Summary of ABITIBIBOWATER INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and results of operations ("MD&A") of AbitibiBowater Inc. (collectively with its subsidiaries and affiliates, unless otherwise indicated, referred to as "AbitibiBowater," "we," "our," "us" or the "Company") provides information that we believe is useful in understanding our operating results, cash flows and financial condition for the three and nine months ended September 30, 2009. On April 16 and 17, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions for creditor protection. See "Creditor Protection Proceedings" below.
Cautionary Statements Regarding Forward-Looking Information and Use of Third-Party Data
Statements in this Quarterly Report on Form 10-Q that are not reported financial results or other historical information of AbitibiBowater are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. They include, for example, statements relating to our: Creditor Protection Proceedings (as defined below), debtor in possession financing arrangements and reorganization process; ability to successfully restructure our debt and other obligations at our Abitibi-Consolidated Inc. ("Abitibi") and Bowater Incorporated ("Bowater") subsidiaries; efforts to reduce costs and increase revenues and profitability, including our cost reduction initiatives regarding selling, general and administrative expenses; business outlook; curtailment of production of certain of our products; assessment of market conditions; ability to complete the anticipated sale of our 60% interest in Manicouagan Power Company and apply the proceeds as anticipated; and our ability to sell non-core assets in light of the current global economic conditions and the requirements under the creditor protection proceedings to obtain court approval for asset sales, as well as strategies for achieving our goals generally. Forward-looking statements may be identified by the use of forward-looking terminology such as the words "should," "would," "could," "will," "may," "expect," "believe," "anticipate," "attempt" and other terms with similar meaning indicating possible future events or potential impact on the business or shareholders of AbitibiBowater.
The reader is cautioned not to place undue reliance on these forward-looking statements, which are not guarantees of future performance. These statements are based on management's current assumptions, beliefs and expectations, all of which involve a number of business risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties include, but are not limited to the following: (i) risks and uncertainties relating to our creditor protection proceedings including, among other things: (a) risks associated with our ability to: continue as a going concern; stabilize the business to maximize the chances of preserving all or a portion of the enterprise; develop a comprehensive restructuring plan in an effective and timely manner; resolve ongoing issues with creditors and other third parties whose interests may differ from ours; obtain court orders or approvals with respect to motions filed from time to time, including court approvals for asset sales; obtain alternative or replacement financing to replace our debtor in possession financing and restructure our substantial indebtedness and other obligations in a manner that allows us to obtain confirmation of a plan of reorganization by the courts in order to successfully exit our creditor protection proceedings, especially in light of the current decline in the global economy and the credit crisis; successfully implement a comprehensive restructuring plan and a plan of reorganization; generate cash from operations and maintain cash-on-hand; operate within the restrictions and limitations of our current and any future debtor in possession financing arrangements; realize full or fair value for any assets or business we may divest as part of our comprehensive restructuring plan; attract and retain customers; maintain market share as our competitors move to capitalize on customer concerns; maintain current relationships with customers, vendors and trade creditors by actively and adequately communicating on and responding to events, media and rumors associated with the creditor protection proceedings that could adversely affect such relationships; resolve claims made against us in connection with the creditor protection proceedings for amounts not exceeding our recorded liabilities subject to compromise; prevent third parties from obtaining court orders or approvals that are contrary to our interests; and reject, repudiate or terminate certain contracts; (b) risks and uncertainties associated with:
limitations on actions against any debtor during the creditor protection proceedings and the values, if any, that will be ascribed in our creditor protection proceedings to our various pre-petition liabilities, common stock and other securities; and (c) risks and uncertainties associated with the consummation of the anticipated sale of our 60% interest in Manicouagan Power Company, including our and our counterparties' ability to satisfy all of the closing conditions, and that the closing may be further delayed for unforeseen reasons; and (ii) risks and uncertainties relating to our business including:
industry conditions generally and further growth in alternative media; our ability to achieve growth in the stronger international destinations where market conditions are more favorable; our capital intensive operations and the adequacy of our capital resources; our ability to obtain timely contributions to our cost-reduction initiatives from our unionized and salaried employees; the prices and

ABITIBIBOWATER INC. terms under which we would be able to sell targeted assets; the relative volatility of the U.S. dollar and the Canadian dollar; the costs of raw materials such as energy, chemicals and fiber and the success of our post-merger integration activities, including the implementation of additional measures to enhance our operating efficiency and productivity; our ability to obtain fair compensation for our expropriated assets in the Province of Newfoundland and Labrador, Canada and the possibility that we could lose any or all of our equity interest in Augusta Newsprint Company. Additional risks that could cause actual results to differ from forward-looking statements are enumerated in our Annual Report on Form 10-K for the year ended December 31, 2008, filed on April 30, 2009, particularly the "Risks Relating to our Creditor Protection Proceedings," as updated in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed on August 11, 2009. All forward-looking statements in this Quarterly Report on Form 10-Q are expressly qualified by the cautionary statements contained or referred to in this section and in our other filings with the United States Securities and Exchange Commission ("SEC") and the Canadian securities regulatory authorities. We disclaim any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise. Market and industry data
Information about industry or general economic conditions contained in this Quarterly Report on Form 10-Q is derived from third-party sources and certain trade publications ("Third-Party Data") that we believe are widely accepted and accurate; however, we have not independently verified this information and cannot provide assurances of its accuracy.
Our Financial Information and the Going Concern Assumption The discussion should be read in conjunction with, and is qualified in its entirety by reference to, our unaudited interim consolidated financial statements and related notes appearing in Item 1 of this Quarterly Report on Form 10-Q ("Unaudited Interim Consolidated Financial Statements"), which have been prepared assuming that AbitibiBowater will continue as a going concern. The going concern basis of presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the commencement of the Creditor Protection Proceedings (as defined and discussed below) raises substantial doubt about our ability to continue as a going concern. The Creditor Protection Proceedings and our debtor in possession financing arrangements, which are discussed below under "Liquidity and Capital Resources," provide us with a period of time to stabilize our operations and financial condition and develop a comprehensive restructuring plan. Management believes that these actions make the going concern basis of presentation appropriate. However, it is not possible to predict the outcome of these proceedings and as such, the realization of assets and discharge of liabilities are each subject to significant uncertainty. Further, our ability to continue as a going concern is dependent on market conditions and our ability to successfully develop and implement a comprehensive restructuring plan and improve profitability, obtain alternative financing to replace our debtor in possession financing arrangements and restructure our obligations in a manner that allows us to obtain confirmation of a plan of reorganization by the Courts (as defined below). However, it is not possible to predict whether the actions taken in our restructuring will result in improvements to our financial condition sufficient to allow us to continue as a going concern. If the going concern basis is not appropriate, adjustments will be necessary to the carrying amounts and/or classification of our assets and liabilities. Further, a comprehensive restructuring plan could materially change the carrying amounts and classifications reported in our Unaudited Interim Consolidated Financial Statements and could result in additional long-lived asset impairment charges. The assets and liabilities in our Unaudited Interim Consolidated Financial Statements do not reflect any adjustments related to such a comprehensive restructuring plan, except for the charges related to indefinite idlings and permanent closures, as discussed in Note 3, "Creditor Protection Proceedings Related Disclosures - Reorganization item, net," to our Unaudited Interim Consolidated Financial Statements.
Creditor Protection Proceedings
U.S. and Canadian filings for creditor protection Our Abitibi and Bowater subsidiaries experienced significant recurring losses in recent years, which resulted in significant negative operating cash flows. As global economic conditions dramatically worsened beginning in 2008, these entities each experienced significant pressure on their business and a deterioration of their liquidity. The extreme volatility in the global equity and credit markets further compounded the situation by limiting our ability to refinance our debt obligations. During the first quarter of 2009, both Abitibi and Bowater experienced severe liquidity crises due to the continued negative operating cash flows resulting from lower sales activity due principally to current conditions in the industry and the global economy and faced large impending debt maturities and repayment obligations. Both Abitibi and Bowater attempted various refinancing efforts in the first quarter of 2009, which were ultimately unsuccessful. Therefore, on April 16, 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions (collectively, the "Chapter 11 Cases") in the United States Bankruptcy Court for the District of

ABITIBIBOWATER INC. Delaware (the "U.S. Court") for relief under the provisions of Chapter 11 of the United States Bankruptcy Code, as amended ("Chapter 11"). In addition, on April 17, 2009, certain of AbitibiBowater Inc.'s Canadian subsidiaries sought creditor protection (the "CCAA Proceedings") under the Companies' Creditors Arrangement Act (the "CCAA") with the Superior Court of Quebec in Canada (the "Canadian Court"). On April 17, 2009, Abitibi and its wholly-owned subsidiary, Abitibi-Consolidated Company of Canada ("ACCC"), each filed a voluntary petition for provisional and final relief (the "Chapter 15 Cases") in the U.S. Court under the provisions of Chapter 15 of the United States Bankruptcy Code, as amended, to obtain recognition and enforcement in the United States of certain relief granted in the CCAA Proceedings. The Chapter 11 Cases, the Chapter 15 Cases and the CCAA Proceedings are collectively referred to as the "Creditor Protection Proceedings." The U.S. Court and the Canadian Court are collectively referred to as the "Courts." Our wholly-owned subsidiaries that operate the Bridgewater, United Kingdom and Mokpo, South Korea operations and almost all of our less than wholly-owned subsidiaries continue to operate outside of the Creditor Protection Proceedings.
We initiated the Creditor Protection Proceedings in order to enable us to pursue reorganization efforts under the protection of Chapter 11 and the CCAA. The Creditor Protection Proceedings allow us to reassess our business strategy with a view to developing a comprehensive financial and business restructuring plan. We remain in possession of our assets and properties and continue to operate our business and manage our properties as "debtors in possession" under the jurisdiction of the Courts and in accordance with the applicable provisions of Chapter 11 and the CCAA. In general, we and our subsidiaries are authorized to continue to operate as ongoing businesses, but may not engage in transactions outside the ordinary course of business without the approval of the relevant Court(s) or the Monitor (as defined below), as applicable.
The commencement of the Creditor Protection Proceedings constituted an event of default under substantially all of our pre-petition debt obligations, and those debt obligations became automatically and immediately due and payable by their terms, although any action to enforce such payment obligations is stayed as a result of the commencement of the Creditor Protection Proceedings. Due to the commencement of the Creditor Protection Proceedings, unsecured pre-petition debt obligations of $4,885 million are included in "Liabilities subject to compromise" in our Unaudited Consolidated Balance Sheets included in our Unaudited Interim Consolidated Financial Statements ("Unaudited Consolidated Balance Sheets") as of September 30, 2009. Secured pre-petition debt obligations of $1,092 million (consisting of Abitibi's $413 million 13.75% Senior Secured Notes due 2011, Abitibi's $347 million senior secured term loan and Bowater's $332 million bank credit facilities) are included in current liabilities in our Unaudited Consolidated Balance Sheets as of September 30, 2009. See Note 3, "Creditor Protection Proceedings Related Disclosures -Liabilities subject to compromise," to our Unaudited Interim Consolidated Financial Statements. Debtor in possession financing arrangements In the Creditor Protection Proceedings, we have: (i) sought and obtained final approval by the Courts to enter into a debtor in possession financial facility for the benefit of AbitibiBowater Inc. and certain of our Bowater subsidiaries,
(ii) sought and obtained final approval by the Canadian Court to enter into a debtor in possession financial facility for the benefit of Abitibi and Donohue Corp. ("Donohue"), an indirect, wholly-owned subsidiary of AbitibiBowater Inc., which was a wholly-owned subsidiary of ACCC prior to April 1, 2008, and
(iii) obtained final approval by the Courts to amend and restate, in its entirety, the Abitibi and Donohue existing accounts receivable securitization program. We currently expect to replace the Abitibi and Donohue debtor in possession financial facility with a similar facility entered into with a wholly-owned unlimited liability company subsidiary in connection with the sale of our 60% interest in Manicouagan Power Company. Each of these financing arrangements is discussed in further detail under "Liquidity and Capital Resources." Reorganization process General The Courts have issued a variety of orders on either a final or interim basis intended to support our business continuity throughout the restructuring process. These orders include, among other things, authorization to:
� make payments relating to certain employees' pre-petition wages, salaries and benefit programs in the ordinary course;

� ensure the continuation of existing cash management systems;

ABITIBIBOWATER INC. � honor certain ongoing customer obligations;

� repudiate certain customer, supplier and other contracts;

� enter into the Bowater DIP Agreement and the Abitibi DIP Agreement (both defined and discussed below under "Liquidity and Capital Resources");

� enter into the Abitibi and Donohue second amended and restated accounts receivable securitization program on June 16, 2009 (as discussed below under "Liquidity and Capital Resources");

� conduct certain asset sales, including our interest in Manicouagan Power Company, as discussed in Note 9, "Assets Held for Sale, Liabilities Associated with Assets Held for Sale and Net Gain on Disposition of Assets," to our Unaudited Interim Consolidated Financial Statements;

� settle certain intercompany obligations; and

� restructure our European sales structure.

We also obtained an order from the Canadian Court on May 8, 2009, specifying that the payment of special contributions for past service to Canadian pension plans maintained by Abitibi and Bowater could be suspended. Abitibi and Bowater continue to make their respective pension plan contributions for current service costs. Special contributions for past service that were suspended amounted to approximately $102 million for Abitibi and approximately $57 million for Bowater on an annual basis.
We have retained legal and financial professionals to advise us on the Creditor Protection Proceedings and may, from time to time, retain additional professionals, subject to any applicable Court approval.
On April 28, 2009, the United States Trustee for the District of Delaware appointed an official committee of unsecured creditors (the "Creditors' Committee") in the Chapter 11 Cases pursuant to the requirements of Chapter 11. The Creditors' Committee and its legal representatives have a right to be heard on all matters that come before the U.S. Court with respect to us. Under the terms of a Canadian Court order, Ernst & Young Inc. serves as the court-appointed monitor under the CCAA Proceedings (the "Monitor") and is assisting us in formulating our restructuring plan. Stay of proceedings
Subject to certain exceptions under Chapter 11 and the CCAA, our filings (and in Canada, the Initial Order, as defined below) automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against us and our property to recover, collect or secure a claim arising prior to the filing of the Creditor Protection Proceedings. Thus, for example, most creditor actions to obtain possession of property from us, or to create, perfect or enforce any lien against our property, or to collect on monies owed or otherwise exercise rights or remedies with respect to a pre-petition claim, are enjoined unless and until the Courts lift such stay.
We began notifying all known current or potential creditors regarding these filings shortly after the commencement of the Creditor Protection Proceedings. We have successfully applied on several occasions to the Canadian Court in order to enforce the stay of proceedings against creditors acting in breach of the stay.
Rejection and repudiation of contractual obligations Under Section 365 and other relevant sections of Chapter 11, we may assume, assume and assign, or reject certain executory contracts and unexpired leases, including leases of real property and equipment, subject to the approval of the U.S. Court and certain other conditions. Similarly, pursuant to the initial order issued by the Canadian Court on April 17, 2009 (the "Initial Order"), we have the right to, among other things, repudiate agreements, contracts or arrangements of any nature whatsoever, whether oral or written, subject to the approval of the Monitor or further order of the Canadian Court. Any description of an agreement, contract, unexpired lease or arrangement in this Quarterly Report on Form 10-Q must be read in light of these overriding rights pursuant to
Section 365 of Chapter 11 and to the CCAA, as applicable.
Since initiating the Creditor Protection Proceedings, we have engaged and will continue to engage in a review of our various agreements in light of the overriding rights described above. Some of the more important steps we have taken relating to the rejection and repudiation of contractual obligations include the following:

ABITIBIBOWATER INC. � We repudiated certain supply contracts between Abitibi and SFK Pate S.E.N.C. and on May 21, 2009, the Canadian Court rejected a motion by SFK Pate S.E.N.C. to overturn that repudiation.

� On June 15, 2009, we filed a motion with the U.S. Court to reject an amended and restated call agreement in respect of Augusta Newsprint Inc., an indirect subsidiary of The Woodbridge Company Limited and our partner in Augusta Newsprint Company, which is the partnership that owns and operates the Augusta, Georgia newsprint mill. The agreement granted Abitibi Consolidated Sales Corporation, an indirect, wholly-owned subsidiary of AbitibiBowater Inc., the right, which it did not expect to exercise under current economic conditions, to buy out Augusta Newsprint Inc. at a pre-determined price before the end of the current fiscal year, failing which our partner's parents could force the sale of Augusta Newsprint Company and retain a pre-established amount of the proceeds, which we believe would have significantly exceeded the value of the partner's interest in the partnership. The U.S. Court granted our motion on October 27, 2009 and our counterparties to the amended and restated call agreement filed a Notice of Appeal with the U.S. Court on November 3, 2009.

� Bowater Canadian Forest Products Inc. ("BCFPI"), a subsidiary of Bowater, Abitibi and ACCC repudiated certain contracts with Boralex Dolbeau Inc. and on July 28, 2009, we obtained a motion De Bene Esse to confirm our repudiation of those contracts in light of injunctions issued by the Canadian Court and the Court of Appeal of Quebec on January 22, 2008 and October 8, 2008, respectively, initially preventing such actions. Following our repudiation of these contracts, our Dolbeau, Quebec facility has been effectively idled since July 7, 2009.

� On September 14, 2009, we repudiated certain of Abitibi's shipping contracts with Spliethoff Transport B.V. based on expected savings and more favorable contractual terms with a new shipper. Spliethoff Transport B.V. challenged our repudiation and the matter is currently before the Canadian Court.

� The Debtors, as defined in Note 3, "Creditor Protection Proceedings Related Disclosures - Liabilities subject to compromise," to our Unaudited Interim Consolidated Financial Statements have rejected and repudiated a number of leases, including leases of real estate and equipment. The Debtors included in the Chapter 11 Cases are subject to a November 12, 2009 deadline to assume or reject unexpired leases of nonresidential real property.

For additional information, see Note 3, "Creditor Protection Proceedings Related Disclosures - Reorganization items, net and - Liabilities subject to compromise," to our Unaudited Interim Consolidated Financial Statements. Procedures for filing a proof of claim
Holders of pre-petition non-excluded claims are required to file a proof of claim by the bar date, which is the date by which claims against us (subject to certain exceptions) must be filed for a claimant to receive any distribution in the Creditor Protection Proceedings. On August 26, 2009 and September 3, 2009, the Canadian Court and the U.S. Court, respectively, granted our motions to establish November 13, 2009 as the bar date for certain claims generally representing the majority of our creditors. We have notified the majority of our creditors and potential creditors of the bar date and the requirement to file a proof of claim with the Courts.
The applicable procedure for the investigation of discrepancies between liability amounts estimated by us and claims filed by our creditors and for the valuation of liabilities will be established by the Courts at a later date. The determination of how liabilities will ultimately be treated cannot be made until the Courts approve a plan of reorganization. Accordingly, the ultimate amount or treatment of such liabilities is not determinable at this time. Plan of reorganization
In order to successfully exit from Chapter 11 and the CCAA, we will be required to propose and obtain approval from affected creditors and confirmation by the Courts of a plan of reorganization that satisfies the requirements of Chapter 11 and the CCAA. An approved plan of reorganization would resolve our pre-petition obligations, set forth the revised capital structure of the newly reorganized entity and provide for corporate governance following our exit from Chapter 11 and the CCAA.
In the United States, Chapter 11 provides that we have the exclusive right for 120 days after the filing of the Creditor Protection Proceedings to file a plan of reorganization with the U.S. Court. On August 4, 2009, the U.S. Court entered an order extending our exclusive right to file a plan of reorganization and solicit votes thereon until December 14, 2009 and February 10, 2010, respectively. We will likely file additional motions to request extensions of this exclusivity period, which we believe are routinely granted for up to 18 months in cases of this size and complexity. If our exclusivity period were to lapse, any party in interest would be able to file a plan of reorganization. In addition to being voted on by holders of impaired claims and equity interests, a plan of reorganization must satisfy certain requirements of Chapter 11 and must be approved or confirmed by the U.S. Court in order to become effective.
Similarly, in Canada, the Initial Order provides for a general stay of proceedings for an initial period of 30 days. On May 14, 2009, the stay of proceedings was extended until September 4, 2009 and on September 4, 2009, was further extended until December 15, 2009. We will likely file additional motions to request further extensions of this stay of

ABITIBIBOWATER INC. proceedings, which we believe are routinely granted for up to 18 months in cases of this size and complexity. The Initial Order provides that a plan of reorganization under the CCAA must be filed with the Canadian Court before the termination of the stay of proceedings or such other time or times as may be allowed by the Canadian Court. Third parties could thereafter seek permission to file a plan of reorganization. In addition to being voted on by the required majority of holders of impaired claims and equity interests, a plan of reorganization must satisfy certain requirements of the CCAA and must be approved or confirmed by the Canadian Court in order to become effective. The timing of filing a plan of reorganization by us will depend on the timing and outcome of numerous other ongoing matters in the Creditor Protection Proceedings. There can be no assurance that a plan of reorganization will be . . .