Resolute Forest Products Inc. - Annual Report: 2011 (Form 10-K)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

COMMISSION FILE NUMBER: 001-33776

ABITIBIBOWATER INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices) (Zip Code)

(514) 875-2515

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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

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

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 ¨    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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  þ    No  ¨

Indicate by check mark 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. ¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ 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, 2011) was approximately $1.2 billion. For purposes of the foregoing calculation only, all directors, executive officers and 5% beneficial owners have been deemed affiliates.

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

As of January 31, 2012, there were 97,092,382 shares of AbitibiBowater Inc. common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed within 120 days of December 31, 2011 are incorporated by reference in this Annual Report on Form 10-K in response to Part III, Items 10, 11, 12, 13 and 14.

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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION AND USE OF

THIRD-PARTY DATA

Statements in this Annual Report on Form 10-K (“Form 10-K”) that are not reported financial results or other historical information of AbitibiBowater Inc. (with its subsidiaries and affiliates, either individually or collectively, unless otherwise indicated, referred to as “AbitibiBowater,” “we,” “our,” “us” or the “Company”) are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: efforts to continue to reduce costs and increase revenues and profitability, including our cost reduction initiatives regarding selling, general and administrative (“SG&A”) expenses; business outlook; assessment of market conditions; liquidity outlook, prospects, growth strategies and the industry in which we operate; and strategies for achieving our goals generally, including the strategies described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Strategy and Outlook,” of this Form 10-K. Forward-looking statements may be identified by the use of forward-looking terminology such as the words “should,” “would,” “could,” “will,” “may,” “expect,” “believe,” “anticipate,” “attempt,” “project” and other terms with similar meaning indicating possible future events or potential impact on our business or AbitibiBowater’s shareholders.

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

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

Market and Industry Data

Information about industry or general economic conditions contained in this Form 10-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 global leader in the forest products industry, with a diverse range of products, including newsprint, commercial printing papers, market pulp and wood products, which are marketed in close to 90 countries. We own or operate 18 pulp and paper mills and 23 wood products facilities in the United States, Canada and South Korea.

AbitibiBowater Inc. is a Delaware corporation incorporated on January 25, 2007. On October 29, 2007, Abitibi-Consolidated Inc. (“Abitibi”) and Bowater Incorporated (“Bowater”) combined in a merger of equals (the “Combination”) with each becoming a subsidiary of AbitibiBowater Inc. On November 7, 2011, AbitibiBowater Inc. began doing business as Resolute Forest Products. We expect at the 2012 annual meeting of shareholders to seek shareholder approval to amend our certificate of incorporation to change our legal name to Resolute Forest Products Inc. Our common stock began trading under the symbol “ABH” on both the New York Stock Exchange (the “NYSE”) and the Toronto Stock Exchange (the “TSX”) on December 10, 2010.

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Executive Officers

The following is information about our executive officers as of February 29, 2012:

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

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

Mr. Laberge previously served as Vice President, Human Resources for our Canadian operations. He joined a predecessor of the Company in 1988. As of March 1, 2012, Mr. Laberge will serve as Senior Vice President, Human Resources.

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

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

Ms. Longworth previously served as Special Advisor to the President and Chief Executive Officer, focusing on special mandates, from July 4, 2011 to August 31, 2011. She served as Senior Vice President and Chief Accounting Officer with World Color Inc. (formerly Quebecor World Inc.) from 2008 to 2010, as Chief Financial Officer with Skyservice Inc. from 2007 to 2008, as Vice President and Controller with Novelis, Inc. from 2005 to 2006 and held a number of financial and operational roles over a 16-year career with Alcan Inc.

Mr. Vachon previously served as Senior Vice President, Corporate Affairs and Chief Legal Officer from October 2007 to January 2011 and as Senior Vice President, Corporate Affairs and Secretary of Abitibi from 1997 to October 2007. As of March 1, 2012, Mr. Vachon will serve as Senior Vice President, Corporate Affairs and Chief Legal Officer.

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Our Products

We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our primary product lines: newsprint, coated papers, specialty papers, market pulp and wood products. 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 25, “Segment Information,” to our consolidated financial statements and related notes (“Consolidated Financial Statements”) appearing in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K.

In accordance with our values, our environmental vision statement and forestry policies and in the interests of our customers and other stakeholders, we are committed to implementing and maintaining environmental management systems at our pulp, paper, woodlands and wood procurement operations to promote the conservation and sustainable use of forests and other natural resources. We and other member companies of the Forest Products Association of Canada, as well as a number of environmental organizations, are partners in the Canadian Boreal Forest Agreement. The group works to identify solutions to conservation issues that meet the goal of balancing equally the three pillars of sustainability linked to human activities: economic, social and environmental. We are also a member of the World Wildlife Fund’s Climate Savers program, in which businesses establish ambitious targets to voluntarily reduce greenhouse gas emissions and work aggressively toward achieving them.

Newsprint

We produce newsprint at 11 facilities in North America and one facility in South Korea. We are the largest producer of newsprint in the world by capacity, with total capacity of approximately 3.1 million metric tons, or approximately 9% of total worldwide capacity. We are also the largest North American producer of newsprint, with total North American capacity of approximately 2.9 million metric tons, or approximately 36% of total North American capacity.

We distribute newsprint by rail, truck and ship; it is sold to North American customers 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 2011, approximately 45% 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 2011, these joint venture partners purchased approximately 400,000 metric tons from our consolidated entities, which represented approximately 15% of the total newsprint metric tons we sold in 2011.

Coated papers

We produce coated mechanical papers at our Catawba, South Carolina facility. We are one of the largest producers of coated mechanical papers in North America, with total capacity of approximately 616,000 metric tons, or approximately 16% of total North American capacity. Our coated papers are used in magazines, catalogs, books, retail advertising, direct mail and coupons.

We sell coated papers to major commercial printers, publishers, catalogers and retailers. We distribute coated papers by truck, rail and ship. Most of our coated paper production is sold within North America and serviced directly by our regional sales offices. Export markets are serviced primarily through international agents.

Specialty papers

We produce specialty papers at eight facilities in North America. We are the largest producer of specialty papers in North America by capacity, including supercalendered, superbright, high bright, bulky book and directory papers, with total capacity of approximately 1.4 million metric tons, or approximately 31% of total North American capacity. Our specialty papers are used in books, retail advertising, direct mail, coupons and other commercial printing applications.

We sell specialty papers to major commercial printers, direct mailers, publishers, catalogers and retailers. We distribute specialty papers by truck, rail and ship. Most of our specialty paper production is sold within North America and serviced directly by our regional sales offices. Export markets are serviced primarily through international agents.

We sell specialty papers to various joint venture partners (partners with us in the ownership of certain mills we operate). During 2011, these joint venture partners purchased approximately 25,000 short tons from our consolidated entities, which represented approximately 1% of the total specialty papers short tons we sold in 2011.

Market pulp

Wood pulp is the most commonly used material to make paper. Pulp shipped and sold as pulp, as opposed to being processed into paper in one of our facilities, is referred to as market pulp. We produce market pulp at five facilities in North America, with total capacity of approximately 1.1 million metric tons, or approximately 6% of total North American capacity. Market pulp is used to make a range of consumer products including tissue, packaging, specialty paper products, diapers and other absorbent products.

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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.

On December 15, 2011, we announced an offer to purchase all of the issued and outstanding shares of Fibrek Inc. (“Fibrek”), a producer and marketer of virgin and recycled kraft pulp with a combined annual production capacity of approximately 760,000 metric tons. For additional information, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-K (“Item 7”) under “Business Strategy and Outlook – Strategic opportunities.”

Wood products

We operate 18 sawmills in Canada that produce construction-grade lumber sold in North America. In addition, our sawmills are a major source of wood chips for our pulp and paper mills. We also operate two engineered wood products facilities in Canada that produce I-joists and three remanufacturing wood products facilities in Canada that produce bed frame components, finger joints and furring strips.

Pulp and paper manufacturing facilities

The following table provides a listing of the pulp and paper manufacturing facilities and the number of paper machines we owned or operated as of December 31, 2011 (excluding facilities and paper machines which have been permanently closed as of December 31, 2011) and production information by product line (which represents all of our reportable segments except wood products). The table below represents these facilities’ actual 2011 production, which reflects the impact of any downtime taken in 2011, and 2012 capacity.

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Wood products facilities

The following table provides a listing of the sawmills we owned or operated as of December 31, 2011 and their respective 2012 capacity and 2011 production. Our harvesting rights in Quebec are not sufficient to operate our sawmills at their total capacity. This table excludes facilities which have been permanently closed as of December 31, 2011.

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The following table provides a listing of the remanufacturing and engineered wood facilities we owned or operated as of December 31, 2011 and their respective 2012 capacity and 2011 production.

On October 12, 2006, an agreement regarding Canada’s softwood lumber exports to the U.S. became effective (the “2006 Softwood Lumber Agreement”). The 2006 Softwood Lumber Agreement provides for, among other things, softwood lumber to be subject to one of two ongoing border restrictions, depending upon the province of first manufacture with several provinces, including Nova Scotia, being exempt from these border restrictions. Volume quotas have been established for each company within the provinces of Ontario and Quebec based on historical production, and the volume quotas are not transferable between provinces. U.S. composite prices would have to rise above $355 composite per thousand board feet before the quota volume restrictions would be lifted, which had not occurred since the implementation of the 2006 Softwood Lumber Agreement. On January 23, 2012, Canada and the U.S. announced a two-year extension to the 2006 Softwood Lumber Agreement, through October 2015. For information regarding lumber duties, see Note 20, “Commitments and Contingencies – Lumber duties,” to our Consolidated Financial Statements.

Other products

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

Raw Materials

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

Wood

Our sources of wood include property we own or lease, property on which we possess harvesting rights and purchases from local producers, including sawmills that supply residual wood chips. As of December 31, 2011, we owned or leased approximately 0.7 million acres of timberlands, primarily in Canada, and have long-term harvesting rights for approximately 35.2 million acres of Crown-owned land in Canada. These sources provide approximately half of our wood fiber supplies to our paper, pulp and wood products operations. The harvesting rights contracts are approximately 20 – 25 years in length and automatically renew every five years, contingent upon our continual compliance with environmental performance and reforestation requirements.

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

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

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Recovered paper

We are one of the largest recyclers of newspapers and magazines in North America and have a number of recycling plants that use advanced mechanical and chemical processes to manufacture high quality pulp from a mixture of old newspapers and magazines, or “recovered paper.” Using recovered paper, we produce, among other things, recycled fiber newsprint and uncoated specialty papers comparable in quality to paper produced with 100% virgin fiber pulp. The Thorold and Mokpo operations produce products containing 100% recycled fiber. In 2011, we used 0.9 million metric tons of recovered paper in our production processes and the recycled fiber content in the newsprint we produced averaged 20%.

In 2011, we collected or purchased 1.2 million metric tons of recovered paper. Our Paper Retriever^® and ecorewards^® programs collect recovered fiber through a combination of community drop-off containers and recycling programs with businesses and commercial offices. The recovered paper that we physically purchase is from suppliers generally within the region of our recycling plants, primarily under long-term agreements.

Energy

Steam and electrical power constitute the primary forms of energy used in pulp and paper production. Process steam is produced in boilers using a variety of fuel sources, as well as heat recovery units in mechanical pulp facilities. All but two of our mills produced 100% of their own steam requirements. In 2011, our Alma, Calhoun, Catawba, Coosa Pines, Fort Frances, Kenogami and Thunder Bay operations collectively consumed approximately 33% of their electrical requirements from internal sources, notably on-site cogeneration and hydroelectric stations. The balance of our energy needs was purchased from third parties. We have six sites that operate cogeneration facilities and all 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.

As of December 31, 2011, we had one hydroelectric facility (Hydro Saguenay, Quebec), which consisted of seven installations with capacity of 162 MW and generation of 1,122 GWh. The water rights agreements required to operate these installations typically range 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. The province of Quebec informed us on December 30, 2011 that it intended to terminate one of these agreements and to require us to transfer property of the associated installation to the province for no consideration. The termination and transfer would be effective as of March 2, 2012. The province’s actions are not consistent with our understanding of the agreement in question. We continue to evaluate our legal options. For additional information, see the discussion under “Critical Accounting Estimates – Long-lived assets” in Item 7.

Competition

In general, our products are globally-traded commodities and are marketed in close to 90 countries. The markets in which we compete are highly competitive and, aside from quality specifications to meet customer needs, the production of our products does not depend upon a proprietary process or formula. Pricing and the level of shipments of our products are influenced by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories and fluctuations in currency exchange rates. Any material decline in prices for our products or other adverse developments in the markets for our products could have a material adverse effect on our results of operations or financial condition. Prices for our products have been and are likely to continue to be highly volatile.

Newsprint, one of our principal products, is produced by numerous manufacturers worldwide. In 2011, the five largest North American producers represented approximately 85% of North American newsprint capacity and the five largest global producers represented approximately 36% of global newsprint capacity. Our total newsprint capacity is approximately 9% of worldwide newsprint capacity. We face competition from both large global producers and numerous smaller regional producers. In recent years, a number of global producers of newsprint based in Asia, particularly China, have grown their production capacity. Price, quality and customer relationships are important competitive determinants.

We compete with seven other coated mechanical paper producers with operations in North America. In 2011, the five largest North American producers represented approximately 84% of North American capacity for coated mechanical paper. In addition, several major offshore suppliers of coated mechanical paper compete for North American business. In 2011, offshore imports represented approximately 11% of North American demand. As a major supplier to printers, end users (such as magazine publishers, catalogers and retailers) and brokers/merchants in North America, we compete with numerous worldwide suppliers of other grades of paper such as coated freesheet and supercalendered paper. We compete on the basis of price, quality and service.

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In 2011, we produced approximately 30% of North American uncoated mechanical paper demand, comprised mainly of supercalendered, superbright, high bright, bulky book and directory papers. We compete with numerous uncoated mechanical paper producers with operations in North America. In addition, imports from overseas represented approximately 10% of North American demand in 2011 and were primarily concentrated in the supercalendered paper market where they represented approximately 19% 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, service and fiber sources are considered the main competitive determinants.

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

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

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

Emergence From Creditor Protection Proceedings

AbitibiBowater Inc. and all but one of its debtor affiliates (as discussed below) successfully emerged from creditor protection proceedings under Chapter 11 of the United States Bankruptcy Code, as amended (“Chapter 11”) and the Companies’ Creditors Arrangement Act (Canada) (the “CCAA”), as applicable (collectively, the “Creditor Protection Proceedings”) on December 9, 2010 (the “Emergence Date”). In the third quarter of 2010, the creditors under the Creditor Protection Proceedings, with one exception, voted in the requisite numbers to approve the respective Plan of Reorganization (as defined below). Creditors of Bowater Canada Finance Corporation (“BCFC”), an indirect, wholly-owned subsidiary of ours, did not vote in the requisite numbers to approve the Plans of Reorganization (as defined below). Accordingly, we did not seek sanction of the CCAA Plan of Reorganization and Compromise (the “CCAA Reorganization Plan”) or confirmation of the Debtors’ Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the “Chapter 11 Reorganization Plan” and, together with the CCAA Reorganization Plan, the “Plans of Reorganization” and each, a “Plan of Reorganization”) with respect to BCFC. See Item 3, “Legal Proceedings – BCFC Bankruptcy and Insolvency Act Filing,” for information regarding BCFC’s Bankruptcy and Insolvency Act filing on December 31, 2010. The Plans of Reorganization became effective on the Emergence Date.

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From the 97,134,954 shares of Successor Company common stock issued for claims in the Creditor Protection Proceedings, we established a reserve of 23,382,073 shares for claims that remained in dispute as of the Emergence Date, from which we have made and will make supplemental interim distributions to unsecured creditors as disputed claims are resolved. As of December 31, 2011, there were 19,719,565 shares remaining in this reserve. The remaining claims are claims that we believe should be disallowed because they are duplicative, without merit, overstated or should be disallowed for other reasons. We have made significant progress in addressing the claims that remained in dispute at the time of our emergence from the substantial number and amount of claims filed during the Creditor Protection Proceedings. The majority of the remaining disputed claims will be disposed through ongoing litigation before the United States Bankruptcy Court for the District of Delaware (the “U.S. Court”) or a claims officer appointed by the Superior Court of Quebec in Canada (the “Canadian Court” and, together with the U.S. Court, the “Courts”). The ultimate completion of the claims resolution process could therefore take some time to complete. We may be required to settle certain disputed claims in cash under certain specific circumstances. As such, included in “Accounts payable and accrued liabilities” in our Consolidated Balance Sheets (as defined below) as of December 31, 2011 and 2010 is a liability of $11 million and $35 million, respectively, for the estimated cash settlement of such claims. To the extent there are shares remaining after all disputed claims have been resolved, these shares will be reallocated ratably among unsecured creditors with allowed claims in the Creditor Protection Proceedings pursuant to the Plans of Reorganization.

For additional information regarding the Creditor Protection Proceedings, see Note 3, “Creditor Protection Proceedings,” to our Consolidated Financial Statements.

Basis of Presentation

Effective upon the commencement of the Creditor Protection Proceedings on April 16 and 17, 2009 and through the Convenience Date (as defined below), we applied the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 852, “Reorganizations” (“FASB ASC 852”), in preparing our consolidated financial statements. The guidance in FASB ASC 852 does not change the manner in which financial statements are prepared. However, it requires that the financial statements distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, during the Creditor Protection Proceedings, we: (i) recorded certain expenses, charges and credits incurred or realized that were directly associated with or resulting from the reorganization and restructuring of the business in “Reorganization items, net” in our Consolidated Statements of Operations included in our Consolidated Financial Statements (“Consolidated Statements of Operations”) and (ii) ceased recording interest expense on certain of our pre-petition debt obligations. For additional information, see Note 3, “Creditor Protection Proceedings,” and Note 16, “Liquidity and Debt,” to our Consolidated Financial Statements.

In accordance with FASB ASC 852, fresh start accounting (“fresh start accounting”) was required upon our emergence from the Creditor Protection Proceedings, which we applied effective December 31, 2010 (the “Convenience Date”). As such, the application of fresh start accounting was reflected in our Consolidated Balance Sheets included in our Consolidated Financial Statements (“Consolidated Balance Sheets”) as of December 31, 2010 and fresh start accounting adjustments related thereto were included in our Consolidated Statements of Operations for the year ended December 31, 2010.

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

Employees

As of December 31, 2011, we employed approximately 10,400 people, of whom approximately 7,900 were represented by bargaining units. Our unionized employees are represented predominantly by the Communications, Energy and Paperworkers Union (the “CEP”) and the Confederation des syndicats nationaux (the “CSN”) in Canada and predominantly by the United Steelworkers International in the U.S.

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We have collective bargaining agreements in place covering the majority of our unionized employees, many of which have been recently renewed and revised. However, there can be no assurance that we will maintain continuously satisfactory agreements with all of our unionized employees or that we will finalize satisfactory agreements with the remaining unionized employees (which include approximately 200 wood workers in Quebec). Should we be unable to do so, it could result in strikes or other work stoppages by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.

Trademarks

We registered the marks “AbitibiBowater,” “Resolute,” “Resolute Forest Products,” “Resolu” and “Produits Forestiers Resolu” and the AbitibiBowater and Resolute logos in the countries of our principal markets. We consider our interest in the logos and marks to be important and necessary to the conduct of our business.

Environmental Matters

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

Note 20, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

Internet Availability of Information

We make our Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and any amendments to these reports, available free of charge on our website (www.resolutefp.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 (“SEDAR”) website (www.sedar.com).

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this Form 10-K, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. In particular, the risks described below could cause actual events to differ materially from those contemplated in the forward-looking statements in this Form 10-K. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially affect our business, financial condition or future results.

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 the demand for traditional print media, including our products and those of our customers. Neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper, magazine, book and catalog publishing customers may increasingly use, and compete with businesses that use, other forms of media and advertising and electronic data transmission and storage, including television, electronic readers and the Internet, instead of newsprint, coated papers, uncoated specialty papers or other products made by us. The demand for 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 10.3% in 2007, 11.2% in 2008, 25.3% in 2009, 6.0% in 2010 and 7.4% in 2011. Third-party forecasters indicate that these declines may continue in the future due to reduced North American newspaper circulation, less advertising, substitution to other uncoated mechanical grades and conservation measures taken by publishers.

One of our responses to the declining demand for our products has been to curtail our production capacity. If demand continues to decline for our products, it may become necessary to curtail production even further or permanently shut down even more machines or facilities. Curtailments or shutdowns could result in asset impairments and additional cash costs at the affected facilities, including restructuring charges and exit or disposal costs, and could negatively impact our cash flows and materially affect our results of operations or financial condition.

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Currency fluctuations may adversely affect our results of operations or 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 a high of US$1.06 in July 2011 to a low of US$0.93 in May 2010 and was US$0.98 as of December 31, 2011. Based on operating projections for 2012, a one-cent increase in the Canadian-U.S. dollar exchange rate would decrease our annual operating income by approximately $16 million.

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

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

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

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

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

The forest products industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for our products. Most of our paper and wood products are commodities that are widely available from other producers and even our coated and specialty papers are susceptible to these fluctuations. Because our commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for the products we manufacture and distribute and consequently, our sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general economic conditions in North America and worldwide.

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The effect of not meeting certain conditions under the Canadian pension funding relief regulations could have a material impact on our financial condition.

As of the third quarter of 2011, both the provinces of Quebec and Ontario had adopted specific regulations to implement funding relief measures with respect to aggregate solvency deficits in our material Canadian registered pension plans, as contemplated by an agreement between each province and our principal Canadian operating subsidiary, effective as of our emergence from the Creditor Protection Proceedings for a period of 10 years. Those agreements include a number of undertakings by our principal Canadian operating subsidiary, which will apply for a minimum period of five years following the Emergence Date. Those undertakings and the basic funding parameters are described in Note 18, “Pension and Other Postretirement Benefit Plans – Canadian pension funding relief,” to our Consolidated Financial Statements. We could lose the benefit of the funding relief regulations if we fail to comply with them or fail to meet our undertakings in the related agreements, which, in either case, could have a material impact on our financial condition.

The regulations also provide that corrective measures would be required if the aggregate solvency ratio in the registered pension plans falls below a prescribed level under the target provided by the regulations as of December 31 in any year through 2014. Such measures may include additional funding over five years to attain the target solvency ratio prescribed in the regulations. Thereafter, supplemental contributions, as described in Note 18, “Pension and Other Postretirement Benefit Plans – Canadian pension funding relief,” to our Consolidated Financial Statements, would be required if the aggregate solvency ratio in the registered pension plans falls below a prescribed level under the target provided by the regulations as of December 31 in any year on or after 2015 for the remainder of the period covered by the regulations. The aggregate solvency ratio in the Canadian registered pension plans covered by the Quebec and Ontario funding relief is determined annually as of December 31. The calculation is based on a number of factors and assumptions, including the accrued benefits to be provided by the plans, interest rate levels, membership data and demographic experience. In light of low yields on government securities in Canada, which are used to determine the applicable discount rate, when we file the actuarial report in respect of these plans later this year, we expect that the aggregate solvency ratio in these Canadian registered plans will have fallen below the minimum level prescribed by the regulations and that we will therefore be required to adopt corrective measures by March 2013. At this time, we cannot estimate the additional contributions, if any, that may be required in future years, but they could be material.

It is also possible that provinces other than Quebec and Ontario could attempt to assert jurisdiction and to compel additional funding of certain of our Canadian registered pension plans in respect of plan members associated with sites we formerly operated in their respective provinces. At this time, we cannot estimate the additional contributions, if any, that may be required, but they could be material.

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

We recorded significant tax attributes (deferred income tax assets) in our Consolidated Balance Sheet as of December 31, 2011, which attributes would be available to offset any future taxable income. If, in the future, we determine that we are unable to use the full extent of these tax attributes as a result of sustained cumulative taxable losses, we could be required to record additional valuation allowances for the portion of the deferred income tax assets that are not recoverable. Such valuation allowances, if taken, would be recorded as a charge to income tax expense and would negatively impact our reported net income (loss).

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

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

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay capital expenditures or to sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The credit agreement that governs our ABL Credit Facility (as defined and further discussed in Item 7 under “Liquidity and Capital Resources”) restricts our ability to dispose of assets and use the proceeds from any such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or obtain proceeds in an amount sufficient to meet any debt service obligations when due.

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If we are unable to generate sufficient cash flows to service our obligations under the 2018 Notes (as defined in Item 7 under “Liquidity and Capital Resources”) and the ABL Credit Facility, we would be in default. If the default is not cured, holders of the 2018 Notes could declare all outstanding principal and interest to be due and payable, the lenders under the ABL Credit Facility could terminate their commitments to loan money, our secured lenders could foreclose against the assets securing such borrowings and we could be forced into bankruptcy or liquidation.

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

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

In addition, the restrictive covenants in the credit agreement that governs our ABL Credit Facility could require us to maintain a specified financial ratio if the availability falls below a certain threshold, as well as satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there can be no assurance that we will meet them.

A breach of the covenants under the 2018 Notes indenture or under the credit agreement that governs the ABL Credit Facility could result in an event of default under the indenture or credit agreement governing the applicable indebtedness. Such default may allow the holders to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, the occurrence of an event of default under the credit agreement that governs our ABL Credit Facility would permit the lenders thereunder to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our ABL Credit Facility or the 2018 Notes following an acceleration, those lenders could proceed against the collateral securing that indebtedness. In the event our lenders under the ABL Credit Facility or holders of the 2018 Notes accelerate the repayment of our borrowings, there can be no assurance that we and our subsidiaries would have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be limited in how we conduct our business, unable to raise additional debt or equity financing to operate during general economic or business downturns or unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to respond to changes or to pursue other business opportunities.

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

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

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

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

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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. For example, new legislation in the province of Quebec provides that a portion of the harvesting rights allocated to harvesters, including us, will be subject to an auction system that will be fully implemented in April 2013. The new system could have the effect of increasing the cost of harvesting timber and reducing supply. In addition, future domestic or foreign legislation or regulation, litigation advanced by Aboriginal groups and litigation concerning the use of timberlands, forest management practices, the protection of endangered species, the promotion of forest biodiversity and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may further be limited by factors such as fire and fire prevention, insect infestation, disease, ice storms, wind storms, drought, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. As is typical in the industry, we do not maintain insurance for any loss to our standing timber from natural disasters or other causes.

In all Canadian provinces, the volume allocated on Crown land is constrained by the Annual Allowable Cut. This overall level of harvest is revised on a regular basis, typically every five years. In December 2006, the Chief Forester of the province of Quebec confirmed a reduction of 23.8% below 2004 levels for the period 2008 to 2013. In August 2011, the Quebec Chief Forester announced a drop of 10.3% in the annual allowable cut for 2013 – 2014, which is an interim estimate. A revised assessment will be available sometime in 2013, which will reduce the volume that could be allocated to our sawmills through Timber Supply Guarantees starting April 1, 2013.

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 market prices of old newspapers have ranged from a low of $136 average per ton during the third quarter of 2010 to a high of $192 average per ton during the third quarter of 2011. There can be no assurance that prices of recycled fiber will remain at levels that are economical for us to use. Any sustained increase in fiber prices would increase our operating costs and we may be unable to increase prices for our products in response, which could have a material adverse effect on our results of operations or financial condition.

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

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

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

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

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

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

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

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

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

The economic downturn has had a profoundly negative impact on the U.S. housing industry, which sets the prices for many of our lumber and other wood-based products. According to the U.S. Census Bureau, U.S. housing starts declined from approximately 1.4 million in 2007 to approximately 0.7 million in 2011, reflecting a 52% decline. With this low level of primary demand for our lumber and other wood-based products, our wood products business may continue to operate at a low level until there is a meaningful recovery in new residential construction demand. With less demand for saw logs at sawmills throughout North America and lower saw log prices, our timberland values may decline, impacting some of our financial options. Additionally, with less lumber demand, sawmills have generated less sawdust and wood chips and shavings that we use for fiber for our mills. The price of sawdust and wood chips for our mills that need to purchase their furnish on the open market may also continue to be at elevated levels, until there is a meaningful recovery in new residential demand in the U.S.

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

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

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

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

We may be required to record additional environmental liabilities.

We are subject to a wide range of general and industry-specific laws and regulations relating to the protection of the environment, including those governing air emissions, wastewater discharges, timber harvesting, the storage, management and disposal of hazardous substances and waste, the clean-up of contaminated sites, landfill and lagoon operation and closure, forestry operations, endangered species habitat and health and safety. As an owner and operator of real estate and manufacturing and processing facilities, we may be liable under environmental laws for cleanup and other costs and damages, including tort liability and damages to natural resources, resulting from past or present spills or releases of hazardous or toxic substances on or from our current or former properties. We may incur liability under these laws without regard to whether we knew of, were responsible for, or owned the property at the time of, any spill or release of hazardous or toxic substances on or from our property, or at properties where we arranged for the disposal of regulated materials. Claims may also arise out of currently unknown environmental conditions or aggressive enforcement efforts by governmental or private parties. As a result of the above, we may be required to record additional environmental liabilities. For information regarding environmental matters to which we are subject, see Note 20, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

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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 or accelerated depreciation charges.

Losses related to the impairment of long-lived assets to be held and used are recognized when circumstances indicate the carrying value of an asset group may not be recoverable, such as continuing losses in certain businesses. When indicators that the carrying value of an asset group 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 an asset group is greater than the expected undiscounted future cash flows to be generated by the asset group, an impairment charge is recognized based on the excess of the asset group’s carrying value over its fair value. If it is determined that the carrying value of an asset group is recoverable, we review and adjust, as necessary, the estimated useful lives of the assets in the group.

If there were to be a triggering event, it is possible that we could record non-cash long-lived asset impairment or accelerated depreciation charges in future periods, which would be recorded as operating expenses and would directly and negatively impact our reported operating income (loss) and net income (loss). One group of assets, for which the remaining useful life is being monitored closely, are the tangible and intangible assets associated with our Jim-Gray hydroelectric installation, which is part of the Hydro Saguenay facility that provides hydroelectric power to certain mills in the province of Quebec. The province of Quebec informed us on December 30, 2011 that it intended to terminate our water rights associated with this facility and to require us to transfer property of the associated installation to the province for no consideration. The termination and transfer would be effective as of March 2, 2012. The province’s actions are not consistent with our understanding of the agreement in question. We continue to evaluate our legal options. The net book value of this hydroelectric facility was tested for impairment with the other assets in its asset group and no impairment was indicated. At this time, we believe that the remaining useful life of the assets remains unchanged, as we continue pursuing the renewal of our water rights at the facility. The carrying value of the long-lived assets associated with the Jim-Gray installation as of December 31, 2011 was approximately $95 million. If we are unable to renew the water rights at this facility, we will reevaluate the remaining useful life of these assets, which may result in accelerated depreciation and amortization charges in the first quarter of 2012.

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

On March 31, 2010, the Canadian Court dismissed a motion for declaratory judgment brought by the province of Newfoundland and Labrador, awarding costs in our favor, and thus confirmed our position that the five orders the province issued under section 99 of its Environmental Protection Act on November 12, 2009 were subject to the stay of proceedings pursuant to the Creditor Protection Proceedings. The province of Newfoundland and Labrador’s orders could have required us to proceed immediately with the environmental remediation of various sites we formerly owned or operated, some of which the province expropriated in December 2008. The Quebec Court of Appeal denied the province’s request for leave to appeal on May 18, 2010. An appeal of that decision is now pending before the Supreme Court of Canada, which heard the matter on November 16, 2011. If leave to appeal is ultimately granted and the appeal is allowed, we could be required to make additional environmental remediation payments without regard to the Creditor Protection Proceedings. Any additional environmental remediation payments required to be made by us could have a material adverse effect on our results of operations or financial condition. For information regarding our environmental matters, see Note 20, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

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

As of December 31, 2011, we employed approximately 10,400 people, of whom approximately 7,900 were represented by bargaining units. Our unionized employees are represented predominantly by the CEP and the CSN in Canada and predominantly by the United Steelworkers International in the U.S.

We have collective bargaining agreements in place covering the majority of our unionized employees, many of which have been recently renewed and revised. However, there can be no assurance that we will maintain continuously satisfactory agreements with all of our unionized employees or that we will finalize satisfactory agreements with the remaining unionized employees (which include approximately 200 wood workers in Quebec). Should we be unable to do so, it could result in strikes or other work stoppages by affected employees, which could cause us to experience a disruption of operations and affect our business, financial condition or results of operations.

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

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

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

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

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

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

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

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

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

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

Because our consolidated financial statements as of and for the year ended December 31, 2010 reflect adjustments related to the implementation of the Plans of Reorganization and the application of fresh start accounting as a result of our emergence from the Creditor Protection Proceedings, the consolidated financial statements of the Successor Company are not comparable to the consolidated financial statements of the Predecessor Company.

As of December 31, 2010, we applied fresh start accounting, pursuant to which the reorganization value, as derived from the enterprise value established in the Plans of Reorganization, was allocated to our assets and liabilities based on their fair values (except for deferred income taxes and pension and other postretirement (“OPEB”) benefit obligations) in accordance with FASB ASC 805, “Business Combinations,” with the excess of net asset values over the reorganization value recorded as an adjustment to equity. The amount of deferred income taxes recorded was determined in accordance with FASB ASC 740, “Income Taxes.” The amount of pension and OPEB benefit obligations recorded was determined in accordance with FASB ASC 715, “Compensation – Retirement Benefits.” Additionally, the implementation of the Plans of Reorganization, among other things, resulted in a new capital structure that replaced our historical pre-petition capital structure. The implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our consolidated financial statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, our consolidated financial statements as of December 31, 2010 and for periods subsequent to December 31, 2010 are not comparable to our consolidated financial statements for periods prior to December 31, 2010. For additional information, see Note 3, “Creditor Protection Proceedings,” to our Consolidated Financial Statements and “Plans of Reorganization” in Item 7.

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

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

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

There are significant holders of our common stock.

As publicly reported on SEDAR and with the SEC, there are several significant holders of our common stock who own a substantial percentage of the outstanding shares of our common stock. These holders may increase their percentage ownership of our common stock, including as a result of additional distributions pursuant to the Creditor Protection Proceedings. These holders may be in a position to influence the outcome of actions requiring shareholder approval, including, among other things, the election of board members. This concentration of ownership could also facilitate or hinder a negotiated change of control and consequently, impact the value of our common stock. Furthermore, the possibility that one or more of these holders may sell all or a large portion of our common stock in a short period of time may adversely affect the trading price of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Information regarding our owned properties is included in Item 1, “Business.”

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 harvesting rights with respect to certain timberlands. Information regarding timberland and operating leases and harvesting rights is included in Note 23, “Timberland and Operating Leases and Purchase Obligations,” to our Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

BCFC Bankruptcy and Insolvency Act Filing

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

Legal Items

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

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

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

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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 645 claims remain. A motion to dismiss will be filed in each state for all matters related to products and premises where the plaintiffs did not file a claim in the Chapter 11 claims process. All Mississippi products and premises cases were dismissed, with other dismissals to follow. We expect that any resulting liability would be a general unsecured claim in the claims resolution process, which would be settled out of the share reserve and would not impact our results of operations and cash flows.

For a discussion of environmental matters to which we are subject, see Note 20, “Commitments and Contingencies – Environmental matters,” to our Consolidated Financial Statements.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

The Predecessor Company’s 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 this common stock at the opening of business on May 21, 2009 and the close of market on May 15, 2009, respectively. During the Creditor Protection Proceedings, this common stock traded in the over-the-counter market and was quoted on the Pink Sheets Quotation Service and on the OTC Bulletin Board under the symbol “ABWTQ.”

As of the Emergence Date and pursuant to the Plans of Reorganization, each share of the Predecessor Company’s common stock and each option, warrant, conversion privilege or other legal or contractual right to purchase shares of the Predecessor Company’s common stock, in each case to the extent outstanding immediately before the Emergence Date, was canceled and the holders thereof are not entitled to receive or retain any property on account thereof. On the Emergence Date, we issued 97,134,954 shares of new common stock. The Successor Company’s common stock began trading under the symbol “ABH” on both the NYSE and the TSX on December 10, 2010.

On December 31, 2010, AbitibiBowater Inc. issued 17,010,728 shares of unregistered common stock to Donohue Corp. (“Donohue,” a wholly-owned subsidiary of AbitibiBowater Inc.) as part of an internal tax restructuring contemplated by the Plans of Reorganization. The shares were issued to Donohue in exchange for all of the outstanding shares of common stock of two of Donohue’s wholly-owned subsidiaries, each of which also was an indirect wholly-owned subsidiary of ours. We accounted for these shares as treasury stock in our Consolidated Balance Sheets. The shares are voting stock but, in accordance with applicable Delaware corporate law, they will not be entitled to vote on matters brought before our shareholders nor be counted for quorum purposes. If ever entitled to vote, e.g., on account of a change in applicable law, Donohue has agreed with us that the shares will be voted in proportion to the votes of non-affiliated shareholders on all matters. The issuance of the shares to Donohue was made without registration under the Securities Act of 1933 (as amended, the “Securities Act”) in reliance on the exemption from registration provided under section 4(2) thereof.

The high and low prices of our common stock for 2010 and 2011, by quarter, are set forth below. The data through December 9, 2010 reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of January 31, 2012, there were approximately 2,700 holders of record of the Successor Company’s common stock.

During the Creditor Protection Proceedings, we could not pay dividends on the Predecessor Company’s common stock under the terms of our debtor in possession financing arrangements. It is unlikely that we will pay any dividends with respect to the Successor Company’s common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of the board of directors and will be dependent on then-existing conditions, including our financial condition,

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results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant. The 2018 Notes indenture and the credit agreement that governs the ABL Credit Facility contain restrictions on our ability to pay dividends.

We did not repurchase any shares of common stock during 2010 and 2011 nor have we made any public announcement of plans or programs to date.

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

The following graph compares the cumulative total return attained by shareholders on our common stock versus the cumulative total returns of the S&P 500 index and a peer group of five companies since December 10, 2010, the date the Successor Company’s common stock began trading following our emergence from the Creditor Protection Proceedings. The individual companies comprising the peer group are: Domtar Corporation, International Paper Company, UPM – Kymmene Corporation, Verso Paper Corp. and Weyerhaeuser Company. The graph tracks the performance of a $100 investment in our common stock on December 10, 2010, in the S&P 500 index on November 30, 2010 and in the peer group on November 30, 2010 (with the reinvestment of all dividends) to December 31, 2011. Data for periods prior to December 10, 2010 is not shown because of the Creditor Protection Proceedings and the fact that the financial results of the Successor Company are not comparable to the results of the Predecessor Company. The stock price performance included in the graph is not necessarily indicative of future stock price performance.

COMPARISON OF CUMULATIVE TOTAL RETURN

Among AbitibiBowater, the S&P 500 Index, and a Peer Group

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ITEM 6. SELECTED FINANCIAL DATA

The following table presents summary historical consolidated financial information for each of the last five years and should be read in conjunction with Items 7 and 8. The selected financial information for the years ended December 31, 2011, 2010 and 2009 and as of December 31, 2011 and 2010 under the captions “Statement of Operations Data,” “Segment Sales Information,” “Statement of Cash Flows Data” and “Financial Position” shown below has been derived from our audited Consolidated Financial Statements. As discussed in Part I, Item 1, “Business,” of this Form 10-K, on October 29, 2007, Abitibi and Bowater became subsidiaries 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, the data set forth below reflects the results of operations and financial position of Bowater for the period before October 29, 2007 and those of both Abitibi and Bowater for periods beginning on or after October 29, 2007.

As previously discussed, the implementation of the Plans of Reorganization and the application of fresh start accounting materially changed the carrying amounts and classifications reported in our Consolidated Financial Statements and resulted in the Company becoming a new entity for financial reporting purposes. Accordingly, the consolidated financial statements of the Successor Company are not comparable to the consolidated financial statements of the Predecessor Company. For additional information, see Note 3, “Creditor Protection Proceedings,” to our Consolidated Financial Statements and “Plans of Reorganization” in Item 7.

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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, 2011, 2010 and 2009. This discussion should be read in conjunction with, and is qualified in its entirety by reference to, our Consolidated Financial Statements.

Business Strategy and Outlook

We emerged from the Creditor Protection Proceedings with a more flexible, lower-cost operating platform and a more conservative capital structure. Through aggressive capacity reductions, we streamlined our asset base and the substantial majority of our remaining assets have a competitive cost structure. We have reduced our debt levels from approximately $6.2 billion at the time of filing for creditor protection to $621 million as of December 31, 2011. We have substantially lowered our annual fixed costs, our debt service charges, as well as our SG&A expenses. We have also lowered overall manufacturing costs including significant reductions in salary and labor wages and costs.

During 2011, we experienced cost pressures as a result of inflation on our input costs, including higher energy and recycled fiber costs. We expect these cost pressures to continue in 2012; however, we also expect to mitigate some of the cost increases with actions to further lower manufacturing costs. Additionally, the Canadian dollar has a significant impact on the financial performance of our Canadian manufacturing sites. Based on our operating projections for 2012, a one-cent increase in the Canadian-U.S. dollar exchange rate is expected to decrease our annual operating income by approximately $16 million.

Our business strategy, which builds on the successful restructuring that began at the time of the Combination and continued through the Creditor Protection Proceedings, is based on three core areas of focus: operational excellence, corporate initiatives and strategic opportunities.

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Operational excellence

We plan to improve our performance and margins by: (i) leveraging our lower-cost position, (ii) continuing to prioritize further manufacturing cost reductions, (iii) capitalizing on our economical access to international ports through our network of mills located near deep sea ports to strengthen the export portion of our newsprint segment in growing markets such as Asia, Latin America and the Middle East and (iv) pursuing our strategy of not building inventory. We also regularly reevaluate our network of manufacturing assets and consider ways to further optimize our overall production and costs.

Corporate initiatives

Building on our focus to reduce manufacturing costs, we will continue our efforts to decrease overhead and spend our capital in a disciplined, strategic and focused manner, concentrated on the sites we believe are viable for the longer term.

Reducing debt and the associated interest charges is one of our primary financial goals. We believe this improves our financial flexibility and supports the implementation of our strategic objectives. In 2011, we redeemed $354 million of debt using the proceeds from the sale of our interest in Ontario power generation assets (ACH Limited Partnership, “ACH”) and cash on hand, as further discussed below under “Liquidity and Capital Resources.”

Strategic opportunities

We believe there will be continued consolidation in the paper and forest products industry as we and our competitors continue to explore ways to increase efficiencies and diversify customer offerings. We will take an opportunistic approach to strategic opportunities that reduce our cost position even further, improve our product diversification or expand into future growth markets.

For example, on December 15, 2011, we announced an offer to purchase all of the issued and outstanding shares of Fibrek. Fibrek is a producer and marketer of virgin and recycled kraft pulp, operating three mills with a combined annual production capacity of approximately 760,000 metric tons. The consideration for the proposed transaction (the “Fibrek Transaction”) consists of cash and shares of our common stock, up to approximately Cdn$71.5 million and 3.7 million shares, if consummated. The offer, which is more fully described in the bid circular and other ancillary documentation we filed with the SEC, will expire at 5:00 p.m. (Eastern Standard Time) on March 9, 2012, unless it is further extended or withdrawn. At this time, there can be no assurance that the offer will be consummated on the terms currently proposed or at all.

Plans of Reorganization

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

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Business and Financial Review

Overview

Through our subsidiaries, we manufacture newsprint, coated and specialty papers, market pulp and wood products. We operate pulp and paper manufacturing facilities in Canada, the United States and South Korea, as well as wood products manufacturing facilities and hydroelectric facilities in Canada.

As discussed further below, newsprint, coated papers and specialty papers (particularly lightweight and directory grades) experienced a decrease in North American demand in 2011 compared to 2010. Global shipments of market pulp increased during 2011 compared to 2010, primarily due to increased Chinese demand. Our wood products segment continues to be impacted by low demand due to a weak U.S. housing market.

As discussed above, due to the implementation of the Plans of Reorganization and the application of fresh start accounting, as well as other actions taken during the Creditor Protection Proceedings, the operating results and financial condition of the Successor Company are not comparable to the operating results and financial condition of the Predecessor Company.

Consolidated Results of Operations

Year Ended December 31, 2011 versus December 31, 2010

Sales

Sales increased $10 million, or 0.2%, from $4,746 million in 2010 to $4,756 million in 2011. The increase was due to higher transaction prices for newsprint, coated papers, specialty papers and higher shipments for wood products, partially offset by lower transaction prices for market pulp and wood products and lower shipments for newsprint, coated papers, specialty papers and market pulp. The impact of each of these items is discussed further below under “Segment Results of Operations.”

Operating income (loss)

Operating income (loss) improved $358 million to operating income of $198 million in 2011 compared to an operating loss of $160 million in 2010. The above table presents the items that impacted operating income (loss). A brief explanation of the major items follows.

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Cost of sales, excluding depreciation, amortization and cost of timber harvested, decreased $134 million in 2011 compared to 2010, primarily due to lower volumes ($201 million) and lower costs for energy ($9 million), fuel ($12 million) and labor and benefits ($82 million). These lower costs were partially offset by a significantly unfavorable currency exchange ($89 million, primarily due to the Canadian dollar) and higher costs for wood and fiber ($38 million), chemicals ($28 million), maintenance ($3 million) and other unfavorable cost variances. As discussed above, cost of sales, excluding depreciation, amortization and cost of timber harvested, in 2011 was unfavorably impacted by the increase in the carrying value of finished goods inventory as of December 31, 2010 to reflect fair value pursuant to fresh start accounting. In addition, as discussed above, such costs in 2011 were favorably impacted by lower costs for labor and benefits as a result of actions taken during the Creditor Protection Proceedings. Additionally, in the second quarter of 2011, we were approved for entry in the Northern Industrial Electricity Rate Program (“NIER Program”) in which we will earn rebates on electricity purchased and consumed by our paper mills in the province of Ontario from April 1, 2010 through March 31, 2013, provided we comply with the conditions of the program. During the second quarter of 2011, we recorded a rebate of approximately $19 million, of which approximately $14 million represented a retroactive rebate from April 1, 2010 through the first quarter of 2011.

Depreciation, amortization and cost of timber harvested decreased $273 million in 2011 compared to 2010, primarily as a result of actions taken during the Creditor Protection Proceedings and the application of fresh start accounting, as discussed above.

Distribution costs decreased $6 million in 2011 compared to 2010 due to lower shipment volumes, partially offset by higher distribution costs per ton.

Selling, general and administrative expenses increased $3 million in 2011 compared to 2010, primarily due to the reversal of a $17 million bonus accrual in 2010, as well as approximately $12 million of corporate employee termination costs and approximately $5 million of transaction costs in connection with our proposed acquisition of Fibrek recorded in 2011, partially offset by our continued cost reduction initiatives, including salary reductions at the corporate level, as discussed above, the reversal of a capital tax reserve of approximately $4 million in 2011 and a lease termination fee of approximately $2 million in 2010 related to our head office in Montreal, Quebec.

We recorded closure costs, impairment and other related charges of $46 million in 2011 compared to $11 million in 2010. We recorded a net gain on disposition of assets and other of $3 million in 2011 compared to $30 million in 2010. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Net income attributable to AbitibiBowater Inc.

Net income attributable to AbitibiBowater Inc. in 2011 was $41 million, or $0.42 per diluted common share, a decrease of $2,573 million, or $27.21 per diluted common share, compared to $2,614 million, or $27.63 per diluted common share, in 2010. The decrease was primarily due to reorganization items, net recorded in 2010 (which included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting), which is discussed further below under “Non-operating Items,” partially offset by the improvement in operating income (loss), as discussed above, and a decrease in other expense, net (primarily foreign exchange) and a decrease in interest expense, both of which are discussed further below under “Non-operating Items.” Additionally, in 2011, we recorded an income tax provision of $16 million compared to an income tax benefit of $1,606 million in 2010, which was primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 19, “Income Taxes,” to our Consolidated Financial Statements for additional information). The 2011 income tax provision included an unfavorable $38 million of reorganization-related tax adjustments, which resulted from our identification of certain adjustments associated with our previously-reported 2010 deferred income tax balance sheet accounts. We did not adjust any prior period amounts, as we do not believe that these adjustments are material to 2011 or any of our previously-issued financial statements.

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Fourth Quarter of 2011 versus Fourth Quarter of 2010

Sales decreased $125 million, or 9.8%, from $1,272 million in the fourth quarter of 2010 to $1,147 million in the fourth quarter of 2011. The decrease was due to lower transaction prices for market pulp and wood products and lower shipments for newsprint, coated papers, specialty papers and market pulp, partially offset by higher transaction prices for newsprint, coated papers and specialty papers and higher shipments for wood products.

Operating income increased $36 million from $11 million in the fourth quarter of 2010 to $47 million in the fourth quarter of 2011. The increase was due to the following:

The decreases in expenses discussed above were offset by the following:

Interest expense decreased $48 million from $66 million in the fourth quarter of 2010 to $18 million in the fourth quarter of 2011, primarily due to significantly lower debt levels in connection with our emergence from the Creditor Protection Proceedings, as well as debt redemptions of the 2018 Notes in 2011, as further discussed below under “Liquidity and Capital Resources.”

Other income, net was $3 million in the fourth quarter of 2011 compared to other expense, net of $121 million in the fourth quarter of 2010, primarily due to foreign currency exchange gains of $9 million in the fourth quarter of 2011 compared to foreign currency exchange losses of $124 million in the fourth quarter of 2010, as well as a net gain on extinguishment of debt of $2 million in the fourth quarter of 2011, partially offset by costs for the resolution and settlement of disputed creditor claims and other post-emergence activities associated with the Creditor Protection Proceedings of $12 million in the fourth quarter of 2011.

Net loss attributable to AbitibiBowater Inc. in the fourth quarter of 2011 was $6 million, or $0.06 per diluted common share, compared to $4,240 million of net income, or $44.82 per diluted common share, in the fourth quarter of 2010. The decrease was primarily due to reorganization items, net recorded in the fourth quarter of 2010 (which included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting), which is discussed further below under “Non-operating Items,” partially offset by the increase in operating income, the decrease in interest expense and the decrease in other expense, all of which are discussed above. Additionally, in the fourth quarter of 2011, we recorded an income tax provision of $42 million compared to an income tax benefit of $1,601 million in the fourth quarter of 2010, which was primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 19, “Income Taxes,” to our Consolidated Financial Statements for additional information). The income tax provision in the fourth quarter of 2011 included an unfavorable $48 million of reorganization-related tax adjustments, which resulted from our identification of certain adjustments associated with our previously-reported 2010 deferred income tax balance sheet accounts. We did not adjust any prior period amounts, as we do not believe that these adjustments are material to 2011 or any of our previously-issued financial statements.

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Year Ended December 31, 2010 versus December 31, 2009

Sales

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

Operating loss

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

Cost of sales and depreciation, amortization and cost of timber harvested increased $272 million in 2010 compared to 2009, primarily due to a significantly unfavorable currency exchange ($248 million, primarily due to the Canadian dollar), benefits from the alternative fuel mixture tax credits of $276 million that were recorded in 2009 (the fuel tax credit program expired at the end of 2009) and higher costs for maintenance ($26 million) and energy ($12 million). These higher costs were partially offset by lower volumes ($40 million) and lower costs for wood and fiber ($15 million), fuel ($8 million), chemicals ($21 million), labor and benefits ($55 million), depreciation ($109 million) and other favorable cost variances. For additional information regarding the alternative fuel mixture tax credits, see Note 24, “Alternative Fuel Mixture Tax Credits,” to our Consolidated Financial Statements.

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

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

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We recorded closure costs, impairment and other related charges of $11 million in 2010 compared to $202 million in 2009. We recorded a net gain on disposition of assets and other of $30 million in 2010 compared to $91 million in 2009. For additional information, see “Segment Results of Operations – Corporate and Other” below.

Net income (loss) attributable to AbitibiBowater Inc.

Net income (loss) attributable to AbitibiBowater Inc. in 2010 was $2,614 million of net income, or $27.63 per diluted common share, an improvement of $4,167 million, or $54.54 per diluted common share, compared to $1,533 million of net loss, or $26.91 per diluted common share, in 2009. The improvement was primarily due to the decrease in operating loss, as discussed above, decreases in interest expense and reorganization items, net and an increase in income tax benefit, partially offset by the increase in other expense, net, all of which are discussed further below under “Non-operating Items.” As further discussed in Note 3, “Creditor Protection Proceedings – Reorganization items, net,” to our Consolidated Financial Statements, reorganization items, net in 2010 included a net gain of $3,553 million resulting from the implementation of the Plans of Reorganization and a net expense of $362 million resulting from the application of fresh start accounting. Additionally, in 2010, we recorded an income tax benefit of $1,606 million, primarily due to the reversal of our valuation allowances in connection with the implementation of the Plans of Reorganization (see Note 19, “Income Taxes,” to our Consolidated Financial Statements for additional information).

Non-operating Items - Years Ended December 31, 2011, 2010 and 2009

Interest expense

Interest expense decreased to $95 million in 2011 from $483 million in 2010 and $597 million in 2009. The decrease in interest expense in 2011 compared to 2010 was primarily due to significantly lower debt levels in connection with our emergence from the Creditor Protection Proceedings. Additionally, interest expense in 2010 included a cumulative adjustment of $43 million to increase the accrued interest on the unsecured U.S. dollar denominated debt obligations of the CCAA filers to a fixed exchange rate, as further discussed in Note 3, “Creditor Protection Proceedings – Reorganization items, net,” to our Consolidated Financial Statements. The decrease in interest expense in 2010 compared to 2009 was a result of ceasing to accrue interest on certain of our pre-petition debt obligations. In accordance with FASB ASC 852, during the Creditor Protection Proceedings, we recorded interest expense on our pre-petition debt obligations only to the extent that: (i) interest would be paid during the Creditor Protection Proceedings or (ii) it was probable that interest would be an allowed priority, secured or unsecured claim. As such, during the Creditor Protection Proceedings, we continued to accrue interest on the Debtors’ pre-petition secured debt obligations and, until the third quarter of 2010, the CCAA filers’ pre-petition unsecured debt obligations. See Note 3, “Creditor Protection Proceedings – Reorganization items, net,” to our Consolidated Financial Statements for a discussion of the reversal of post-petition accrued interest on the CCAA filers’ pre-petition unsecured debt obligations. Interest expense in 2010 also included accrued interest on the 2018 Notes, which were issued on October 4, 2010, as further discussed below under “Liquidity and Capital Resources.”

Other expense, net

Other expense, net in 2011 was $48 million, primarily comprised of foreign currency exchange losses of $21 million and costs for the resolution and settlement of disputed creditor claims and other post-emergence activities associated with the Creditor Protection Proceedings of $47 million, partially offset by net gains on extinguishment of debt of $6 million. Other expense, net in 2010 was $89 million, primarily comprised of foreign currency exchange losses. Other expense, net in 2009 was $71 million, primarily comprised of foreign currency exchange losses of $59 million, fees for waivers and amendments to our former accounts receivable securitization program of $23 million, as well as a loss on the sale of ownership interests in accounts receivable of $17 million, partially offset by $24 million of income, net from a subsidiary’s proceeds sharing arrangement related to a third party’s sale of timberlands.

Reorganization items, net

Pursuant to FASB ASC 852, we recorded reorganization items, net in 2010 of a credit of $1,901 million and expense of $639 million in 2009 for certain expenses, provisions for losses and other charges and credits directly associated with or resulting from the reorganization and restructuring of the business that were realized or incurred in the Creditor Protection Proceedings, including the impact of the implementation of the Plans of Reorganization (net gain of $3,553 million in 2010) and the application of fresh start accounting (net expense of $362 million in 2010). For additional information, see Note 3, “Creditor Protection Proceedings – Reorganization items, net,” to our Consolidated Financial Statements.

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Income taxes

In 2011, an income tax provision of $16 million was recorded on income before income taxes of $55 million, resulting in an effective tax rate of 29%. The income tax provision included a favorable $63 million adjustment related to our reserves for unrecognized tax benefits, primarily due to the completion of certain tax authority examinations during the year, partially offset by an unfavorable $38 million of reorganization-related tax adjustments, which resulted from our identification of certain adjustments associated with our previously-reported 2010 deferred income tax balance sheet accounts. We did not adjust any prior period amounts, as we do not believe that these adjustments are material to 2011 or any of our previously-issued financial statements. Also impacting our effective tax rate in 2011 are unfavorable effects related to foreign exchange and the recording of valuation allowances on certain deferred income tax benefits not expected to be realized. For additional information, see Note 19, “Income Taxes,” to our Consolidated Financial Statements.

In 2010, an income tax benefit of $1,606 million was recorded on income before income taxes of $1,169 million, resulting in an effective tax rate of (137)%. The income tax benefit was primarily due to the reversal of our valuation allowances as part of the implementation of the Plans of Reorganization and the non-taxability of the gains on the Plans of Reorganization. See Note 19, “Income Taxes,” to our Consolidated Financial Statements.

In 2009, income tax benefits of $122 million were recorded on a loss before income taxes of $1,682 million, resulting in an effective tax rate of 7%. In 2009, income tax benefits of approximately $615 million generated on the majority of our losses were entirely offset by tax charges to increase our valuation allowance related to these tax benefits. Our effective tax rate in 2009 was primarily impacted by the valuation allowance, as described above, and the tax treatment on foreign currency gains and losses. Additionally, subsequent to the commencement of Abitibi’s CCAA proceedings, in 2009, we concluded that our investment in the common stock of Abitibi no longer had any value and therefore, we recorded a $308 million tax benefit for a worthless stock deduction, which represents the estimated tax basis in our investment in Abitibi of approximately $800 million. In addition, in 2009, we recorded a tax recovery of approximately $141 million related to the asset impairment charges associated with our investment in Manicouagan Power Company (“MPCo”) while it was an asset held for sale. For additional information, see Note 5, “Closure Costs, Impairment and Other Related Charges,” to our Consolidated Financial Statements.

Our effective tax rate varies frequently and substantially from the weighted-average effect of both domestic and foreign statutory tax rates, primarily as a result of the tax treatment on foreign currency gains and losses. We have foreign subsidiaries whose unconsolidated local currency foreign exchange gains and losses are taxed in the local country. Upon consolidation, such gains and losses are eliminated, but we are still liable for the local country taxes. We also have foreign exchange gains and losses on the conversion of foreign currency denominated items, for which no tax expense or benefit is recorded. Due to the variability and volatility of foreign exchange rates, we are unable to estimate the impact of future changes in exchange rates on our effective tax rate.

Financial Condition

Total assets were $6.3 billion as of December 31, 2011, a decrease of $0.8 billion compared to December 31, 2010, which was primarily due to the sale of our investment in ACH in 2011. Cash and cash equivalents were $369 million as of December 31, 2011, an increase of $50 million compared to December 31, 2010. For additional information regarding our liquidity, see “Liquidity and Capital Resources” below.

Segment Results of Operations

We manage our business based on the products we manufacture. Accordingly, our reportable segments correspond to our primary product lines: newsprint, coated papers, specialty papers, market pulp and wood products. None of the income or loss items following “Operating income (loss)” in our Consolidated Statements of Operations are allocated to our segments, since those items are reviewed separately by management. For the same reason, closure costs, impairment and other related charges, employee termination costs, net gain on disposition of assets and other, as well as other discretionary charges or credits are not allocated to our segments. Also excluded from our segment results are corporate and other items, which include costs associated with our unsuccessful refinancing efforts in 2009. These items are also analyzed separately from our segment results. Additionally, beginning in 2011, all SG&A expenses, excluding employee termination costs and certain discretionary charges, are allocated to our segments. Share-based compensation expense and depreciation expense are also allocated to our segments. For additional information regarding our segments, see Note 25, “Segment Information,” to our Consolidated Financial Statements.

As discussed above, due to the implementation of the Plans of Reorganization and the application of fresh start accounting, the operating results of the Successor Company are not comparable to the operating results of the Predecessor Company. To the extent that the items discussed above under “Plans of Reorganization” are allocated to our segments, the results of operations in 2011 for all of our segments were impacted by the actions taken during the Creditor Protection Proceedings, the implementation of the Plans of Reorganization and the application of fresh start accounting. Additionally, the results of operations in 2011 for all of our segments were impacted by the allocation of SG&A expenses, excluding employee termination costs and certain discretionary charges, to our segments, as discussed above.

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Year Ended December 31, 2011 versus December 31, 2010

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