions, except per share amounts)			2008				2007				Change
Sales		$	6,771			$	3,876			$	2,895
Operating loss			(1,430	)			(400	)			(1,030	)
Net loss attributable to AbitibiBowater Inc.			(2,234	)			(490	)			(1,744	)
Net loss per share attributable to AbitibiBowater Inc. – basic and diluted			(38.79	)			(14.11	)			(24.68	)
Significant items that favorably (unfavorably) impacted operating loss:
Product pricing – Bowater										$	340
Shipments – Bowater											(260	)
Sales – Abitibi											2,815
Change in sales											2,895
Manufacturing costs – Bowater											132
Manufacturing costs – Abitibi											(2,427	)
Manufacturing costs - employee termination costs											27
Change in cost of sales and depreciation, amortization and cost of timber harvested											(2,268	)
Distribution costs – Bowater											(7	)
Distribution costs – Abitibi											(340	)
Change in distribution costs											(347	)
Selling and administrative expenses – Bowater											(1	)
Selling and administrative expenses – Abitibi											(126	)
Selling and administrative – merger and severance related costs											53
Change in selling and administrative expenses											(74	)
Change in impairment of goodwill											(810	)
Change in closure costs, impairment of assets other than goodwill and other related charges											(358	)
Change in arbitration award											28
Change in net gain on disposition of assets											(96	)
										$	(1,030	)

Sales

Sales increased in 2008 compared to 2007, primarily due to the inclusion of a full year of Abitibi’s results. Excluding sales of $665 million and $3,480 million attributable to Abitibi in 2007 and 2008, respectively, sales on a comparable basis increased $80 million, or 2.5%, from $3,211 million in 2007 to $3,291 million in 2008. The increase was primarily due to higher transaction prices for newsprint, coated papers, specialty papers and market pulp, partially offset by lower shipments of newsprint, coated papers, specialty papers, market pulp and wood products, as well as lower product pricing for wood products. The impact of each of these items is discussed further below under “Segment Results of Operations.”

Operating loss

Operating loss increased in 2008 compared to 2007. The inclusion of Abitibi’s results since October 29, 2007 contributed operating losses of $99 million and $772 million in 2007 and 2008, respectively. Excluding the impact of Abitibi’s results, the operating loss of $658 million in 2008 represents an increase of $357 million from the operating loss of $301 million in 2007. The above table analyzes the major items that increased operating loss. A brief explanation of these major items follows.

Manufacturing costs, excluding Abitibi’s results, decreased $132 million in 2008 compared to 2007, primarily due to lower volumes ($115 million) and lower costs for labor and benefits ($107 million), maintenance ($26 million), depreciation ($23

million), favorable currency exchange ($16 million) and other favorable cost variances. These lower costs were partially offset by higher costs for wood and fiber ($125 million), energy ($41 million) and chemicals ($39 million).

Distribution costs, excluding Abitibi’s results, were slightly higher in 2008 compared to 2007, despite a significant decrease in shipments year over year. Distribution costs per ton in 2008 were significantly higher as a result of our market mix of domestic versus export shipments, higher fuel charges by our carriers and the destination of customers.

Excluding the impact of Abitibi’s selling and administrative costs, the decrease in our selling and administrative expenses reflects the impact of merger-related costs and severance incurred in 2007 in connection with the Combination. These costs are discussed further below under “Segment Results of Operations – Corporate and Other.”

In 2008, we recorded an $810 million non-cash impairment charge for goodwill. Additionally, in 2008 and 2007, we recorded $481 million and $123 million, respectively, in closure costs, impairment of assets other than goodwill and other related charges. We realized $49 million in net gains on disposition of assets in 2008 compared to $145 million in 2007. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Net loss attributable to AbitibiBowater Inc.

Net loss attributable to AbitibiBowater Inc. in 2008 was $2,234 million, or $38.79 per common share, an increase of $1,744 million, or $24.68 per common share, compared to $490 million, or $14.11 per common share, in 2007. The increase was primarily due to the extraordinary loss on expropriation of assets recorded in 2008, the increase in operating loss, as discussed above, and an increase in interest expense. These increases were partially offset by an increase in other income, net. Each of these items, except for operating loss discussed above, is discussed further below under “Non-operating Items.”

Non-operating Items - Years Ended December 31, 2009, 2008 and 2007

Interest expense

Interest expense decreased $109 million from $706 million in 2008 to $597 million in 2009. Pursuant to the Creditor Protection Proceedings, we ceased recording interest expense on certain pre-petition debt obligations. In accordance with FASB ASC 852, we have continued to record interest expense on our pre-petition debt obligations only to the extent that: (i) interest will be paid during the Creditor Protection Proceedings or (ii) it is probable that interest will be an allowed priority, secured or unsecured claim. As such, we have continued to accrue interest only on the Debtors’ pre-petition secured debt obligations and the CCAA filers’ pre-petition unsecured debt obligations (based on the expectation that accrued interest on the CCAA filers’ pre-petition debt obligations will be a permitted claim under the CCAA Proceedings) at the contractual non-default rates. Subsequent to the commencement of the Creditor Protection Proceedings, cash payments for interest are only being made on the Bowater DIP Agreement (as defined below), the Bowater pre-petition secured bank credit facilities and Abitibi’s pre-petition senior secured term loan, as well as the Abitibi DIP Agreement (as defined below) through December 9, 2009, the date such agreement was terminated. Additionally, as discussed in “Liquidity and Capital Resources” below, $72 million of accrued interest was paid to the holders of ACCC’s 13.75% Senior Secured Notes due 2011.

Interest expense increased $457 million from $249 million in 2007 to $706 million in 2008. This increase is primarily due to the inclusion of Abitibi for a full year in 2008 versus two months in 2007, as well as increased interest rates, higher Abitibi debt levels and amortization of deferred financing fees that resulted from the refinancing transactions consummated on April 1, 2008 and amendments to our secured bank credit facilities.

Other (expense) income, net

Other expense, net in 2009 was $71 million and was primarily comprised of foreign exchange losses of $59 million (primarily due to a stronger Canadian dollar versus the U.S. dollar) and fees of $23 million for waivers and amendments to the Abitibi and Donohue accounts receivable securitization program, partially offset by $24 million of income, net from a subsidiary’s proceeds sharing arrangement related to a third party’s sale of timberlands. Other income, net in 2008 was $93 million and was primarily comprised of foreign currency exchange gains of $72 million (primarily due to a stronger U.S. dollar versus the Canadian dollar) and a gain on extinguishment of debt of $31 million.

Reorganization items, net

We have incurred significant costs associated with our Creditor Protection Proceedings and will continue to incur significant costs, which could adversely affect our results of operations and financial condition. In 2009, pursuant to FASB ASC 852, we recorded reorganization items, net of $639 million, primarily related to professional fees, provision for repudiated or rejected

executory contracts, charges related to our indefinite idlings and permanent closures as part of our work towards a comprehensive restructuring plan and debtor in possession financing costs. For additional information, see Note 4, “Creditor Protection Proceedings Related Disclosures - Reorganization items, net,” to our Consolidated Financial Statements.

Income taxes

Our effective tax rate in 2009, 2008 and 2007 was 7%, 5% and 24%, respectively, resulting from the recording of a tax benefit on a pre-tax loss in 2009, 2008 and 2007.

In 2009, 2008 and 2007, income tax benefits of approximately $615 million, $331 million and $147 million, respectively, generated on the majority of our losses for each of these years were entirely offset by tax charges to increase our valuation allowance related to these tax benefits. Additionally, any income tax benefit recorded on any future losses will probably be offset by additional increases to the valuation allowance (tax charge). Our effective tax rate for the year ended December 31, 2009 was primarily impacted by the valuation allowance, as described above, and the tax treatment on foreign currency gains and losses. Additionally, subsequent to the commencement of Abitibi’s CCAA Proceedings, in 2009, we concluded that our investment in the common stock of Abitibi no longer had any value and therefore, we recorded a $308 million tax benefit for a worthless stock deduction, which represents the estimated tax basis in our investment in Abitibi of approximately $800 million. In addition, in 2009, we recorded a tax recovery of approximately $141 million related to the asset impairment charges associated with our investment in MPCo while it was an asset held for sale. Our effective tax rate for the year ended December 31, 2008 was primarily impacted by the valuation allowance, the non-deductible goodwill impairment charge, the tax treatment on foreign currency gains and losses and the impacts of lower foreign income taxes. Our effective tax rate for the year ended December 31, 2007 was primarily impacted by the valuation allowance, the reversal of tax reserves upon the expiration of the statute of limitations associated with certain tax matters and the tax treatment on foreign currency gains and losses.

Our effective tax rate varies frequently and substantially from the weighted-average effect of both domestic and foreign statutory tax rates, primarily as a result of the tax treatment on foreign currency gains and losses. We have a number of foreign subsidiaries whose unconsolidated foreign currency gains and losses are taxed in the local country. Upon consolidation, such gains and losses are eliminated, but we are still liable for the local country taxes. Due to the variability and volatility of foreign exchange rates, we are unable to estimate the impact of future changes in exchange rates on our effective tax rate. Additionally, we did not record income tax benefits on the majority of our 2009 losses, which will have an adverse impact on our overall effective income tax rate in future periods. To the extent that our operations on which a full valuation allowance has been recorded become profitable, the impact of this valuation allowance would lessen or reverse and positively impact our effective tax rate in those periods.

Extraordinary loss on expropriation of assets

In 2008, we recorded an extraordinary loss of $256 million, or $4.45 per common share, for the non-cash write-off of the carrying value of our expropriated assets in the province of Newfoundland and Labrador, which were expropriated by the Government of Newfoundland and Labrador in the fourth quarter of 2008. For additional information, see “Expropriation” below.

     Financial Condition

Total assets were $7.1 billion as of December 31, 2009, a decrease of $1.0 billion compared to December 31, 2008. The decrease related primarily to planned reductions in inventory levels, the sale of assets and the impairments of long-lived assets and assets held for sale, partially offset by an increase in cash and cash equivalents. Cash and cash equivalents were $774 million as of December 31, 2009, an increase of $582 million compared to December 31, 2008. This increase was primarily due to borrowings under our debtor in possession financing arrangements, proceeds from the sale of our interest in MPCo, as well as sales of timberlands, and proceeds from alternative fuel mixture tax credits, as well as the stay of payments related to pre-petition accounts payable and accrued liabilities, including the stay of interest payments related to certain pre-petition debt obligations. For additional information regarding our liquidity, see “Liquidity and Capital Resources” below.

     Segment Results of Operations

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

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

Year Ended December 31, 2009 versus December 31, 2008

Newsprint

     

		Years Ended December 31,
			2009				2008				Change
Average price (per metric ton)		$	571			$	682			$	(111	)
Average cost (per metric ton)		$	682			$	676			$	6
Shipments (thousands of metric tons)			3,157				4,746				(1,589	)
Downtime (thousands of metric tons)			1,404				238				1,166
Inventory at end of year (thousands of metric tons)			117				129				(12	)
(In millions)
Segment sales		$	1,802			$	3,238			$	(1,436	)
Segment operating (loss) income			(353	)			30				(383	)
Significant items that (unfavorably) favorably impacted segment operating (loss) income:
Product pricing										$	(529	)
Shipments											(907	)
Change in sales											(1,436	)
Change in cost of sales and depreciation, amortization and cost of timber harvested											873
Change in distribution costs											170
Change in selling and administrative expenses											10
										$	(383	)

Segment sales decreased $1,436 million, or 44.3%, from $3,238 million in 2008 to $1,802 million in 2009, due to significantly lower shipment volumes and transaction prices as a result of industry and global economic conditions and mill and paper machine closures and idlings. Shipments in 2009 decreased 1,589,000 metric tons, or 33.5%, compared to 2008. Our average transaction price in 2009 was lower than 2008 as a result of a reduction in prices due to market conditions.

In 2009, there was significant market-related downtime at our facilities. Inventory levels as of December 31, 2009 were 117,000 metric tons compared to 129,000 metric tons as of December 31, 2008.

Segment operating income decreased $383 million to an operating loss of $353 million in 2009 compared to $30 million of operating income in 2008, primarily due to decreased sales as discussed above, partially offset by lower manufacturing and distribution costs. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.

Segment manufacturing costs decreased $873 million in 2009 compared to 2008, primarily due to lower volumes ($581 million), favorable currency exchange ($103 million), alternative fuel mixture tax credits ($15 million) and lower costs for wood and fiber ($92 million), depreciation ($48 million), labor and benefits ($47 million) and maintenance ($15 million), partially offset by higher costs for chemicals ($7 million) and other unfavorable cost variances.

Segment distribution costs decreased $170 million in 2009 compared to 2008 due to significantly lower shipment volumes, as well as lower distribution costs per ton.

Newsprint Third-Party Data: In 2009, North American newsprint demand declined 25.3% compared to 2008. North American newsprint demand for the month of December 2009 declined 15.5% compared to the month of December 2008. In 2009, North American net exports of newsprint were 35.3% lower compared to 2008. Inventories for North American mills as of December 31, 2009 were 284,000 metric tons, which is 11.3% lower than as of December 31, 2008. The days of supply at the U.S. daily newspapers was 47 days as of December 31, 2009 compared to 50 days as of December 31, 2008. The North American operating rate for newsprint was 75% in 2009 compared to 94% in 2008.

Coated Papers

     

		Years Ended December 31,
			2009				2008				Change
Average price (per short ton)		$	730			$	882			$	(152	)
Average cost (per short ton)		$	574			$	713			$	(139	)
Shipments (thousands of short tons)			571				748				(177	)
Downtime (thousands of short tons)			114				10				104
Inventory at end of year (thousands of short tons)			22				39				(17	)
(In millions)
Segment sales		$	416			$	659			$	(243	)
Segment operating income			89				126				(37	)
Significant items that (unfavorably) favorably impacted segment operating income:
Product pricing										$	(113	)
Shipments											(130	)
Change in sales											(243	)
Change in cost of sales and depreciation, amortization and cost of timber harvested											183
Change in distribution costs											16
Change in selling and administrative expenses											7
										$	(37	)

Segment sales decreased $243 million, or 36.9%, from $659 million in 2008 to $416 million in 2009, due to significantly lower shipment volumes and transaction prices as a result of industry and global economic conditions.

In 2009, downtime at our facilities was primarily market related.

Segment operating income decreased $37 million to $89 million in 2009 compared to $126 million in 2008, primarily due to decreased sales as discussed above, partially offset by lower manufacturing costs. The above table analyzes the major items that decreased operating income. A brief explanation of these major items follows.

Segment manufacturing costs decreased $183 million in 2009 compared to 2008, primarily due to lower volumes ($71 million), alternative fuel mixture tax credits ($62 million) and lower costs for depreciation ($10 million), labor and benefits ($16 million), maintenance ($5 million), fuel ($6 million) and other favorable cost variances, partially offset by higher costs for chemicals ($5 million). The average cost per ton decreased $139 in 2009 compared to 2008, primarily due to the alternative fuel mixture tax credits.

Segment distribution costs decreased $16 million in 2009 compared to 2008 due to lower shipment volumes, as well as lower distribution costs per ton.

Coated Papers Third-Party Data: North American magazine advertising pages decreased 26% in 2009 compared to 2008. In 2009, North American demand for coated mechanical papers decreased 19.8% compared to 2008. The North American operating rate for coated mechanical papers was 78% in 2009 compared to 85% in 2008. North American coated mechanical mill inventories were at 19 days of supply as of December 31, 2009 compared to 27 days of supply as of December 31, 2008.

Specialty Papers

     

		Years Ended December 31,
			2009				2008				Change
Average price (per short ton)		$	731			$	754			$	(23	)
Average cost (per short ton)		$	685			$	760			$	(75	)
Shipments (thousands of short tons)			1,819				2,425				(606	)
Downtime (thousands of short tons)			521				124				397
Inventory at end of year (thousands of short tons)			86				143				(57	)
(In millions)
Segment sales		$	1,331			$	1,829			$	(498	)
Segment operating income (loss)			85				(14	)			99
Significant items that (unfavorably) favorably impacted segment operating income (loss):
Product pricing										$	(54	)
Shipments											(444	)
Change in sales											(498	)
Change in cost of sales and depreciation, amortization and cost of timber harvested											537
Change in distribution costs											60
										$	99

Segment sales decreased $498 million, or 27.2%, from $1,829 million in 2008 to $1,331 million in 2009, due to lower shipment volumes and transaction prices as a result of industry and global economic conditions and mill and paper machine closures and idlings.

In 2009, there was significant market-related downtime at our facilities. Inventory levels as of December 31, 2009 were 86,000 short tons compared to 143,000 short tons as of December 31, 2008.

Segment operating loss improved $99 million to $85 million of operating income in 2009 compared to a $14 million operating loss in 2008, primarily due to lower manufacturing and distribution costs, partially offset by the decrease in sales as noted above. The above table analyzes the major items that improved operating loss. A brief explanation of these major items follows.

Segment manufacturing costs decreased $537 million in 2009 compared to 2008, primarily due to lower volumes ($265 million), favorable currency exchange ($52 million), alternative fuel mixture tax credits ($34 million) and lower costs for wood and fiber ($13 million), depreciation ($88 million), labor and benefits ($48 million), maintenance ($15 million), energy ($13 million) and other favorable cost variances.

Segment distribution costs decreased $60 million in 2009 compared to 2008 due to lower shipment volumes, as well as lower distribution costs per ton.

Specialty Papers Third-Party Data: In 2009 compared to 2008, North American demand for supercalendered high gloss papers was down 18.9%, for lightweight or directory grades was down 21.3%, for standard uncoated mechanical papers was down 14.5% and in total for all specialty papers was down 17.5%. The North American operating rate for all specialty papers was 76% in 2009 compared to 92% in 2008. North American uncoated mechanical mill inventories were at 18 days of supply as of December 31, 2009 compared to 20 days supply as of December 31, 2008.

Market Pulp

     

		Years Ended December 31,
			2009				2008				Change
Average price (per metric ton)		$	548			$	700			$	(152	)
Average cost (per metric ton)		$	430			$	626			$	(196	)
Shipments (thousands of metric tons)			946				895				51
Downtime (thousands of metric tons)			138				79				59
Inventory at end of year (thousands of metric tons)			53				101				(48	)
(In millions)
Segment sales		$	518			$	626			$	(108	)
Segment operating income			112				66				46
Significant items that (unfavorably) favorably impacted segment operating income:
Product pricing										$	(136	)
Shipments											28
Change in sales											(108	)
Change in cost of sales and depreciation, amortization and cost of timber harvested											150
Change in distribution costs											1
Change in selling and administrative expenses											3
										$	46

Segment sales decreased $108 million, or 17.3%, from $626 million in 2008 to $518 million in 2009, primarily due to lower transaction prices, partially offset by slightly higher shipment volumes.

Inventory levels as of December 31, 2009 were 53,000 metric tons compared to 101,000 metric tons as of December 31, 2008.

Segment operating income increased $46 million to $112 million in 2009 compared to $66 million in 2008, primarily due to lower manufacturing costs, partially offset by the decrease in sales as noted above. The above table analyzes the major items that increased operating income. A brief explanation of these major items follows.

Segment manufacturing costs decreased $150 million in 2009 compared to 2008, primarily due to favorable currency exchange ($18 million), alternative fuel mixture tax credits ($165 million), maintenance ($6 million), energy ($5 million) and fuel ($6 million), partially offset by higher volumes ($36 million) and higher costs for wood and fiber ($6 million), labor and benefits ($7 million) and chemicals ($3 million). The average cost per ton decreased $196 in 2009 compared to 2008, primarily due to the alternative fuel mixture tax credits.

Market Pulp Third-Party Data: World shipments for market pulp increased 1.8% in 2009 compared to 2008. Shipments were down 10.9% in Western Europe (the world’s largest pulp market), down 10.9% in North America, up 55.4% in China, up 9.5% in Latin America and up 8.6% in Africa and Asia (excluding China and Japan). World market pulp producers shipped at 91% of capacity in 2009 compared to 87% in 2008. World market pulp producer inventories were at 27 days of supply as of December 31, 2009 compared to 49 days of supply as of December 31, 2008.

Wood Products

     

		Years Ended December 31,
			2009				2008				Change
Average price (per thousand board feet)		$	254			$	269			$	(15	)
Average cost (per thousand board feet)		$	303			$	313			$	(10	)
Shipments (millions of board feet)			1,143				1,556				(413	)
Downtime (millions of board feet)			1,761				1,225				536
Inventory at end of year (millions of board feet)			106				133				(27	)
(In millions)
Segment sales		$	290			$	418			$	(128	)
Segment operating loss			(56	)			(69	)			13
Significant items that (unfavorably) favorably impacted segment operating loss:
Product pricing										$	(14	)
Shipments											(114	)
Change in sales											(128	)
Change in cost of sales and depreciation, amortization and cost of timber harvested											121
Change in distribution costs											17
Change in selling and administrative expenses											3
										$	13

Segment sales decreased $128 million, or 30.6%, from $418 million in 2008 to $290 million in 2009, due to lower shipment volumes and product pricing. The decrease in shipments of wood products was primarily due to lower demand from a weak U.S. housing market. In the short term, we are not expecting any significant improvements in the U.S. housing market, but transaction prices have shown some improvement in early 2010.

Segment operating loss decreased $13 million to $56 million in 2009 compared to $69 million in 2008. The above table analyzes the major items that decreased operating loss. A brief explanation of these major items follows.

The significant decrease in shipments in 2009 was offset by lower manufacturing and distribution costs in 2009 compared to 2008. The decrease in manufacturing costs was primarily due to lower volumes ($60 million), favorable currency exchange ($21 million) and lower costs for labor and benefits ($15 million), maintenance ($9 million) and other favorable cost variances.

Wood Products Third-Party Data: Privately-owned housing starts in the U.S. increased 0.2% to a seasonally-adjusted annual rate of 557,000 units in December 2009 compared to 556,000 units in December 2008. Housing starts rose to the highest level in July 2009 since November 2008, but not before reaching an all time record low in April 2009 with a seasonally-adjusted annual rate of 479,000 units. The recent increase in housing starts has been attributed largely to the deadline associated with the special tax break for first-time homebuyers.

Corporate and Other

We exclude net gain on disposition of assets, impairment of goodwill, closure costs, impairment of assets other than goodwill and other related charges and employee termination costs from our internal review of segment results. Also excluded from our segment results are corporate and other items, which include timber sales and general and administrative expenses, including costs associated with our unsuccessful refinancing efforts. These items are analyzed separately from our segment results. The following table is included in order to facilitate the reconciliation of our segment sales and segment operating income (loss) to our total sales and operating loss in our Consolidated Statements of Operations.

     

		Years Ended December 31,
(In millions)			2009				2008			Change
Sales		$	9			$	1			$	8
Operating loss			(252	)			(1,569	)			1,317
Sales		$	9			$	1			$	8
Cost of sales and depreciation, amortization and cost of timber harvested			(8	)			(69	)			61
Distribution costs			6				–				6
Administrative expenses			(154	)			(259	)			105
Administrative expenses – Canadian capital tax benefit			16				–				16
Administrative expenses – Costs related to unsuccessful refinancing efforts			(10	)			–				(10	)
Total administrative expenses			(148	)			(259	)			111
Impairment of goodwill			–				(810	)			810
Closure costs, impairment of assets other than goodwill and other related charges			(202	)			(481	)			279
Net gain on disposition of assets			91				49				42
Operating loss		$	(252	)		$	(1,569	)		$	1,317