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<SEC-DOCUMENT>0000950144-04-010739.txt : 20041109
<SEC-HEADER>0000950144-04-010739.hdr.sgml : 20041109
<ACCEPTANCE-DATETIME>20041109151805
ACCESSION NUMBER:		0000950144-04-010739
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041109
DATE AS OF CHANGE:		20041109

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BOWATER INC
		CENTRAL INDEX KEY:			0000743368
		STANDARD INDUSTRIAL CLASSIFICATION:	PAPER MILLS [2621]
		IRS NUMBER:				620721803
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-08712
		FILM NUMBER:		041129251

	BUSINESS ADDRESS:	
		STREET 1:		55 EAST CAMPERDOWN WAY
		STREET 2:		P O BOX 1028
		CITY:			GREENVILLE
		STATE:			SC
		ZIP:			29601
		BUSINESS PHONE:		8642717733

	MAIL ADDRESS:	
		STREET 1:		55 EAST CAMPERDOWN WAY
		STREET 2:		P O BOX 1028
		CITY:			GREENVILLE
		STATE:			SC
		ZIP:			29602
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>g91750e10vq.htm
<DESCRIPTION>BOWATER INCORPORATED
<TEXT>
<HTML>
<HEAD>
<TITLE>Bowater Incorporated</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 14pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt"><B>FORM 10-Q</B></DIV>


<P align="left" style="font-size: 10pt">(Mark One)


<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#091;X&#093;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES<BR>
EXCHANGE ACT OF 1934</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">For the quarterly period ended <B>September&nbsp;30, 2004</B>



<P align="center" style="font-size: 10pt">OR


<DIV align="center">
<TABLE style="font-size: 12pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&#091;&nbsp;&nbsp;&#093;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES<BR>
EXCHANGE ACT OF 1934</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">For the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to



<P align="left" style="font-size: 10pt">Commission file number&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1-8712



<P align="center" style="font-size: 24pt"><B>BOWATER INCORPORATED</B>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Delaware
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">62-0721803</TD>
</TR>

<TR style="font-size: 1px">
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of<BR>
incorporation or organization)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer<BR>
Identification No.)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3" valign="top" align="center"><BR>55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602</TD>
</TR>

<TR valign="bottom">
    <TD colspan="3" valign="top" align="left"><HR size="1" noshade width="100%" align="center"></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">(Address of principal executive offices)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">(Zip Code)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">(864)&nbsp;271-7733
<HR noshade size="1" width="35%" align="center">
<DIV align="center" style="font-size: 10pt">
(Registrant&#146;s telephone number, including area code)
</DIV>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days.&nbsp;&nbsp;Yes &#091;X&#093;&nbsp;&nbsp;No&nbsp;&nbsp;&#091;&nbsp;&nbsp;&#093;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule&nbsp;12b-2 of the Exchange Act).&nbsp;&nbsp;Yes &#091;X&#093;&nbsp;&nbsp;No&nbsp;&nbsp;&#091;&nbsp;&nbsp;&#093;


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate the number of shares outstanding of each of the issuer&#146;s classes
of common stock, as of November&nbsp;01, 2004.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Class
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Outstanding at November&nbsp;01, 2004</TD>
</TR>

<TR style="font-size: 1px">
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">Common Stock, $1.00 Par Value
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">55,649,739 Shares</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED</B>

<DIV align="center" style="font-size: 10pt"><B>I N D E X</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="89%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">PART I FINANCIAL INFORMATION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">1. Financial Statements:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><A href="#101">Consolidated Statement of Operations for the Three and Nine Months
Ended September&nbsp;30, 2004, and 2003</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><A href="#102">Consolidated Balance Sheet at September&nbsp;30, 2004, and December&nbsp;31, 2003</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><A href="#103">Consolidated Statement of Capital Accounts for the Nine Months Ended
September&nbsp;30, 2004</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><A href="#104">Consolidated Statement of Cash Flows for the Nine Months Ended
September&nbsp;30, 2004 and 2003</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px"><A href="#105">Notes to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7&#150;18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#106">2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19&#150;37</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#107">3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#108">4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#109">PART II OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#110">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#111">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#112">SIGNATURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED</B>


<DIV align="left">
<A name="101"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENT OF OPERATIONS<BR>
(Unaudited, in millions of US dollars except per-share amounts)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">834.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">690.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,367.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,985.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of sales, excluding depreciation, amortization
and cost of timber harvested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">586.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">556.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,731.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,626.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation, amortization and cost of timber harvested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">193.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Selling and administrative expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net gain on sale of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other expense (income)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense, net of capitalized interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss before income taxes, minority interests
and cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(96.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(99.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(211.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Provision for income tax expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(44.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(52.4</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interests in net income (loss)&nbsp;of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss before cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(54.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(149.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(18.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(154.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other comprehensive loss, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Minimum pension liability adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unrealized (loss)&nbsp;gain on hedged transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(61.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(91.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(57.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Loss before cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.96</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.63</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Loss before cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.96</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.63</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Cumulative effect of accounting changes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.04</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.08</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Dividends declared per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.60</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to consolidated financial statements




<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED</B>


<DIV align="left">
<A name="102"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED BALANCE SHEET<BR>
(Unaudited, in millions of US dollars)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">421.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">308.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">293.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unrealized gain on hedged transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">889.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">843.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Timber and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">185.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,358.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,557.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,458.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,615.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px">LIABILITIES AND SHAREHOLDERS&#146; EQUITY</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current installments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term bank debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">434.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividends payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">553.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">659.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term debt, net of current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,425.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,292.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pension, other post-retirement benefits and other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">499.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">481.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">419.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">500.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interests in subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commitments and contingencies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shareholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, $1 par value. Authorized 100,000,000 shares; issued
67,267,851 and 67,048,804 shares at September&nbsp;30, 2004
and December&nbsp;31, 2003, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Exchangeable shares, no par value. Unlimited shares authorized;
1,596,765 and 1,641,312 outstanding at September&nbsp;30, 2004
and December&nbsp;31, 2003, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,610.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,602.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(86.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(47.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Treasury stock, at cost, 11,608,784 and 11,611,203 shares at
September&nbsp;30, 2004 and December&nbsp;31, 2003, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(486.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(486.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,494.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,612.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,458.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,615.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to consolidated financial statements



<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED</B>


<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS<BR>
For The Nine Months Ended September&nbsp;30, 2004<BR>
(Unaudited, in millions of US dollars except per-share amounts)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exchangeable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unearned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Comprehensive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Treasury</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Earnings</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Loss</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">78.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,602.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">399.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(47.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(486.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Retraction of exchangeable shares (44,547 shares issued
and exchangeable shares retracted)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Dividends ($0.60 per share)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign currency translation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stock options exercised (174,500 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Tax benefit on exercise of stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pension plan additional minimum liability,
net of tax benefit of $0.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Treasury stock used for dividend reinvestment plans and
to pay employee and director benefits (2,419 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrealized loss on hedged transactions,
net of tax benefit of $23.9</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Balance at September&nbsp;30, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">67.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,610.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">313.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(86.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(486.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to consolidated financial statements



<P align="center" style="font-size: 10pt">5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED</B>


<DIV align="left">
<A name="104"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONSOLIDATED STATEMENT OF CASH FLOWS<BR>
(Unaudited, in millions of US Dollars)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="77%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from operating activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(154.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Adjustments to reconcile net loss to net cash
from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative
effect of accounting changes, net of taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation, amortization and cost of
timber harvested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">254.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">253.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(57.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortization of unearned compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interests in net loss of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net gain on fixed assets and land sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(119.2</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Changes in working capital:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(29.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(31.2</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(26.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash from operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash
flows from (used for) investing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash invested in fixed assets, timber and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(60.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(186.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Disposition of assets, including timber and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash used for investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Cash flows from (used for) financing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash dividends, including minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Short-term financing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">540.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">693.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Short-term financing repayments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(683.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(784.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term financing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">394.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Payments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(113.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(272.0</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stock options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net cash used for financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net decrease in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash paid during the period for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest, including capitalized interest of $0 and $7.5</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">121.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">114.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to consolidated financial statements



<P align="center" style="font-size: 10pt">6
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED</B>


<DIV align="left">
<A name="105"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>Notes to Consolidated
Financial Statements - Unaudited</B></DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basis of Presentation</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The accompanying consolidated financial statements include the accounts of
Bowater Incorporated and subsidiaries (&#147;Bowater&#148;). The consolidated balance
sheet as of September&nbsp;30, 2004 and the related statements of operations,
capital accounts and cash flows for the periods ended September&nbsp;30, 2004 and
2003 are unaudited. In our opinion, all adjustments (consisting of normal
recurring adjustments) necessary for fair presentation of the interim
financial statements have been made. The results of the interim period ended
September&nbsp;30, 2004 are not necessarily indicative of the results to be
expected for the full year. These financial statements should be read in
conjunction with the consolidated financial statements, critical accounting
policies, significant accounting policies and the notes to the consolidated
financial statements included in our most recent Annual Report on Form 10-K.
Certain prior-year amounts in the financial statements and the notes have
been reclassified to conform to the 2004 presentation. The reclassifications
had no effect on total shareholders&#146; equity or net loss.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Timber and Timberlands</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The acquisition cost of land and timber, property taxes, lease payments, site
preparation and other costs related to the planting and growing of timber are
capitalized. Capitalization policies are consistent prior to and during
harvesting. These costs, excluding land, are charged against revenue at the
time the timber is harvested, based on annually determined depletion rates,
and are included in the line titled &#147;Depreciation, amortization and cost of
timber harvested&#148; in the Consolidated Statement of Operations. Growth and
yield models are used to estimate timber volume on our land from year to
year. These volumes affect the depletion rates, which is calculated annually
based on the capitalized costs and the total timber volume based on the
current stage of the growth cycle.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revenue Recognition</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater ships all products directly from its manufacturing sites to a
customer&#146;s location or to a customer-designated site. In accordance with
Securities and Exchange Commission&#146;s Staff Accounting Bulletin (&#147;SAB&#148;) No.
104, regarding revenue recognition, we recognize revenue only when all of the
following criteria are met: persuasive evidence of an arrangement exists;
delivery has occurred; the seller&#146;s price to the buyer is fixed or
determinable; and collectibility is reasonably assured.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Asset Retirement Obligations</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Effective January&nbsp;1, 2003, Bowater adopted Statement of Financial Accounting
Standards (&#147;SFAS&#148;) No.&nbsp;143, &#147;Accounting for Asset Retirement Obligations.&#148;
This Statement requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred and for
which a reasonable estimate of a fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
related long-lived asset. Subsequently, the asset retirement costs are to be
allocated to expense using a systematic and rational method and the liability
is to be accreted to its face amount.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the adoption of SFAS No.&nbsp;143, we recorded a cumulative
effect charge, net of taxes, of $2.1&nbsp;million (or $0.04 per share) to our
consolidated statement of operations for the first quarter of 2003. The
adoption adjustment also included a net increase to fixed assets of $0.9
million, long-term obligations of $4.3&nbsp;million and deferred tax assets of
$1.3&nbsp;million. Asset retirement obligations were recorded for those
obligations where a legally
enforceable obligation exists, the life is determinable and a reasonable
estimate of fair value can be made. Asset retirement obligations recorded in
connection with the adoption of SFAS No.&nbsp;143 were primarily for industrial
waste landfills, bark piles and sludge basins where we have a legally
enforceable obligation to perform capping and post closure monitoring
procedures upon closing of these assets. Prior to SFAS No.&nbsp;143, Bowater had
not recorded an obligation for these asset retirement obligations. Bowater
has not had to legally restrict these assets for purposes of settling its
asset retirement obligations.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">7
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Additionally, we have certain asset retirement obligations that have
indeterminate useful lives and thereby have an indeterminate settlement date
for the related asset retirement obligation. As a result, no asset
retirement obligation has been recorded for these assets. These assets
include, for example, wastewater and effluent ponds that will be required to
be drained once the related operating facility is closed and removal of
chemicals and other related materials from storage sites on owned facilities
once the related operating facility is closed. Once the life of these assets
becomes determinable and an estimate of fair value can be made, an asset
retirement obligation will be recorded.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following table describes changes to Bowater&#146;s asset retirement
obligation liability for the periods ended September&nbsp;30, 2004 and 2003:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Asset retirement obligation at the beginning of
period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right">4.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative effect adjustment of adoption of
SFAS No.&nbsp;143</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Payments against asset retirement obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accretion expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Asset retirement obligation at the end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Off-Balance Sheet Arrangement &#150; FIN 46, Consolidation of Variable
Interest Entities</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, the Financial Accounting Standards Board (&#147;FASB&#148;) issued
Financial Interpretation (&#147;FIN&#148;) No.&nbsp;46, &#147;Consolidation of Variable Interest
Entities.&#148; Many variable interest entities (&#147;VIEs&#148;) have commonly been
referred to as special-purpose entities or off-balance sheet structures. In
general, a VIE is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a)&nbsp;does not have equity
investors with voting rights or (b)&nbsp;has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN
46 requires a VIE to be consolidated by a company if that company is subject
to a majority of the risk of loss from the VIE&#146;s activities or entitled to
receive a majority of the entity&#146;s residual returns or both. The
consolidation requirements of FIN 46 apply immediately to VIEs created after
January&nbsp;31, 2003. The consolidation requirements apply to older entities in
the first fiscal year or interim period beginning after June&nbsp;15, 2003.
Certain of the disclosure requirements apply in all financial statements
issued after January&nbsp;31, 2003, regardless of when the VIE was established.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In October&nbsp;2003, the FASB issued FASB Staff Position FIN 46-6 which (i)
deferred the implementation of FIN 46 for VIEs created before February&nbsp;1,
2003, for periods ending after December&nbsp;15, 2003, and (ii)&nbsp;permitted early
adoption of FIN 46 before the end of the deferral period for some or all VIEs
in which an entity holds an interest. Effective July&nbsp;1, 2003, Bowater early
adopted FIN 46 specific to the Covington, Tennessee paper coating facility
(referred to as &#147;Nuway&#148;) which had been financed through a special purpose
entity (&#147;SPE&#148;). This SPE was determined to be a VIE and required to be
consolidated by Bowater in accordance with FIN 46. As such, in the third
quarter of 2003, Bowater consolidated assets of approximately $49.4&nbsp;million
and debt of approximately $51.8&nbsp;million and recorded a non-cash, after tax
cumulative effect charge, of $2.4&nbsp;million (or $0.04 per share). On August
11, 2003, Bowater terminated the lease agreement with the SPE and paid
approximately $51.8&nbsp;million to pay off the debt.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The pro forma effects of the application of FIN 46, as if the statement had
been adopted on January&nbsp;1, 2003 (rather than July&nbsp;1, 2003) are presented
below:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions, except per-share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(155.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.73</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2003, the FASB issued a revision to FIN 46 (&#147;FIN 46R&#148;). Under
the new FIN 46R guidance, application of FIN 46R is required in financial
statements of entities that have interests in structures that are commonly
referred to as special-purpose entities for periods ending after December&nbsp;15,
2003. Application for all other types of variable interest entities is
required in financial statements for periods ending after March&nbsp;15, 2004.
Bowater completed its adoption of FIN 46R in the first quarter of 2004.
Adoption of FIN 46R had no impact on Bowater&#146;s Consolidated Financial
Statements.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock Based Compensation</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater accounts for stock-based compensation utilizing the intrinsic value
method in accordance with Accounting Principles Board (&#147;APB&#148;) Opinion No.&nbsp;25,
&#147;Accounting for Stock Issued to Employees.&#148; Under APB No.&nbsp;25, compensation
expense for employee stock options is generally not recognized if the
exercise price of the option equals or exceeds the fair value of the
underlying stock on the date of grant.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following table represents the pro forma effect on net loss and loss per
share if we had applied the fair value-based method and recognition
provisions of SFAS No.&nbsp;123 &#147;Accounting for Stock-Based Compensation.&#148; The
estimated fair value of the option is amortized to expense over the vesting
period of the option award, in accordance with the provisions of SFAS No.
123.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions, except per-share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss as reported:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(18.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(56.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(51.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(154.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Add: Stock-based compensation expense included in
net
loss, net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>0.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-30px">Deduct: Stock-based compensation expense
determined under fair value based methods, net of
related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(5.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.6</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pro forma net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(19.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(58.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(56.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(158.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.32</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic, pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.35</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.00</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.78</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.32</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted, pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.35</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.02</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.00</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.78</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The fair value of each option granted in the nine months ended September&nbsp;30,
2004 and 2003, was estimated on the date of grant using the Black-Scholes
option-pricing model with the weighted average assumptions below. There were
no options granted during the three-months ended September&nbsp;30, 2004 and 2003.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assumptions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividend yield</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>1.80</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.96</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>30.60</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">31.77</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>3.40</B></TD>
    <TD nowrap><B>%</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">3.35</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Expected option lives in years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6.80</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.24</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Weighted average fair value of each option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>13.88</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2004, Bowater granted 862,000 options pursuant to its 2002 stock
option plan at an exercise price of approximately $45 per share. The options
generally become exercisable over a period of two years and expire 10&nbsp;years
from date of grant.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;28, 2003, Bowater granted 82,510 restricted stock awards to
certain officers under the 2002 stock option plan. In accordance with APB
No.&nbsp;25, Bowater is recognizing a compensation charge over the vesting periods
equal to the fair market value of these shares on the date of the grant. The
expense measured under SFAS No.&nbsp;123 does not differ from that under APB No.
25. Shares of restricted stock awarded under the 2002 plan vest over a
two-year period and are subject to forfeiture in the event of termination of
employment prior to the vesting dates. Prior to vesting, the participants
may vote and receive dividends. The market value of the restricted shares
granted on January&nbsp;28, 2003 was approximately $3.3&nbsp;million and was recorded
in the first quarter of 2003 as unearned compensation, which is a separate
component of shareholders&#146; equity. Bowater recorded compensation expense
related to the amortization of unearned compensation of approximately $0.2
million and $0.7&nbsp;million for the three and nine-month periods ended September
30, 2004, respectively and approximately $0.6&nbsp;million and $1.6&nbsp;million for
the three and nine-month periods ended September&nbsp;30, 2003, respectively.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Net Gain (Loss) on Fixed Assets and Land Sales</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the three and nine months ended September&nbsp;30, 2004, Bowater recorded a
net pre-tax gain of $1.7&nbsp;million, or $0.01 per diluted share after tax and
$5.9&nbsp;million, or $0.07 per diluted share after tax, respectively, related to
land sales and gains or losses on fixed assets.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the three and nine months ended September&nbsp;30, 2003, Bowater recorded a
net pre-tax gain of $4.1&nbsp;million, or $0.04 per diluted share after tax, and
$119.2&nbsp;million, or $1.3 per diluted share after tax, respectively, related to
land sales and gains or losses on fixed assets. In the second quarter of
2003, Bowater completed the sale of 81,768 acres of owned and leased
timberlands for aggregate consideration of $121.8&nbsp;million. This transaction
resulted in a pre-tax gain of approximately $97.5&nbsp;million.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Other (Income) Expense</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&#147;Other, net&#148; in the Consolidated Statement of Operations includes the
following:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="54%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign exchange (gain)&nbsp;loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income from joint venture</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.7</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(3.2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Miscellaneous income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(0.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(3.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.6</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(1.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(6.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Accumulated Other Comprehensive Loss</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The components of &#147;Accumulated other comprehensive loss&#148; in the Consolidated
Balance Sheet are as follows:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pension plan additional minimum liabilities (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(158.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(156.9</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign currency translation (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrealized gain on hedging transactions (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>67.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(86.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(47.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Net of deferred tax benefit of $88.7&nbsp;million and $88.2&nbsp;million,
respectively.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No tax effect is recorded for foreign currency translation since the
foreign net assets translated are deemed permanently invested.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Net of deferred tax expense of $41.6&nbsp;million and $65.5&nbsp;million,
respectively.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Loss Per Share</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basic and diluted loss per share are based on net loss and do not include any
impact from &#147;Other comprehensive loss.&#148; The calculation of basic and diluted
loss per share after cumulative effect of accounting changes is as follows:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="59%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions, except per-share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Basic computation:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic loss available to common shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(18.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(56.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(51.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(154.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>57.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>57.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.32</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Diluted computation:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted loss available to common shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(18.1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(56.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(51.9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(154.1</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>57.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>57.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted weighted average shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>57.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>57.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Diluted loss per common share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.32</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(1.00</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(0.91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.71</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The dilutive effect of options outstanding is calculated using the treasury
stock method. Options for approximately 4.7&nbsp;million shares and
4.1&nbsp;million shares outstanding at September&nbsp;30, 2004 and 2003, respectively, were
excluded from the calculation of diluted loss per share as the impact would
have been antidilutive.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Severance Related Liabilities</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>COST REDUCTION PROGRAM:</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with a multifaceted cost reduction initiative announced in the
fourth quarter of 2002 and completed in the fourth quarter of 2003, Bowater
reduced its salaried and hourly workforce at certain locations by
approximately 600 people. The majority of the 600 terminations were part of
either a voluntary or involuntary workforce reduction that included
termination charges for severance, medical, pension, and other benefits.
Total costs associated with the initiative were $47.9&nbsp;million ($34.5&nbsp;million
in 2003 and $13.4&nbsp;million in 2002), including $11.8&nbsp;million of pension
related costs ($5.3&nbsp;million for pension and other postretirement plan
curtailments and $6.5&nbsp;million of other pension plan benefits related to
accelerated pension years of service). The termination costs are classified
as either cost of sales (manufacturing personnel) or selling and
administrative expense (administrative personnel) in the Consolidated
Statement of Operations. Termination costs under the above initiative for
the three and nine-month periods ended September&nbsp;30, 2003, totaled
approximately $4.7&nbsp;million and $29.6&nbsp;million, respectively. Included in the
employee termination costs of $4.7&nbsp;million for the third quarter of 2003 are
pension plan benefits of approximately $1.1&nbsp;million. Payments relating to
the cost reduction initiative for the nine months ended September&nbsp;30, 2004
totaled approximately $8.6&nbsp;million. The remaining accrual at September&nbsp;30,
2004, of $1.5&nbsp;million, which excludes the pension related charges, is
expected to be paid over the remainder of 2004 and is included in &#147;Accounts
payable and accrued liabilities&#148; in the Consolidated Balance Sheet.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following table summarizes the activity of our cost reduction initiative,
by reportable segment, expensed to our Consolidated Statement of Operations:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="79%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expense For Three</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Expense For Nine</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in Millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Employee termination costs by segment:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Newsprint Division</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Coated and Specialty Papers Division</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Canadian Forest Products Division</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Forest Products Division</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following table summarizes the activity for the liabilities described
above, excluding the pension related costs:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Write-offs &#038;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Payments</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Increase</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Against</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Decrease)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Foreign</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Reserve</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Reserve</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exchange</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>30, 2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Employee termination
costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right">9.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right">8.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right"><B>1.5</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>10.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Long-Term and Short-Term Debt and Off-Balance Sheet Debt Guarantees</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;17, 2004, Bowater sold, in a registered offering, $250&nbsp;million of
notes due March&nbsp;15, 2010. Interest on the notes accrue at a rate based on
LIBOR plus 3% and is payable quarterly beginning on June&nbsp;15, 2004. On or
after March&nbsp;15, 2006, Bowater may redeem all or a portion of the notes at any
time. The redemption price will be 102% of the principal amount if redeemed
from March&nbsp;15, 2006 to March&nbsp;14, 2007; 101% if redeemed from March&nbsp;15, 2007
to March&nbsp;14, 2008; and 100% if redeemed on or after March&nbsp;15, 2008. We
received net proceeds from the sale of the notes of $246.2&nbsp;million, which
were net of underwriting fees of $3.8&nbsp;million. These fees are being
amortized over the life of the notes. The proceeds were used to pay amounts
outstanding under the short-term bank debt credit facilities ($146.2&nbsp;million)
and the associated term loan ($100.0&nbsp;million).</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P align="left" style="font-size: 10pt">On April&nbsp;22, 2004, Bowater closed on a new three-year revolving credit
facility due April&nbsp;2007. The new facility provides $400&nbsp;million of revolving
credit in the United States and $35&nbsp;million in Canada. This new facility
replaces the previous $500&nbsp;million three-year credit facility in the United
States and the $100&nbsp;million 364-day credit facility in Canada. Borrowings
under the new facility incur interest based, at our option, on specified
market interest rates plus a margin tied to the credit rating of our
long-term debt. The facility contains various covenants, including
requirements to maintain a minimum consolidated net worth (generally defined
as common shareholders&#146; equity, plus any outstanding preferred stock plus
minimum pension liability amounts) of $1.5&nbsp;billion, a maximum 62.5% ratio of
total debt to total capital (defined as total debt less revaluation of debt
assumed through acquisitions, plus net worth including minority interest,
plus minimum pension liability amounts), and to maintain an annual minimum
EBITDA (generally defined as net income, excluding extraordinary,
non-recurring or non-cash items, plus income taxes plus depreciation plus net
interest expense) of $250.0&nbsp;million measured quarterly, beginning March&nbsp;31,
2005, through December&nbsp;31, 2005, and $400.0&nbsp;million at the end of each
quarter thereafter. If Bowater generates net income, the minimum net worth
requirement increases by half of Bowater&#146;s consolidated net income for each
fiscal quarter (excluding gains from cash flow hedges in place as of December
31, 2003).



<P align="left" style="font-size: 10pt">As of September&nbsp;30, 2004 there was an outstanding amount of $3.0&nbsp;million on
the revolving credit facility in the United States and no outstanding amounts
on the Canadian revolving credit facility. Additionally, there was an
outstanding amount of $60&nbsp;million on the 364-day Accounts Receivable
Securitization Arrangement.



<P align="left" style="font-size: 10pt">Bowater has off-balance sheet debt guarantees of approximately $42.4&nbsp;million
at September&nbsp;30, 2004, with $32.4&nbsp;million related to Ponderay Newsprint
Company (&#147;Ponderay&#148;) and $10.0&nbsp;million related to Timber Note Holdings LLC, a
Qualified Special Purpose Entity.



<P align="left" style="font-size: 10pt">Bowater has a 40% interest in Ponderay, an unconsolidated partnership.
Ponderay has a credit facility with several banks that is made up of two
separate tranches. The first tranche is a $25.0&nbsp;million revolving credit
facility and the second tranche is a $81.0&nbsp;million term loan. Bowater and
the other partners serve as guarantors on the term loan. Ponderay&#146;s
outstanding balance under the term loan at September&nbsp;30, 2004 was $81.0
million. The revolving credit facility has $10&nbsp;million reserved for letters
of credit. There are no other balances outstanding under the revolving
credit facility. Ponderay&#146;s term loan outstanding balance is reduced
annually by its excess cash flows as defined in the credit facility and the
final balance is due at maturity on April&nbsp;12, 2006. Bowater guarantees 40%
of the outstanding balance under the Ponderay term loan (a guarantee of $32.4
million at September&nbsp;30, 2004). Bowater&#146;s guarantee is reduced as the
outstanding balance of the term loan is reduced. Bowater would be required
to perform on the guarantee if Ponderay were to default on its credit
facility and Ponderay&#146;s assets, which collateralize the debt, were
insufficient to pay off the credit facility.



<P align="left" style="font-size: 10pt">In connection with Bowater&#146;s 1999 land sale and note monetization, we
guarantee 25% of the outstanding investor notes principal balance of Timber
Note Holdings LLC. Bowater currently guarantees approximately $10.0&nbsp;million
of the investor notes principal balance. This guarantee is proportionately
reduced by annual principal repayments on the investor notes (annual minimum
repayments of $2.0&nbsp;million) through 2008. The remaining investor notes
principal amount is to be repaid in 2009. Bowater would be required to
perform on the guarantee if Timber Note Holdings LLC were to default on the
investor notes or if there were a default on the notes receivable.



<P align="center" style="font-size: 10pt">13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>11.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Pension and Postretirement Expense</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The components of net periodic benefit costs relating to Bowater&#146;s pension
and other postretirement plans are as follows for the three and nine months
ended September&nbsp;30, 2004 and 2003:</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pension Plans:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Components of net periodic benefit cost<B>:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>8.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>27.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>27.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>81.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Expected return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(27.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(25.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(81.2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(77.9</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of transition amount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.4</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Recognized net actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amount of curtailment loss
recognized (See Note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amount of settlement loss recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cost of special or contractual
termination benefits
recognized (See Note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net periodic benefit cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>12.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>39.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other Postretirement Plans:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Components of net periodic benefit cost<B>:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>3.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Amortization of prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(4.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Recognized net actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net periodic benefit cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>5.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>19.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the &#147;Act&#148;) was passed. The Act introduced a
prescription drug benefit under Medicare Part&nbsp;D as well as a federal subsidy
to sponsors of retiree health care benefit plans that provide a benefit that
is at least actuarially equivalent to Medicare Part&nbsp;D. Our postretirement
benefits include prescription drug benefits for Medicare-eligible retirees.
In March&nbsp;2004, the FASB issued FASB Staff Position (FSP)&nbsp;106-2, &#147;Accounting
and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003&#148; (the Act) that provides guidance
on the accounting for the effects of the Act for employers that sponsor
postretirement health care plans that provide drug benefits. This FSP also
requires those employers to provide certain disclosures regarding the effect
of the federal subsidy provided by the Act.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater adopted FSP 106-2 effective July&nbsp;1, 2004 and applied the prospective
transition method. As a result, a remeasurement of the plan&#146;s assets and
accumulated postretirement benefit obligation (APBO), including the effects</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>




<P align="left" style="margin-left:3%; font-size: 10pt">of the subsidy was made. The remeasurement resulted in a reduction of our
net periodic benefit cost for 2004 of $2.5&nbsp;million, of which $1.25&nbsp;million
will be recorded each in the third and fourth quarters of 2004. The $2.5
million reduction consisted of $0.3&nbsp;million for the reduction of current
period service costs, $1.3&nbsp;million for the reduction of amortization of
actuarial experience loss and $0.9&nbsp;million for reduction in interest costs on
our APBO. The remeasurement changed the prior service cost component of our
APBO by approximately $36.9&nbsp;million.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and Contingencies</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><I>a.</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers&#146;
compensation claims and other matters. We periodically review the status
of these proceedings with both inside and outside counsel. 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 the results of operations in a given quarter or the
year.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><I>b.</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>There have been no material developments to the legal proceedings
described in our annual report on Form 10-K filed on March&nbsp;10, 2004.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Financial Instruments</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater utilizes certain derivative instruments to enhance its ability to
manage risk relating to cash flow exposure. Derivative instruments are
entered into for periods consistent with related underlying cash flow
exposures and do not constitute positions independent of those positions. We
do not enter into contracts for speculative purposes; however, we do, from
time to time enter into commodity and certain forward contracts that are not
accounted for as accounting hedges. On the date into which the derivative
contract is entered we designate the derivative as a cash flow hedge.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We pay a significant portion of the operating expenses of our Canadian mill
sites in Canadian dollars. To reduce our exposure to United States and
Canadian dollar exchange rate fluctuations, we enter into and designate
Canadian dollar forward contracts to hedge certain of our forecasted Canadian
dollar cash outflows at the Canadian mill operations.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The components of the net gain related to cash flow hedges and included in
&#147;Accumulated other comprehensive loss&#148; for the three and nine months ended
September&nbsp;30, 2004 and 2003 are as follows:</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gains resulting from
reclassification to
earnings from Accumulated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(33.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right"><B>(91.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(25.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unrealized gain for change
in value of cash flow
hedges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>55.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>22.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(63.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax (expense)&nbsp;benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(8.4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(57.6</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net gain in Accumulated
other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>13.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right"><B>(39.2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">93.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>We formally document all relationships between hedging instruments and hedged
items, as well as our risk-management objectives and strategies for
undertaking various hedge transactions. We link all hedges that are
designated as cash flow hedges to forecasted transactions. The maximum time
period we have hedged transactions is two years. We also assess, both at the
inception of the hedge and on an on-going basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items. When it is determined that a
derivative is not highly effective as a hedge, we discontinue hedge
accounting prospectively.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Information regarding our Canadian dollar contracts&#146; notional amount,
carrying value, fair market value, and range of exchange rates of the
contracts is summarized in the table below. The notional amount of these
contracts represents the amount of foreign currencies to be purchased or sold
at maturity and does not represent our exposure on these contracts.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Notional</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Net Asset (Liability)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Range Of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>U.S.$/CDN$</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>September 30, 2004 (in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Derivatives</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Market Value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exchange Rates</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Foreign Currency Exchange Agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Buy Currency:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Canadian dollar
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">
Due in 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>127.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>33.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>33.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>.6476 - .6124</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Due in 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>507.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>66.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>66.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>.7489 - .6316</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Due in 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>183.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>.7609 - .7124</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>817.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>109.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>109.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In order to reduce our exposure to exchange rate fluctuations on our Canadian
dollar denominated long-term debt, we enter into Canadian dollar forward
contracts with notional amounts of approximately $100&nbsp;million. These
economic hedge contracts are marked to market through earnings. The
contracts are settled quarterly and gains or losses are included in &#147;Other,
net&#148; in our Consolidated Statement of Operations. At September&nbsp;30, 2004, our
outstanding Canadian dollar forward contracts had notional amounts of $100
million due on December&nbsp;30, 2004. The fair value of the Canadian dollar
forward contracts outstanding at September&nbsp;30, 2004 was a liability of $0.1
million. We recorded gains of $5.9&nbsp;million and $3.3&nbsp;million for the three
and nine months ended September&nbsp;30, 2004, respectively, and gains of $0.1
million and $17.3&nbsp;million for the three and nine months ended September&nbsp;30,
2003, respectively, in the Consolidated Statement of Operations as a result
of these economic hedge contracts.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The counterparties to our derivative financial instruments are substantial
and creditworthy multi-national financial institutions and no one financial
institution has more than 17% of our derivative financial instruments.
Therefore, the risk of counterparty nonperformance is considered to be
remote.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><B>14.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Segment Information</B></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Below is a description of the types of products and services from which each
reportable segment derives its revenues:</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater is organized into five divisions: the Newsprint Division, the Coated
and Specialty Papers Division, the Canadian Forest Products Division, the
Forest Products Division and the Pulp Division. Except for the Pulp
Division, each division is responsible for the sales and marketing of
distinct product lines and the operation of certain manufacturing sites. The
Pulp Division is primarily a marketing and distribution division whose
administrative expenses are included in &#147;Corporate &#038; Other Eliminations.&#148;
Therefore, the other four divisions are our reportable segments. Certain
segment information for the three and nine-month periods ended September&nbsp;30,
2003 has been reclassified to conform to the September&nbsp;30, 2004 presentation.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>NEWSPRINT DIVISION</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Newsprint Division operates seven manufacturing sites (including Ponderay
Newsprint Company, an unconsolidated partnership) in the United States,
Canada and South Korea. The principal product at these manufacturing sites
is newsprint, but several of the sites also produce market pulp and uncoated
specialty papers. This division has primary responsibility for the domestic
and international marketing and sales of newsprint.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P align="left" style="font-size: 10pt">COATED AND SPECIALTY PAPERS DIVISION



<P align="left" style="font-size: 10pt">The Coated and Specialty Papers Division operates a manufacturing site that
produces coated paper, market pulp and uncoated specialty papers, and two
Nuway coating facilities, both located in the United States. This division
has primary responsibility for the marketing and sales of the full spectrum of coated and
uncoated specialty papers manufactured by Bowater.



<P align="left" style="font-size: 10pt">CANADIAN FOREST PRODUCTS DIVISION



<P align="left" style="font-size: 10pt">The Canadian Forest Products Division operates four paper manufacturing sites
in Canada. The division manages 0.4&nbsp;million acres of owned or leased
timberland and over 23.5&nbsp;million acres of Crown-owned land in the Canadian
provinces of Quebec and New Brunswick on which we have cutting rights. The
division also operates eight sawmills and one wood treatment plant, supplies
wood to four paper mills and eight sawmills, and is responsible for the
marketing and sales of its timber and lumber production.



<P align="left" style="font-size: 10pt">FOREST PRODUCTS DIVISION



<P align="left" style="font-size: 10pt">The Forest Products Division manages 1.0&nbsp;million acres of timberland owned or
leased in the United States and the Canadian provinces of Ontario and Nova
Scotia and over 8.3&nbsp;million acres of Crown-owned land in the province of
Ontario on which we have cutting rights. The division also operates five
softwood sawmills, supplies wood fiber to our pulp and paper production sites
and markets and sells timber and southern yellow pine lumber in North
America.



<P align="left" style="font-size: 10pt">PULP DIVISION



<P align="left" style="font-size: 10pt">The Pulp Division markets and distributes market pulp produced by other
divisions. Financial results for the production and sale of market pulp are
included in the Newsprint Division or the Coated and Specialty Papers
Division, depending upon which site manufactures the product. The Pulp
Division&#146;s selling and administrative expenses are included in &#147;Corporate and
Other Eliminations.&#148; Accordingly, no separate results are reported for this
division.



<P align="left" style="font-size: 10pt"><B>Factors management used to identify our segments:</B>



<P align="left" style="font-size: 10pt">Bowater&#146;s reportable segments are business units responsible for the
marketing and sales of different products. They are managed separately
because of the different products they are responsible for manufacturing and
distributing.



<P align="left" style="font-size: 10pt">The line entitled &#147;Segment income (loss)&#148; in the following tables is equal to
&#147;Operating income (loss)&#148; as presented in our Consolidated Statement of
Operations. In addition, none of the income or loss items following
&#147;Operating income (loss)&#148; in our Consolidated Statement of Operations are
allocated to our segments, since they are reviewed separately by Bowater&#146;s
management.



<P align="center" style="font-size: 10pt">17
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED<BR>
Notes to Consolidated Financial Statements - Unaudited</B>



<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">The following tables summarize information about segment profit and loss for
the three and nine-month periods ended September&nbsp;30, 2004 and 2003 and
segment assets as of September&nbsp;30, 2004 and 2003:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Coated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net Gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Canadian</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>on Fixed</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Specialty</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>September 30, 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Newsprint</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Papers</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Land</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sales</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Eliminations</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales-including internal sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>417.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>159.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>220.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>47.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>844.8</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Elimination of intersegment
sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(10.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(10.8</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales - external customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>417.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>159.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>220.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>47.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(10.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>834.0</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40.7</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets at 9/30/04</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,599.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>759.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1,254.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>249.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>595.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>5,458.7</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Coated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net Gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Canadian</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>on Fixed</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Specialty</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>September 30, 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Newsprint</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Papers</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Land</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sales</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Eliminations</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales-including internal sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">355.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">132.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">184.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">706.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Elimination of intersegment
sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales - external customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">690.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets at 9/30/03</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,748.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">753.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,243.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">242.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">635.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,623.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Coated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net Gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Canadian</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>on Fixed</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Specialty</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>September 30, 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Newsprint</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Papers</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Land</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sales</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Eliminations</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales-including internal sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1,213.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>452.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>601.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>131.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,398.9</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Elimination of intersegment
sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(31.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(31.6</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales - external customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,213.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>452.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>601.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>131.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(31.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,367.3</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(16.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(10.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>36.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37.1</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Coated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net Gain</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Canadian</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>on Fixed</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Specialty</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate/</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>September 30, 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Newsprint</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Papers</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Land</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(Unaudited, in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Sales</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Eliminations</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales-including internal sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,066.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">355.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">539.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,042.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Elimination of intersegment
sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales &#150; external customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,066.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">539.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,985.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(74.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(49.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(37.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">119.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">18
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES</B>


<DIV align="left">
<A name="106"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B></DIV>



<P align="left" style="font-size: 10pt"><B>Organization</B>



<P align="left" style="font-size: 10pt">Bowater is organized into five divisions: the Newsprint Division, the Coated
and Specialty Papers Division, the Canadian Forest Products Division, the
Forest Products Division and the Pulp Division. Except for the Pulp Division,
each division is responsible for the sales and marketing of distinct product
lines and the operation of certain manufacturing sites. The Pulp Division is
primarily a marketing and distribution division. Therefore, Bowater&#146;s
financial results are collected, analyzed and reported through the other four
divisions.



<P align="left" style="font-size: 10pt">Newsprint Division



<P align="left" style="font-size: 10pt">The Newsprint Division operates seven manufacturing sites (including Ponderay
Newsprint Company, an unconsolidated partnership) in the United States, Canada
and South Korea. The principal product at these manufacturing sites is
newsprint, but several of the sites also produce market pulp and uncoated
specialty papers. This division has primary responsibility for the domestic
and international marketing and sales of newsprint.



<P align="left" style="font-size: 10pt">Coated and Specialty Papers Division



<P align="left" style="font-size: 10pt">The Coated and Specialty Papers Division operates a manufacturing site that
produces coated paper, market pulp and uncoated specialty papers, and two Nuway
coating facilities, both located in the United States. This division
has primary responsibility for the marketing and sales of the full spectrum of coated and
uncoated specialty papers manufactured by Bowater.



<P align="left" style="font-size: 10pt">Canadian Forest Products Division



<P align="left" style="font-size: 10pt">The Canadian Forest Products Division operates four paper manufacturing sites
in Canada. The division manages 0.4&nbsp;million acres of owned or leased
timberland and over 23.5&nbsp;million acres of Crown-owned land in the Canadian
provinces of Quebec and New Brunswick on which we have cutting rights. The
division also operates eight sawmills and one wood treatment plant, supplies
wood to four paper mills and eight sawmills, and is responsible for the
marketing and sales of its timber and lumber production.



<P align="left" style="font-size: 10pt">Forest Products Division



<P align="left" style="font-size: 10pt">The Forest Products Division manages 1.0&nbsp;million acres of timberland owned or
leased in the United States and the Canadian provinces of Ontario and Nova
Scotia and over 8.3&nbsp;million acres of Crown-owned land in the province of
Ontario on which we have cutting rights. The division also operates five
softwood sawmills, supplies wood fiber to our pulp and paper production sites
and markets and sells timber and southern yellow pine lumber in North America.



<P align="left" style="font-size: 10pt">Pulp Division



<P align="left" style="font-size: 10pt">The Pulp Division markets and distributes market pulp produced by other
divisions. Financial results for the production and sale of market pulp are
included in the Newsprint Division or the Coated and Specialty Papers Division,
depending upon which site manufactures the product. The Pulp Division&#146;s
selling and administrative expenses are included in &#147;Corporate and Other
Eliminations.&#148; Accordingly, no separate results are reported for this
division.



<P align="center" style="font-size: 10pt">19
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Cautionary Statement Regarding Forward-Looking Information</B>



<P align="left" style="font-size: 10pt">Statements that are not reported financial results or other historical
information are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements include,
for example, statements about our business outlook, assessment of market
conditions, strategies, future plans, future sales, prices for our major
products, inventory levels, capital spending and tax and exchange rates. These
forward-looking statements are not guarantees of future performance. These
statements are based on management&#146;s expectations that involve a number of
business risks and uncertainties, any of which could cause actual results to
differ materially from those expressed in or implied by the forward-looking
statements. In addition to specific factors described in connection with any
particular forward-looking statement, factors that could cause actual results
to differ materially include, but are not limited to, those described under the
caption &#147;Cautionary Statement Regarding Forward-Looking Information&#148; in
Bowater&#146;s annual report on Form&nbsp;10-K for the year ended December&nbsp;31, 2003, and
from time to time, in Bowater&#146;s other filings with the Securities and Exchange
Commission. In addition, other risks could adversely affect us, as it is not
possible for us to predict or assess all risks. We disclaim any obligation to
publicly update or revise any forward-looking statements even if our situation
changes in the future.



<P align="left" style="font-size: 10pt">Information about industry or general economic conditions contained in this
report are derived from third party sources (e.g. trade publications) that
Bowater believes are widely accepted and accurate; however, Bowater has not
independently verified this information and cannot provide assurances of its
accuracy.



<P align="left" style="font-size: 10pt"><B>Accounting Policies and Estimates</B>



<P align="left" style="font-size: 10pt">The following discussion and analysis provides information that we believe is
useful in understanding our operating results, cash flows and financial
condition on our unaudited Consolidated Financial Statements included in this
quarterly report. Our significant accounting policies are described in Note 1
to the Consolidated Financial Statements in Bowater&#146;s annual report on Form
10-K for the year ended December&nbsp;31, 2003. Bowater&#146;s critical accounting
policies and estimates are described under the caption &#147;Critical Accounting
Policies and Estimates&#148; in Item&nbsp;7 of Bowater&#146;s annual report on Form&nbsp;10-K for
the year ended December&nbsp;31, 2003.



<P align="left" style="font-size: 10pt">The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates, assumptions and judgments
and rely on projections of future results of operations and cash flows. We
base our estimates and assumptions on historical data and other assumptions
that we believe are reasonable under the circumstances. These estimates and
assumptions affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities in our financial statements.
In addition, they affect the reported amounts of revenues and expenses during
the reporting period.



<P align="left" style="font-size: 10pt">Our judgments are based on our assessment as to the effect certain estimates,
assumptions of future trends or events may have on the financial condition and
results of operations reported in our Consolidated Financial Statements. Our
projections of future results of operations and cash flows are utilized by an
independent valuation firm to assist us in our determination of fair value for
selected assets. These values are important assumptions in certain of our
critical accounting policies. It is important that the reader of our financial
statements understand that actual results could differ materially from these
estimates, assumptions, projections and judgments.



<P align="left" style="font-size: 10pt"><B>Overview of Financial Performance</B>



<P align="left" style="font-size: 10pt">The operating environment continued to improve in the third quarter of 2004 as
we reported positive operating income results. In the third quarter of 2004,
we had record sales of coated and specialties and shipments of these grades
increased 15% compared to the third quarter of 2003. Our product mix continues
to improve as it evolves to more coated and specialty papers and lesser amounts
of newsprint. Coated and specialties has now climbed to almost 30% of our
sales &#150; compared to about 40% for newsprint and the remaining balance is about
evenly divided between pulp and lumber. Although our operating results have
improved, we had a net loss for the quarter of $18.1&nbsp;million ($0.32 per diluted
share) with operating income of $40.7&nbsp;million. These results compare favorably
to the third quarter of 2003, when our net loss was $56.7&nbsp;million ($1.00 per
diluted share) with an operating loss of $51.9&nbsp;million, and to operating income
of the second quarter of 2004, when our net loss was $1.3&nbsp;million ($0.02 per



<P align="center" style="font-size: 10pt">20
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt">diluted share) with operating income of $19.7&nbsp;million. The principal reason
for these improved results was higher product pricing across our products and
an increase in coated and specialties in our overall product mix (compared to
the third quarter of 2003). Our wood and fiber costs were up slightly in the
third quarter of 2004 compared to the second quarter of 2004 and significantly
higher compared to the third quarter of 2003. The strong Canadian dollar in
the third quarter of 2004 raised manufacturing costs at our Canadian sites.



<P align="left" style="font-size: 10pt">Our debt, net of cash, decreased approximately $30.4&nbsp;million in the third
quarter (compared to $19.3&nbsp;million decrease in the second quarter) due to cash
provided by operations of $64.0&nbsp;million, partially offset by approximately
$21.4&nbsp;million of capital spending and $11.4&nbsp;million in dividend payments.



<P align="left" style="font-size: 10pt"><B>Outlook</B>



<P align="left" style="font-size: 10pt">In the fourth quarter, we expect stronger pricing in newsprint, coated and
specialty papers. We announced a $50 per metric ton newsprint price increase
for the domestic market and a $65 Canadian dollar per metric ton newsprint
price increase for the Canadian market, effective September&nbsp;1, 2004. We also
expect fourth quarter price increases in Asia and Latin America. We have
announced a $60 per short ton price increase for all coated paper and
supercalendered grades and a $45 per short ton price increase for all specialty
grades, effective September&nbsp;1, 2004. We are currently implementing these price
increases, however, market conditions will determine whether we fully realize
these increases. There has been significant weakening in pulp and lumber
pricing beginning late in the third quarter and extending into the fourth
quarter. Our costs in the fourth quarter will be negatively impacted by a
major scheduled outage at the Thunder Bay pulp mill, the strong Canadian dollar
and higher energy and chemical costs. The Company expects to incur
approximately $7&nbsp;million of maintenance expense for the 15&nbsp;day Thunder Bay pulp
mill outage and expects to reduce market pulp production by approximately
10,000 metric tons. In addition, in the fourth quarter we will be taking
severance charges of approximately $4-5&nbsp;million primarily as a result of the
closure of the groundwood pulp mill at our Thunder Bay facility.



<P align="left" style="font-size: 10pt">We believe that demand for our products will improve with the recovery in the
U.S. economy. Newspaper ad lineage is up 1.7% year to date. North American
coated mechanical demand is up 8.3% this year according to the Pulp and Paper
Products Council. Catalog pieces are up 8.3% through the first six months of
2004. Magazine advertising pages continue their rebound - up 8.5% in
September.



<P align="left" style="font-size: 10pt">Despite the favorable indicators of demand and price increases, there continues
to be significant risks to the recovery. Prices realized during the third
quarter were insufficient to return us to profitability. Our ability to fully
implement all product pricing announced thus far in 2004 may be influenced by
the recovery of demand for those products. The Canadian dollar strengthened to
end the third quarter of 2004 at an exchange rate of .79 compared to an
exchange rate of .74 at the end of June&nbsp;2004. This strengthening of the
Canadian dollar continued to put cost pressures on our Canadian manufacturing
operations. The Canadian dollar has strengthened further in October&nbsp;2004, and
we cannot predict whether this trend will continue. Other economic factors may
shorten or weaken the apparent economic recovery, which could negatively impact
demand for our products.



<P align="center" style="font-size: 10pt">21
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Consolidated Results of Operations</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>834.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">690.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">143.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,367.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,985.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">381.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(51.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(76.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">113.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="9" align="left">Significant items that increased (decreased)&nbsp;operating income:</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net gain on fixed assets and land
sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(113.3</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Product pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">229.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28.4</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Manufacturing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.7</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Employee termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">92.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">113.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt"><B>Sales </B>increased in the third quarter of 2004 as compared to the third quarter
of 2003 due to higher transaction prices for all products and due to increased
shipments of newsprint, coated and specialty papers and lumber as further
discussed in the &#147;Product Line Information&#148; section.



<P align="left" style="font-size: 10pt"><B>Operating income </B>increased in the third quarter of 2004 as compared to the
third quarter of 2003. The above table analyzes the major items that increased
operating income. A brief explanation of these major items follows:




<P align="left" style="margin-left:3%; font-size: 10pt"><B>Net gain on fixed assets and land sales </B>relates primarily to land sales and
the disposition or write-off of fixed assets. The decrease is due to lower
land sales in the third quarter of 2004 compared to the third quarter of
2003.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Product pricing </B>for all of our major product groups was higher in the third
quarter of 2004 as compared to the third quarter of 2003. Please refer to
the discussion of &#147;Product Line Information&#148; for a more detailed analysis of
product pricing and shipments.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Distribution costs </B>were higher in the third quarter of 2004 as compared to
the third quarter of 2003 as a result of higher shipments and higher duties
due to increased lumber shipments and transaction prices.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Manufacturing costs </B>were lower in the third quarter of 2004 as compared to
the third quarter of 2003 resulting from improved production volumes ($17.8
million) and lower chemical costs ($6.1 million). These improvements were offset by a
stronger Canadian dollar ($16.9&nbsp;million) and increased costs for fiber,
wood, labor and repair materials ($21.9 million). The negative impact on manufacturing
costs of a strong Canadian dollar was offset by gains on hedged transactions
that were recorded against manufacturing costs during the period.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Employee termination costs </B>were lower in the third quarter of 2004 as
compared to the third quarter of 2003, as we completed our cost reduction
program in the fourth quarter of 2003.


<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt"><B>Sales </B>increased in the first nine months of 2004 as compared to first nine
months of 2003 due to higher transaction prices for all products and due to
increased shipments of coated and specialty papers, pulp and lumber as further
discussed in the &#147;Product Line Information&#148; section.



<P align="left" style="font-size: 10pt"><B>Operating income </B>increased in the first nine months of 2004 as compared to the
first nine months of 2003. The above table analyzes the major items that
increased operating income. A brief explanation of these major items follows:




<P align="left" style="margin-left:3%; font-size: 10pt"><B>Net gain on fixed assets and land sales </B>relates primarily to land sales and
the disposition or write-off of fixed assets. The decrease is primarily due
to lower land sales in the first nine months of 2004 compared to the first
nine months of 2003. In the second quarter of 2003, Bowater completed the
sale of 81,768 acres of owned and leased timberlands for aggregate
consideration of $121.8&nbsp;million. This transaction resulted in a pre-tax
gain of approximately $97.5&nbsp;million.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Product pricing </B>for all of our major product groups was higher in the first
nine months of 2004 as compared to the first nine months of 2003. Please
refer to the discussion of &#147;Product Line Information&#148; for a more detailed
analysis of product pricing and shipments.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Distribution costs </B>were higher in the first nine months of 2004 as compared
to the first nine months of 2003 as a result of higher shipments and higher
duties due to increased lumber shipments and transaction prices.



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Manufacturing costs </B>were higher in the first nine months of 2004 as compared
to the first nine months of 2003 as a result of a stronger Canadian dollar
($68.4&nbsp;million), increased fiber and wood costs ($37.6&nbsp;million) and higher
labor and repair materials ($28.7 million). These higher costs were partially offset by
improved production volumes ($45.1&nbsp;million) and lower chemical
costs ($16.6 million). The
negative impact on manufacturing costs of a strong Canadian dollar was
offset by gains on hedged transactions that were recorded against
manufacturing costs during the period ($65.5 million).



<P align="left" style="margin-left:3%; font-size: 10pt"><B>Employee termination costs </B>were lower in the first nine months of 2004 as
compared to the first nine months of 2003, as we completed our cost
reduction program in the fourth quarter of 2003.


<P align="left" style="font-size: 10pt"><B>Division/Segments and Product Line Information</B>



<P align="left" style="font-size: 10pt">Bowater is organized by Division. Bowater also provides product line
disclosures for informational purposes to our analysts and investors. The
Divisions have operational responsibility over their group of operating assets.
The Divisions also have sales responsibilities that over-lap several of the
Company&#146;s operating Divisions/Segments. The matrix below depicts the various
products that fall under each of the Company&#146;s operating Divisions/Segments.
The shaded areas in the matrix below represent the Division that is responsible
for the sale of the product line for the entire company.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Coated &#038;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Canadian</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Specialty</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Forest</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Newsprint</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Papers</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Product Line</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Division</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Pulp Division</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Newsprint</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD style="background: gray" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Coated &#038; Specialties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD style="background: gray" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pulp</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD style="background: gray" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Lumber</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD style="background: gray" align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#252;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Product Line Information</B>



<P align="left" style="font-size: 10pt">Presented below is a discussion of each significant product line followed by a
discussion of the results of each of the reported divisions.



<P align="left" style="font-size: 10pt">In general, our products are globally-traded commodities. Pricing and the
level of shipments of these products will continue to be influenced by the
balance between supply and demand as affected by global economic conditions,
changes in consumption and capacity, the level of customer and producer
inventories and fluctuations in exchange rates.



<P align="left" style="font-size: 10pt"><B>Newsprint &#150; Product Line</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales (in millions)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>336.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">302.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>987.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">900.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average prices (per metric ton)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>532</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>520</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">474</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shipments (thousands of metric tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>633.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">623.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,899.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,898.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Downtime (thousands of metric tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>43.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>135.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">161.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Inventory at end of period
(thousands of metric tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>85.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>85.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Our average newsprint transaction price for all markets was 9.7% higher in the
third quarter of 2004 compared to the third quarter of 2003. The increase
reflects the realization of price increases in the North American and
International markets. Newsprint shipments increased by 1.6% in the third
quarter of 2004 primarily due to increases in export shipments. We plan to take
41,000 metric tons of market and maintenance downtime in the fourth quarter of
2004. The market downtime is primarily attributable to an idled paper machine
at our Thunder Bay mill (since late June&nbsp;2003). We expect this market downtime
to continue until market conditions improve. We will continue to match
production to orders.



<P align="left" style="font-size: 10pt">We announced a $50 per metric ton price increase for the domestic market and a
$65 per metric ton Canadian dollar price increase for the Canadian market,
effective September&nbsp;1, 2004. We also expect fourth quarter price increases in
Asia and Latin America. Market conditions will determine whether we fully
realize these increases.



<P align="left" style="font-size: 10pt"><I>Newsprint Third Party Data: </I>In the third quarter of 2004, total U.S. newsprint
demand and consumption of newsprint decreased 3.3% and 0.2%, respectively as
compared to the same periods of the prior year. North American net exports of
newsprint decreased 4.1% from the third quarter 2003 level. Total inventories
(North American mills and users) at September&nbsp;30, 2004 were 1.4&nbsp;million metric
tons, approximately 7,000 metric tons, or 0.5%, higher than the previous
quarter and 4,000 metric tons, or 0.3%, higher than the end of the third
quarter 2003. Newspaper advertising linage improved 0.3% in August&nbsp;2004
compared to August&nbsp;2003.



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Our average newsprint transaction price for all markets was 9.7% higher in the
first nine months of 2004 compared to the first nine months of 2003. The
increase reflects the realization of price increases in the North American and
International markets. Newsprint shipments were flat in the first nine months
of 2004.



<P align="left" style="font-size: 10pt"><I>Newsprint Third Party Data: </I>In the first nine months of 2004, total United
States demand and consumption of newsprint decreased 1.0% and 1.5%,
respectively as compared to the same period a year ago. North American net



<P align="center" style="font-size: 10pt">24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt">exports of newsprint decreased 7.2% from the first nine months of 2003.
Newspaper advertising linage improved 1.7% in the first eight months of 2004
compared to the first eight months of 2003.



<P align="left" style="font-size: 10pt"><B>Coated and Specialty Papers &#150; Product Line</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales (in millions)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>244.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">192.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>664.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">530.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average prices (per short ton)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>628</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>602</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">563</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shipments (thousands of short tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>389.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">338.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,104.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">942.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Downtime (thousands of short tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>22.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>77.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Inventory at end of period
(thousands of short tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>45.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>45.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Our average transaction price for coated paper was 10.0% higher in the third
quarter of 2004 compared to the third quarter of 2003 due to the realization of
price increases in 2004. Our coated mechanical papers shipments increased
13.6% in the third quarter of 2004 as compared to the third quarter of 2003,
due to strong market demand. Our average transaction price for specialty
papers was 11.0% higher in the third quarter of 2004 compared to the third
quarter of 2003 due to the price increases noted above. Our shipments of
specialty papers increased 16.4% in the third quarter of 2004 compared to the
third quarter of 2003 due to increased market demand.



<P align="left" style="font-size: 10pt">We announced a $60 per short ton price increase for all coated paper and
supercalendered grades, effective September&nbsp;1, 2004. We also announced a $45
per short ton price increase for all specialty grades, effective September&nbsp;1,
2004. Market conditions will determine whether we fully realize these
increases.



<P align="left" style="font-size: 10pt"><I>Coated and Specialty Papers Third Party Data: </I>U.S. magazine advertising pages
increased 5.5% compared to the third quarter of 2003 and catalog mailings
(measured by standard mail pieces) increased 8.7% in the second quarter of 2004
compared to the same period last year. North American demand for coated
mechanical papers was up 6.5% in the third quarter of 2004 compared to the
third quarter of 2003. North American demand for supercalendered high gloss
papers and other uncoated mechanical papers was down 1.6% and up 16.9%,
respectively, in the third quarter of 2004 compared to the third quarter of
2003.



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Our average transaction price for coated paper was 5.8% higher in the first
nine months of 2004 compared to the first nine months of 2003 due to
realization of price increases during 2003 and 2004. Our coated papers
shipments increased 23.7% in the first nine months of 2004, compared to the
first nine months of 2003, primarily as a result of the conversion of a paper
machine at Catawba from newsprint to coated papers. Our average transaction
price for specialty papers was 6.9% higher in the first nine months of 2004,
compared to the first nine months of 2003, due to the price increases noted
above. Our specialty papers shipments increased 11.5% in the first nine months
of 2004, compared to the first nine months of 2003, due to increased demand and
production changes.



<P align="left" style="font-size: 10pt"><I>Coated and Specialty Papers Third Party Data: </I>U.S. magazine advertising pages
increased 2.2% compared to the first nine months of 2003 and catalog mailings
(measured by standard mail pieces) increased 8.3% in the first six months of
2004 compared to the same period last year. North American demand for coated
mechanical papers was up 8.3% through September&nbsp;2004, compared to the first
nine months of 2003. North American demand for supercalendered high gloss
papers and other uncoated mechanical papers was down 3.2% and up 14.5%,
respectively, through September&nbsp;2004, compared to the first nine months of
2003.



<P align="center" style="font-size: 10pt">25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Market Pulp</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="56%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales (in millions)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>135.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">120.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>411.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">360.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average prices (per metric ton)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>527</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>515</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">472</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shipments (thousands of metric tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>256.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">257.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>799.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">765.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Downtime (thousands of metric tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Inventory at end of period
(thousands of metric tons)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>62.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>62.2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Our average transaction price for market pulp was 12.4% higher in the third
quarter of 2004 compared to the third quarter of 2003. The increase reflects
the realization of price increases in the latter half of 2003 and first nine
months of 2004 brought about by improved world supply and demand. Our market
pulp inventories ended the third quarter of 2004 at 18&nbsp;days supply, 22&nbsp;days
below the industry average.



<P align="left" style="font-size: 10pt"><I>Market Pulp Third Party Data: </I>Demand for market pulp decreased in the third
quarter of 2004 compared to the same period last year. World shipments were
down 2.0% in the third quarter of 2004 compared to the same period in 2003.
World producers operated at 95.7% of capacity but shipped at 91% of capacity.
Consequently, inventories have increased over the quarter by 438,000 metric
tons, to end September&nbsp;2004 at 3.9&nbsp;million metric tons, or 40&nbsp;days supply.
Inventories are 612,000 metric tons higher and 7&nbsp;days supply higher than the
corresponding period of 2003.



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Our average transaction price for market pulp was 9.2% higher in the first nine
months of 2004 compared to the first nine months of 2003. The increase
reflects the realization of price increases in the latter half of 2003 and
first nine months of 2004 brought about by improved world supply and demand.
Our shipments increased 4.4% in the first nine months of 2004 compared to the
same period of 2003 primarily as a result of improved demand from our core
markets and reduced downtime at our Thunder Bay facility.



<P align="left" style="font-size: 10pt"><I>Market Pulp Third Party Data: </I>Demand for market pulp increased in the first
nine months of 2004 compared to the same period last year. World shipments
were up 4.4% for the first nine months of 2004 compared to the same period in
2003. World producers operated at 96% capacity and shipped at 94% of capacity.
Consequently, inventories have increased during the time period and ended
September at 3.9&nbsp;million metric tons, or 40&nbsp;days supply.



<P align="center" style="font-size: 10pt">26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Lumber</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="54%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales (in millions)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>107.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">64.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>281.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Average prices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>395</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>360</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">266</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shipments (million board feet)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>271.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>780.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">642.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Downtime (million board feet)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>74.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>224.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">252.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Inventory at end of period
(million board feet)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>64.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>64.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Lumber prices increased in the third quarter of 2004 as compared to the third
quarter of 2003 as a result of strong demand over the latter half of 2003 and
2004 and lower overall inventories. Our lumber shipments increased 22.3% in
the third quarter of 2004 due primarily to the increased production from our
Thunder Bay sawmill, which was in start-up mode during the third quarter of
2003. On July&nbsp;7, 2004, we temporarily idled our Ignace sawmill due to a wood
supply shortage. We expect to restart the Ignace sawmill once wood supply
conditions improve.



<P align="left" style="font-size: 10pt"><I>Third party data: </I>The U.S. housing starts decreased 1.2% in the third quarter
of 2004 as compared to the same period last year.



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Lumber prices increased in the first nine months of 2004 as compared to the
first nine months of 2003 as a result of continued strong demand associated
with record high housing starts and lower overall inventories. Our lumber
shipments increased 21.5% in the first nine months of 2004 as compared to the
first nine months of 2003 due to start up of the Thunder Bay sawmill as
discussed previously.



<P align="left" style="font-size: 10pt"><I>Third party data: </I>The U.S. housing starts increased 8.7% in the first nine
months of 2004 as compared to the same period last year.



<P align="left" style="font-size: 10pt">The U.S. Commerce Department (DOC)&nbsp;has imposed antidumping (AD)&nbsp;duties of 8.43%
on all of Bowater&#146;s Canadian softwood lumber imports and countervailing (CV)
duties of 18.79% on softwood lumber imported from all provinces except New
Brunswick and Nova Scotia. The duties became effective for lumber shipments
beginning May&nbsp;22, 2002 and are payable in cash. Lumber duties are included as
a component of distribution costs on our consolidated statement of operations.
To date we have paid AD and CV duties of approximately $60.7&nbsp;million.



<P align="left" style="font-size: 10pt">The Canadian government has appealed the duties to the World Trade Organization
(WTO)&nbsp;and under the terms of the North American Free Trade Agreement (NAFTA),
requesting that the duties be refunded. The final amount of CV and AD duties
that may be assessed on Canadian softwood lumber imports into the U.S. will
depend upon negotiations among the governments involved in the dispute, annual
administrative reviews by the DOC, and upon determinations made by the NAFTA,
WTO or other adjudicatory panels to which the duties may be appealed. Until
the dispute is resolved, we will continue to pay the duties as assessed by the
DOC.



<P align="left" style="font-size: 10pt">The DOC is currently conducting AD and CV administrative reviews to establish
the ultimate duty rates and liabilities for imports since May&nbsp;22, 2002. In
June and July the DOC issued three determinations regarding the CV and AD rates
that may become applicable to us. While these determinations contained rates
that were less than 50% of those we are currently paying, these rates are not
final or effective. Therefore, we do not anticipate adjusting our AD/CV duty
rates until a final determination is made as a result of the applicable NAFTA
or DOC process.



<P align="center" style="font-size: 10pt">27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Divisional Performance</B>



<P align="left" style="font-size: 10pt"><B>Newsprint Division</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="53%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>417.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">355.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1,213.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,066.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">147.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(16.5</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(74.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Significant items that increased (decreased)
segment income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Product pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">99.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9.2</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Manufacturing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(53.6</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Employee termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the third quarter of 2004 as compared to the third quarter
of 2003 primarily as a result of higher product pricing for newsprint ($21.4
million), market pulp ($13.4&nbsp;million) and specialty papers ($4.7&nbsp;million) and
increased shipments. See the previous discussion of product line results.



<P align="left" style="font-size: 10pt">Segment income increased in the third quarter of 2004 primarily as a result of
higher product pricing noted above and lower employee termination costs as we
completed our cost reduction program in the fourth quarter of 2003. These
product pricing improvements were partially offset by higher manufacturing
costs. Manufacturing costs were higher primarily from a stronger Canadian
dollar ($7.7&nbsp;million) and higher prices for recycled fiber,
energy, labor and repair materials
($16.2&nbsp;million), partially offset by improved production volumes
($10.6 million) and lower wood
and chemical costs ($4.9 million).



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the first nine months of 2004 as compared to the first nine
months of 2003 primarily as a result of higher product pricing for newsprint
($61.2&nbsp;million), market pulp ($29.7&nbsp;million), and specialty papers ($9.0
million) and increased shipments. See the previous discussion of product line
results.



<P align="left" style="font-size: 10pt">Segment loss decreased in the first nine months of 2004 compared to the first
nine months of 2003 primarily as a result of higher product pricing noted above
and lower employee termination costs referred to above. These product pricing
improvements were partially offset by higher manufacturing costs.
Manufacturing costs were higher primarily from a stronger Canadian dollar
($31.2&nbsp;million) and higher prices for recycled fiber, energy,
labor and repair materials
($47.2&nbsp;million), partially offset by improved production volumes
($18.0 million), lower
depreciation expense ($5.9 million) and lower wood and chemical costs ($7.0 million).



<P align="center" style="font-size: 10pt">28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Coated and Specialty Papers Division</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>159.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">132.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>452.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">355.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">97.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(49.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD colspan="9" align="left">Significant items that increased (decreased)&nbsp;segment income (loss):</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Product pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.3</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Manufacturing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Employee termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">64.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the third quarter of 2004 as compared to the third quarter
of 2003 primarily as a result of increased shipments, due primarily to the
conversion of the No.&nbsp;3 paper machine at the Catawba facility in early 2003
from newsprint to coated paper, and higher product pricing in coated and
specialty papers ($12.7&nbsp;million) and pulp ($4.2&nbsp;million). See the previous
discussion of product line results.



<P align="left" style="font-size: 10pt">Segment income increased in the third quarter of 2004 as compared to the third
quarter of 2003 primarily as a result of higher product pricing in coated and
specialty papers and pulp, lower manufacturing costs associated with improved
production volumes for coated papers, and lower employee termination costs.



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the first nine months of 2004 as compared to the first nine
months of 2003 primarily as a result of increased shipments, due primarily to
the conversion of the No.&nbsp;3 paper machine at the Catawba facility in early 2003
from newsprint to coated paper, and higher product pricing in coated and
specialty papers ($18.9&nbsp;million) and pulp ($9.8&nbsp;million). See the previous
discussion of product line results.



<P align="left" style="font-size: 10pt">Segment income increased in the first nine months of 2004 as compared to the
first nine months of 2003 primarily as a result of higher product pricing in
coated and specialty papers and pulp, lower manufacturing costs associated with
improved production volumes for coated papers, and lower employee termination
costs.



<P align="center" style="font-size: 10pt">29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Canadian Forest Products Division</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>220.0</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">184.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>601.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">539.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(10.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(37.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">

<TD colspan="9" align="left"><DIV style="margin-left:20px;text-indent:-10px">Significant items that increased (decreased)&nbsp;segment income
(loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Product pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12.7</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Manufacturing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41.4</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Employee termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the third quarter of 2004 as compared to the third quarter
of 2003 primarily as a result of higher product pricing for newsprint ($8.2
million), coated and specialty papers ($5.6&nbsp;million), lumber ($15.9&nbsp;million),
and timber ($0.5&nbsp;million). See the previous discussion of product line
results.



<P align="left" style="font-size: 10pt">Segment income increased in the third quarter of 2004 as compared to the third
quarter of 2003 primarily as a result of higher product pricing as discussed
above and improved production volumes ($2.0&nbsp;million). These improvements were
offset by higher manufacturing costs and higher distribution costs from higher
shipments and lumber duties on increased lumber shipments and transaction
prices. The higher manufacturing costs are due to a stronger Canadian dollar
($7.9&nbsp;million), higher fiber and wood costs ($3.3&nbsp;million), higher power ($1.0
million) and higher labor costs ($2.2&nbsp;million).



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the first nine months of 2004 as compared to the first nine
months of 2003 primarily as a result of higher product pricing for newsprint
($25.5&nbsp;million), coated and specialty papers ($10.2&nbsp;million), lumber ($39.4
million), and timber ($1.2&nbsp;million), offset by lower shipments. See the
previous discussion of product line results.



<P align="left" style="font-size: 10pt">Segment loss decreased in the first nine months of 2004 as compared to the
first nine months of 2003, primarily as a result of higher product pricing and
lower selling and administrative expenses. These improvements were offset by
higher manufacturing costs and higher distribution costs from higher shipments
and lumber duties on increased lumber shipments and transaction prices. The
higher manufacturing costs are due to a stronger Canadian dollar ($32.3
million), higher fiber and wood costs ($6.4&nbsp;million), higher
repair cost ($2.4
million), higher labor ($3.3&nbsp;million) and lower production
volumes ($5.0 million).



<P align="center" style="font-size: 10pt">30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Forest Products Division</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>47.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>131.8</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">

<TD colspan="9" align="left"><DIV style="margin-left:20px;text-indent:-10px">Significant items that increased (decreased)&nbsp;segment income
(loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Product pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Shipments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.6</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Manufacturing costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.0</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Three months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the third quarter of 2004 as compared to the third quarter
of 2003 as a result of increased lumber transaction prices and increased lumber
shipments. The increase in lumber shipments was primarily the result of the
new sawmill in Thunder Bay Ontario, which had shipments in the third quarter of
2004 but was in a start up mode in the third quarter of 2003. See the previous
discussion of product line results.



<P align="left" style="font-size: 10pt">Segment income increased in the third quarter of 2004 compared to the third
quarter of 2003 primarily as a result of increased lumber transaction pricing.
Higher lumber transaction prices were partially offset by higher distribution
and manufacturing costs. Manufacturing costs increased primarily as a result
of higher wood costs ($1.8 million) and a stronger Canadian dollar ($1.3 million).



<P align="left" style="font-size: 10pt"><B>Nine months ended September&nbsp;30, 2004, versus September&nbsp;30, 2003</B>



<P align="left" style="font-size: 10pt">Sales increased in the first nine months of 2004 as compared to the first nine
months of 2003 as a result of increased lumber transaction prices and increased
lumber shipments. The increase in lumber shipments was primarily the result of
the new sawmill in Thunder Bay Ontario, which had shipments in the first nine
months of 2004 but was primarily in the start up mode during the same period in
2003. See the previous discussion of product line results.



<P align="left" style="font-size: 10pt">Segment income increased in the first nine months of 2004 as compared to the
first nine months of 2003 primarily as a result of increased lumber transaction
pricing. Higher lumber transaction prices were partially offset by higher
distribution and manufacturing costs. Manufacturing costs increased primarily
as a result of higher wood costs ($4.2 million) and the stronger Canadian dollar
($4.9 million).



<P align="center" style="font-size: 10pt">31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Net Gain on Fixed Assets and Land Sales and Corporate &#038; Other Eliminations</B>



<P align="left" style="font-size: 10pt">Net gain (loss)&nbsp;on fixed assets and land sales and corporate and other
eliminations are included in order to reconcile division sales and segment
income (loss)&nbsp;to our total sales and operating income (loss)&nbsp;on our
Consolidated Statement of Operations.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Three Months Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>Nine Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><B>September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Change</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net gain on fixed assets and
land sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>5.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">119.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">113.3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Corporate &#038; other eliminations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(10.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(31.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Segment income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>36.4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Net gain on fixed assets and land sales: </B>During the three and nine months ended
September&nbsp;30, 2004, Bowater recorded a net pre-tax gain of $1.7&nbsp;million and
$5.9&nbsp;million, respectively, related to land sales and gains or losses on fixed
assets. During the three and nine months ended September&nbsp;30, 2003, Bowater
recorded a net pre-tax gain of $4.1&nbsp;million and $119.2&nbsp;million, respectively,
related to land sales and gains or losses on fixed assets. These decreases are
primarily due to lower land sales in the 2004 periods compared to the 2003
periods. In the second quarter of 2003, Bowater completed the sale of 81,768
acres of owned and leased timberlands for aggregate consideration of $121.8
million. This transaction resulted in a pre-tax gain of approximately $97.5
million.



<P align="left" style="font-size: 10pt"><B>Corporate &#038; other eliminations</B>: The elimination of intersegment sales decreased
$5.1&nbsp;million in the third quarter of 2004 versus the same period in 2003.
Corporate income increased $17.0&nbsp;million in the third quarter of 2004 over the
same period in 2003 due primarily to increased gains on foreign currency
hedges. The elimination of intersegment sales decreased $25.2&nbsp;million in the
first nine months of 2004 versus the same period in 2003. Corporate income
increased $64.8&nbsp;million in the first nine months of 2004 versus the same period
in 2003 due primarily to increased gains on foreign currency hedges.



<P align="left" style="font-size: 10pt"><B>Interest and Other Income and Expenses</B>



<P align="left" style="font-size: 10pt">Interest expense increased $2.6&nbsp;million from $45.8&nbsp;million for the three months
ended September&nbsp;30, 2003 to $48.4&nbsp;million for the three months ended September
30, 2004. Interest expense increased $18.6&nbsp;million from $127.9&nbsp;million for the
nine-months ended September&nbsp;30, 2003 to $146.5&nbsp;million for the nine-months
ended September&nbsp;30, 2004. This increase in both periods is primarily
attributable to higher average debt balances, higher interest rates and less
capitalized interest. Additionally, during the nine-months ended September&nbsp;30,
2004, we wrote-off deferred financing fees of approximately $1.5&nbsp;million in
connection with our replacement of the $500&nbsp;million three-year credit facility
in April&nbsp;2004 and the repayment of our $100&nbsp;million term loan in March&nbsp;2004.



<P align="left" style="font-size: 10pt">Based on the current debt balances at September&nbsp;30, 2004, we expect quarterly
interest expense for the balance of 2004 to be at levels similar to the third
quarter of 2004.



<P align="left" style="font-size: 10pt">Other income increased $1.0&nbsp;million from income of $0.3&nbsp;million during the
three months ended September&nbsp;30, 2003 to income of $1.3&nbsp;million during the
three months ended September&nbsp;30, 2004. Other income increased $16.9&nbsp;million
(income of $6.4&nbsp;million for the nine-months ended September&nbsp;30, 2004 versus an
expense of $10.5&nbsp;million for the nine-months ended September&nbsp;30, 2003)
primarily as a result of a decrease in foreign currency exchange losses of
$16.0&nbsp;million during the period. Bowater recorded a foreign exchange gain of
$0.1&nbsp;million during the nine-months ended September&nbsp;30, 2004 compared to a loss
of $15.9&nbsp;million for the same period of 2003. The majority of our exchange
gain/loss amounts are attributable to the revaluation of unhedged foreign
denominated assets and liabilities into United States dollars. For a further
discussion of the effect of fluctuations in the Canadian &#150; U.S. Dollar exchange
rates, see &#147;Canadian &#150; U.S. Dollar Exchange Rate Fluctuation Effect on
Earnings.&#148;



<P align="center" style="font-size: 10pt">32
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt"><B>Income Taxes</B>



<P align="left" style="font-size: 10pt">Bowater&#146;s effective tax rate for the third quarter of 2004 was (226.4%) versus
41.2% for the third quarter of 2003. Bowater&#146;s effective tax rate for the first
nine months of 2004 was 44.8% versus 24.8% for the first nine months of 2003.
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.



<P align="left" style="font-size: 10pt">Significant strengthening of the Canadian dollar in the third quarter of 2004
resulted in significant unrealized statutory foreign currency exchange gains on
which the Company provided a deferred tax expense for Canadian statutory taxes.
On a consolidated basis, the unrealized statutory foreign currency exchange
gains are substantially offset by certain foreign currency exchange losses on
which the Company receives no U.S. tax benefit. Additionally, during the third
quarter a statute of limitations expired for pre 2001 tax years. Income tax
reserves of $6.8&nbsp;million associated with the pre 2001 Canadian tax years were
eliminated, resulting in a decrease to income tax expense in the third quarter
of 2004. These tax reserve adjustments were offset by an increase in tax
expense related to a revised estimated effective tax rate for the year.



<P align="left" style="font-size: 10pt">The effective tax rate for the first nine months of 2004 was primarily impacted
by the tax treatment on foreign currency gains and losses discussed previously,
but to a lesser extent as compared to the third quarter as the Canadian dollar
weakened in the first six months of 2004 and deferred tax benefits were
recorded for Canadian statutory taxes.



<P align="left" style="font-size: 10pt">The rates in 2003 were impacted primarily by significant foreign currency
exchange losses on which the Company received no tax benefit. The rates in
both 2004 and 2003 were also influenced by permanent tax differences that are
not dependent on pre-tax income or loss.



<P align="left" style="font-size: 10pt">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.



<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">The primary components of our cash flows are as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(In millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Decrease in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(4.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(17.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>85.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Changes in working capital items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(45.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash used for investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(50.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash invested in fixed assets, timber and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(60.3</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(186.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Disposition of fixed assets, timber, and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10.3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash used for financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(40.0</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Short-term financing, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(142.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(91.0</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Long-term financing, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>132.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122.2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(34.6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33.8</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>Cash from Operating Activities</I><B><I>: </I></B>During the nine months of 2004 and 2003,
Bowater had net losses of $51.9&nbsp;million and $154.1&nbsp;million, respectively. Cash
provided by operating activities totaled $85.7&nbsp;million in the first nine months
of 2004 compared to $24.5&nbsp;million during the same period of 2003. During the
first quarter of 2003, Bowater received income tax refunds of $75.6&nbsp;million,
which was primarily attributable to the 2002 calendar year net operating losses
which were carried back to the calendar years 1997 through 2000. These tax
refunds are included in the working



<P align="center" style="font-size: 10pt">33
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt">capital items of $83.0&nbsp;million. Excluding such income tax refunds, Bowater&#146;s
working capital items for the first nine months of 2003 would have been
approximately $7.4&nbsp;million.



<P align="left" style="font-size: 10pt"><I>Cash used for Investing Activities: </I>Cash used for investing activities totaled
$50.0&nbsp;million and $40.4&nbsp;million for the first nine months of 2004 and 2003,
respectively. For 2004, capital expenditures primarily have been, and will
continue to be, for compliance and maintenance requirements, while 2003 capital
expenditures related to the completion of two significant projects at our
Catawba mill as well as compliance and maintenance matters. We expect capital
expenditures to be less than $100&nbsp;million in 2004 and approximately $150
million in 2005.



<P align="left" style="font-size: 10pt"><I>Cash used for Financing Activities: </I>Cash used for financing activities totaled
$40.0&nbsp;million and $1.9&nbsp;million for the first nine months of 2004 and 2003,
respectively. Cash used for financing activities for the first nine months of
2004 includes the sale of $250.0&nbsp;million of notes that are due March&nbsp;15, 2010
(See Note 10 of the Notes to Consolidated Financial Statements). We received
net proceeds from the sale of the notes of $246.2&nbsp;million, which were net of
underwriting fees of $3.8&nbsp;million. The proceeds from the sale of the notes
were used to pay amounts outstanding under the short-term bank debt credit
facilities ($146.2&nbsp;million) and the three-year term loan ($100.0&nbsp;million).
Bowater had net payments of $142.6&nbsp;million and $91.0&nbsp;million on our short-term
credit facilities during the first nine months of 2004 and 2003, respectively.



<P align="left" style="font-size: 10pt"><B>Credit Arrangements:</B>



<P align="left" style="font-size: 10pt">Bowater had available
borrowings on our short-term bank debt - credit
facilities as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Commitment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Termination</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Short-Term Bank Debt</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Commitment</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Available (2)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Date</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>(in millions)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revolving credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">435.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">341.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">04/2007</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">364-day Accounts
Receivable
Securitization
Arrangement <SUP>(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">118.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12/2004</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">635.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">63.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">460.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The amount that can be borrowed at any time under our 364-day accounts
receivable securitization arrangement depends on the amount and nature of
the accounts receivable. The interest rate is based on commercial paper
issued by the lenders plus a margin.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The commitment available under the 364-day Accounts Receivable
Securitization Arrangement is based on qualified trade accounts
receivable. The commitments available under the Revolving credit facility
is subject to covenant restrictions described below and is reduced by
outstanding letters of credit, which were $90.6&nbsp;million at September&nbsp;30,
2004.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">On April&nbsp;22, 2004, we replaced our expiring revolving credit facilities with a
new three-year revolving credit facility due April&nbsp;2007. The new facility
provides $400&nbsp;million of revolving credit in the United States and $35&nbsp;million
in Canada. Borrowings under the new facility incur interest based, at our
option, on specified market interest rates plus a margin tied to the credit
rating of our long-term debt. The facility contains various covenants,
including requirements to maintain a minimum consolidated net worth (generally
defined as common shareholders&#146; equity, excluding hedging gains in place as of
December&nbsp;31, 2003, plus any outstanding preferred stock plus minimum pension
liability amounts) of $1.5&nbsp;billion, a maximum 62.5% ratio of total debt to
total capital (defined as total debt less revaluation of debt assumed through
acquisitions, plus net worth including minority interest, plus minimum pension
liability amounts), and to maintain an annual minimum EBITDA (generally defined
as net income, excluding extraordinary, non-recurring or non-cash items, plus
income taxes plus depreciation plus net interest expense) of $250.0&nbsp;million
measured quarterly beginning March&nbsp;31, 2005, through December&nbsp;31, 2005 and
$400.0&nbsp;million at the



<P align="center" style="font-size: 10pt">34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt">end of each quarter thereafter. If we generate net
income, the minimum net worth requirement increases by half of our consolidated
net income for each fiscal quarter, excluding gains from cash flow hedges in place as of December
31, 2003. At September&nbsp;30, 2004, our consolidated net worth was approximately
$1,652.9&nbsp;billion, and our ratio of total debt to total capital was 58.5%,
calculated according to our credit facilities&#146; guidelines.



<P align="left" style="font-size: 10pt">Total debt as a percentage of total capitalization is the most directly
comparable measure using GAAP. A reconciliation of the GAAP items to the
calculation of total debt as a percentage of total capitalization, in
accordance with our credit facilities, is as follows:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(in millions, except ratios)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30, 2004</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,501.0</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Less: Revaluation of debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(79.1</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total debt, per credit facilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,421.9</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Capitalization:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1,494.1</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,501.0</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>67.6</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Less: Revaluation of debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(79.1</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Plus: Additional minimum pension liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>158.5</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total capitalization, per credit facilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4,142.1</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total debt as a percentage of total capitalization in accordance with credit facilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>58.5</B></TD>
    <TD nowrap><B>%</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total debt as a percentage of total capitalization, in accordance with GAAP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>61.6</B></TD>
    <TD nowrap><B>%</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">We believe we are in compliance with all of our covenants and other
requirements set forth in our credit facilities.



<P align="left" style="font-size: 10pt">We believe that cash generated from operations and access to our credit
facilities will be sufficient to provide for our anticipated requirements for
working capital, contractual obligations and capital expenditures for the next
12&nbsp;months. In addition, we periodically review timberland holdings and sell
timberlands.



<P align="left" style="font-size: 10pt">In October&nbsp;2004, Moody&#146;s downgraded our credit rating to Ba3 with a negative
outlook. In March&nbsp;2004, S&#038;P downgraded our credit ratings to BB with a stable
outlook. There is no way to predict with certainty any future rating actions
by these two agencies. The interest rates associated with the bank lines of
credit described above are based on the lower of the two credit ratings. Each
reduction in the lower of the two ratings will increase our cost of borrowing
under this facility. Although further downgrades would have no material impact
on availability under our present debt and credit agreements, a reduction in
our credit ratings could impact our access to and cost of capital and financial
flexibility in the future.



<P align="left" style="font-size: 10pt"><B>Employees</B>



<P align="left" style="font-size: 10pt">As of September&nbsp;30, 2004, Bowater employed 8,300 people, of whom 5,700 were
represented by bargaining units. Labor agreements covering approximately 2,200
employees at five of our six Canadian paper mills expired on April&nbsp;30, 2004.
These employees are represented predominantly by the Communications, Energy and
Paper Union (&#147;CEP&#148;). The CEP negotiated with Abitibi Consolidated Inc. as the
&#147;target&#148; company for the region and they reached a five-year collective
bargaining agreement, which was ratified on July&nbsp;16, 2004. Traditionally,
agreements reached with the target company have been the basis for other
agreements in the region. We are currently in negotiations with the CEP at the
mill level. While we consider relations with our employees to be good and we
do not expect a work stoppage to occur prior to the finalization of new labor
agreements, however, the outcomes of the negotiations regarding the expired
labor agreements are not entirely within our control and therefore we can
provide no assurance regarding these outcomes or the timing of these
negotiations or their effect on our operations.



<P align="center" style="font-size: 10pt">35
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt">We successfully negotiated a labor agreement covering approximately 150 of our
employees at our Mokpo, Korea paper mill, which expires in July&nbsp;2006. The wage
portion of the labor agreement is for a one-year period and will be
renegotiated in July&nbsp;2005.



<P align="left" style="font-size: 10pt"><B>Canadian-U.S. Dollar Exchange Rate Fluctuation Effect on Earnings</B>



<P align="left" style="font-size: 10pt">Nearly half of our manufacturing costs and certain financial liabilities are
denominated in Canadian dollars. Sales are denominated in the currency of the
country in which they occur. Accordingly, changes in the Canadian-U.S. dollar
exchange rate may significantly impact our revenues and costs. The magnitude
and direction of this impact primarily depends on our production and sales
volume, the proportion of our production and sales that occur in Canada, the
proportion of our tax and other financial liabilities denominated in Canadian
dollars, our hedging levels, and the magnitude, direction and duration of
changes in the Canadian-U.S. dollar exchange rate. Increases in the value of
the Canadian dollar versus the U.S. dollar reduce our earnings, which are
reported in U.S. dollar terms.



<P align="left" style="font-size: 10pt">We attempt to partially limit our exposure to Canadian-U.S. dollar exchange
rate fluctuations through hedging transactions. Under the exchange rates,
hedging levels and operating conditions that existed during the three months
ended September&nbsp;30, 2004, for every one-cent change in the Canadian-U.S. dollar
exchange rate, our operating income, net of hedging, for the three months ended
September&nbsp;30, 2004 would have been reduced by approximately $1.5&nbsp;million, or
approximately $6.0&nbsp;million on an annualized basis. For a description of our
hedging activities, see Note 13 to the Notes to Consolidated Financial
Statements included in this quarterly report.



<P align="left" style="font-size: 10pt"><B>Canadian Dollar Hedging Program</B>



<P align="left" style="font-size: 10pt">At September&nbsp;30, 2004, we had approximately $109.3&nbsp;million of unrealized gains
recorded on our Canadian dollar hedging program compared to approximately
$172.4&nbsp;million of unrealized gains at December&nbsp;31, 2003. These unrealized
gains are classified in &#147;Other current assets&#148; or &#147;Other assets&#148; in our
Consolidated Balance Sheet depending on the maturity date of the hedging
contract.



<P align="left" style="font-size: 10pt"><B>Recent Accounting Pronouncements</B>



<P align="left" style="font-size: 10pt">In January&nbsp;2003, the Financial Accounting Standards Board (&#147;FASB&#148;) issued FIN
46, &#147;Consolidation of Variable Interest Entities.&#148; Many variable interest
entities (&#147;VIE&#148;) have commonly been referred to as special-purpose entities or
off-balance sheet structures. In general, a VIE is a corporation, partnership,
trust, or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b)&nbsp;has equity investors
that do not provide sufficient financial resources for the entity to support
its activities. FIN 46 requires a VIE to be consolidated by a company if that
company is subject to a majority of the risk of loss from the VIE&#146;s activities
or entitled to receive a majority of the entity&#146;s residual returns or both.
The consolidation requirements of FIN 46 apply immediately to VIEs created
after January&nbsp;31, 2003. The consolidation requirements apply to older entities
in the first fiscal year or interim period beginning after June&nbsp;15, 2003.
Certain of the disclosure requirements apply in all financial statements issued
after January&nbsp;31, 2003, regardless of when the VIE was established.



<P align="left" style="font-size: 10pt">In October&nbsp;2003, the FASB issued FASB Staff Position FIN 46-6 which (i)
deferred the implementation of FIN 46 for VIEs created before February&nbsp;1, 2003,
for periods ending after December&nbsp;15, 2003, and (ii)&nbsp;permitted early adoption
of FIN 46 before the end of the deferral period for some or all VIEs in which
an entity holds an interest.



<P align="left" style="font-size: 10pt">Effective July&nbsp;1, 2003, Bowater early adopted FIN 46 specific to the Covington
paper coating facility (referred to as &#147;Nuway&#148;) which had been financed through
a special purpose entity (&#147;SPE&#148;). This SPE was determined to be a VIE and
required to be consolidated by Bowater in accordance with FIN 46. As such, in
the third quarter of 2003, Bowater consolidated assets of approximately $49.4
million and debt of approximately $51.8&nbsp;million and recorded a non-cash, after
tax cumulative effect charge, of $2.4&nbsp;million (or $0.04 per share). On August
11, 2003, Bowater terminated the lease agreement with the SPE and paid
approximately $51.8&nbsp;million to pay off the debt.



<P align="center" style="font-size: 10pt">36
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<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>



<P align="left" style="font-size: 10pt">In December&nbsp;2003, the FASB issued a revision to FIN 46 (&#147;FIN 46R&#148;). Under the
new FIN 46R guidance, application of FIN 46R is required in financial
statements of entities that have interests in structures that are commonly
referred to as special-purpose entities for periods ending after December&nbsp;15,
2003. Application for all other types of variable interest entities is
required in financial statements for periods ending after March&nbsp;15, 2004.
Bowater adopted the remaining provisions of FIN 46R in the first quarter of
2004. Adoption of FIN 46R had no impact on Bowater&#146;s Consolidated Financial
Statements.



<P align="left" style="font-size: 10pt">In December&nbsp;2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the &#147;Act&#148;) was passed. The Act introduced a prescription drug
benefit under Medicare Part D as well as a federal subsidy to sponsors of
retiree health care benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. Our postretirement benefits include
prescription drug benefits for Medicare-eligible retirees. In March&nbsp;2004, the
FASB issued FASB Staff Position (FSP)&nbsp;106-2, &#147;Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003&#148; (the Act) that provides guidance on the accounting
for the effects of the Act for employers that sponsor postretirement health
care plans that provide drug benefits. This FSP also requires those employers
to provide certain disclosures regarding the effect of the federal subsidy
provided by the Act.



<P align="left" style="font-size: 10pt">Bowater adopted FSP 106-2 effective July&nbsp;1, 2004 and applied the prospective
transition method. As a result, a remeasurement of the plan&#146;s assets and
accumulated postretirement benefit obligation (APBO), including the effects of
the subsidy was made. The remeasurement resulted in a reduction of our net
periodic benefit cost for 2004 of $2.5&nbsp;million, of which $1.25&nbsp;million will be
recorded each in the third and fourth quarters of 2004. The $2.5&nbsp;million
reduction consisted of $0.3&nbsp;million for the reduction of current period service
costs, $1.3&nbsp;million for the reduction of amortization of actuarial experience
loss and $0.9&nbsp;million for reduction in interest costs on our APBO. The
remeasurement changed the prior service cost component of our APBO by
approximately $36.9&nbsp;million.



<P align="left" style="font-size: 10pt">On October&nbsp;13, 2004, the FASB concluded that Statement 123R, <I>Share-Based
Payment</I>, which would require all companies to measure compensation cost for all
share-based payments (including employee stock options) at fair value, would be
effective for public companies for interim or annual periods beginning after
June&nbsp;15, 2005. FASB 123R allows two methods of adoption &#151; the modified
prospective transition method or the modified retrospective transition method.
Bowater will be required to adopt FASB 123R in its third quarter of 2005 and is
currently evaluating the effect that the adoption of FASB 123R will have on our
financial position and results of operations.



<P align="center" style="font-size: 10pt">37
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES<BR>
Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>


<DIV align="left">
<A name="107"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</B>



<P align="left" style="font-size: 10pt"><B>Foreign Exchange Risk</B>



<P align="left" style="font-size: 10pt">We have updated the disclosure concerning our Canadian dollar forward
contracts, which is included in Note 13 to the Notes to Consolidated Financial
Statements included in this quarterly report. For information about the effect
of Canadian-U.S. dollar exchange rate fluctuations on our manufacturing costs
and Canadian dollar denominated liabilities, see the section entitled
&#147;Canadian-U.S. Dollar Exchange Rate Fluctuation Effect on Earnings.&#148;



<P align="left" style="font-size: 10pt"><B>Interest Rate Risk</B>



<P align="left" style="font-size: 10pt">We are exposed to interest rate risk on our fixed-rate long-term debt and our
short-term variable rate bank and long-term debt. Our objective is to manage
the impact of interest rate changes on earnings and cash flows and on the
market value of our borrowings. We maintain a mix of fixed rate and variable
rate borrowings. At September&nbsp;30, 2004 we had $2,154.5&nbsp;million of fixed rate
long-term debt and $346.5&nbsp;million of short and long-term variable rate debt.
The fixed rate long-term debt is exposed to fluctuations in fair value
resulting from changes in market interest rates, but not earnings or cash
flows. Our variable rate debt approximates fair value as it bears interest
rates that approximate market, but changes in interest rates do affect future
earnings and cash flows. Based on our short and long-term variable rate debt
at September&nbsp;30, 2004 of $346.5&nbsp;million, a 100 basis point increase in interest
rates would increase our quarterly interest expense by approximately $0.9
million.



<P align="left" style="font-size: 10pt"><B>Commodity Price Risk</B>



<P align="left" style="font-size: 10pt">We purchase significant amounts of energy, chemicals, wood fiber and recovered
paper to supply our manufacturing facilities. These raw materials are
market-priced commodities and, as such, are subject to fluctuations in market
prices. Increases in the prices of these commodities will tend to reduce our
reported earnings and decreases will tend to increase our reported earnings.
From time to time, we may enter into contracts aimed at securing a stable
source of supply for commodities such as timber, wood fiber, energy, chemicals
and recovered paper. These contracts typically require us to pay the market
price at the time of purchase. Thus under these contracts we generally remain
subject to market fluctuations in commodity prices.


<DIV align="left">
<A name="108"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;4. Controls and Procedures.</B>



<P align="left" style="font-size: 10pt">(a)&nbsp;Evaluation of Disclosure Controls and Procedures:



<P align="left" style="font-size: 10pt">We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of September&nbsp;30, 2004. Based on that
evaluation, the Chairman, President and Chief Executive Officer and the Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in recording, processing, summarizing, and timely reporting
information required to be disclosed in our reports to the Securities and
Exchange Commission.



<P align="left" style="font-size: 10pt">(b)&nbsp;Changes in Internal Control over Financial Reporting:



<P align="left" style="font-size: 10pt">In connection with the evaluation of internal control over financial
reporting, there were no changes during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



<P align="center" style="font-size: 10pt">38
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<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES</B>

<DIV align="left">
<A name="109"></A>
</DIV>



<P align="left" style="font-size: 10pt"><B>PART II</B>



<P align="left" style="font-size: 10pt"><B>OTHER INFORMATION</B>

<DIV align="left">
<A name="110"></A>
</DIV>


<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. Legal Proceedings.</B>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><I>a.</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bowater is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers&#146;
compensation claims and other matters. We periodically review the status
of these proceedings with both inside and outside counsel. 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 the results of operations in a given quarter or the
year.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right"><I>b.</I></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>There have been no material developments to the legal proceedings
described in our annual report on Form 10-K filed on March&nbsp;10, 2004.</TD>
</TR>

</TABLE>


<DIV align="left">
<A name="111"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;6. Exhibits</B>




<P align="left" style="margin-left:6%; font-size: 10pt">(a)&nbsp;Exhibits (numbered in accordance with Item&nbsp;601 of Regulation
S-K):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="93%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit No.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Qualified Stock Option
Agreement for 2002 Stock Option Plan.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement regarding Computation of Ratio of Earnings to Fixed Charges.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CEO Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CFO Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CEO Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CFO Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">39
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>BOWATER INCORPORATED AND SUBSIDIARIES</B>


<DIV align="left">
<A name="112"></A>
</DIV>

<P align="center" style="font-size: 10pt">SIGNATURES



<P align="left" style="font-size: 10pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.



<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top">&nbsp;</TD>
    <TD colspan="3">BOWATER INCORPORATED<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000">By       /s/ David G. Maffucci
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="3">David G. Maffucci&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="3">Executive Vice President and Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top">&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000">By       /s/ Michael F. Nocito
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="3">Michael F. Nocito&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD>&nbsp;</TD>
    <TD colspan="3">Vice President and Controller&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<P align="left" style="font-size: 10pt">Dated: November&nbsp;8, 2004



<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt">INDEX TO EXHIBITS


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="96%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit No.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Non-Qualified Stock Option
Agreement for 2002 Stock Option Plan.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement regarding Computation of Ratio of Earnings to Fixed Charges.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CEO Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CFO Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CEO Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of CFO Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>g91750exv10w1.txt
<DESCRIPTION>EX-10.1
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1

                              BOWATER INCORPORATED
                      NON-QUALIFIED STOCK OPTION AGREEMENT

                             To: ((First)) ((Last))

                                                             US $
    Grant Date    Expiration Date    Number of Shares    Option Price per Share

This stock option is granted to you by the Human Resources and Compensation
Committee (the "Committee") of the Board of Directors of Bowater Incorporated, a
Delaware corporation (the "Company"), upon the terms and conditions set forth
below and those contained in the Bowater Incorporated 2002 Stock Option Plan
(the "Plan").

1.   The Company hereby grants you a non-qualified stock option (the "Option")
     to purchase, subject to the provisions of this Agreement and the Plan, on
     or before the Expiration Date indicated above, at the Option Price per
     Share stated above, the Number of Shares (the "Shares") of the Common Stock
     of the Company, par value $1.00 per share, set forth above. This grant is
     subject to the condition that you execute and return this Agreement to the
     Company within sixty (60) days of the date you receive it; if you do not so
     execute and return this Agreement, the grant shall be null and void and
     without effect. This Agreement may only be modified by a writing signed by
     both you and the Company.

2.   No shares may be purchased hereunder unless you remain in the continuous
     employ of the Company or one of its Subsidiaries (as that term is defined
     in the Plan) for one year following the grant date except as provided in
     paragraphs 7 and 8. Thereafter, the Option may be exercised in the manner
     hereinafter set forth, provided that (a) you are at the time of such
     exercise in the employ of the Company or one of its Subsidiaries (except as
     provided in paragraphs 7 and 8), and (b) the Option may be exercised only
     to the extent of 50% of the number of Shares to which it relates on or
     after the first anniversary of the grant date, and may be exercised to the
     extent of the remaining 50% of such Shares on or after the second
     anniversary of such date. The Option shall become immediately exercisable
     in the event of your death or a Change in Control (as that term may be
     defined from time to time in the Plan) while you are employed by the
     Company or one of its Subsidiaries. In the event of a Change in Control,
     this Option may be exercised only in accordance with the procedures set
     forth in the Plan.

3.   You may exercise the Option, in whole or in part, by complying with
     notification procedures specified by the Company's Human Resources
     Department at its corporate headquarters. Contemporaneously with the
     delivery of notice with respect to exercise of the Option you must pay the
     full purchase price of the Shares purchased pursuant to the exercise of the
     Option in cash, or by tender of Share certificates in proper form for
     transfer to the Company valued at the Fair Market Value of the Shares (as
     defined in the Plan) on the preceding day, or by any combination of the
     foregoing, or with any other consideration acceptable to the Committee. You
     may also make payment upon the exercise of the Option by means of a
     properly executed exercise notice together with irrevocable instructions to
     a broker to deliver promptly to the Company the portion of the sale or loan
     proceeds sufficient to pay such purchase price. The Option may not be
     exercised with respect to a fractional share or with respect to fewer than
     100 Shares (unless it is being exercised in full). No Shares shall be sold
     or delivered hereunder until full payment for such Shares has been made.

4.   The Company shall not be required to issue or deliver any certificate or
     certificates for Shares purchased upon the exercise of any part of the
     Option prior to (i) the admission of such Shares to listing on any stock
     exchange on which the Shares may then be listed, (ii) the completion of any
     registration or other qualification of such Shares under any applicable
     law, rule or regulation, (iii) the obtaining of any consent or approval or
     other clearance from any governmental agency that the Company determines to
     be necessary or advisable, and (iv) the payment to the Company, upon its
     demand, of any amount requested by the Company for the purpose of
     satisfying its liability, if any, to withhold federal, state or local
     income or earnings tax or any other applicable tax or assessment (plus
     interest or penalties thereon, if any, caused by a delay in making such
     payment) incurred by reason of the exercise of the Option or the transfer
     of such Shares thereupon.

5.   The Option shall be exercised and Shares issued only upon compliance with
     the Securities Act of 1933, as amended (the "Act"), and any other
     applicable securities laws, and you agree to comply with any requirements
     imposed by the Committee under such laws. You agree that you will not
     transfer any Shares acquired upon exercise of the Option at any time during
     which you are in possession of any material, nonpublic information about
     the Company, its business affairs, financial condition or prospects. If you
     are an officer of the Company subject to Section 16 of the Securities
     Exchange Act of 1934, as amended, you are required to obtain prior approval
     of any exercise of the Option or transfer of the Shares acquired thereby
     from the Section 16 Compliance Officer or General Counsel of the Company.
     If you are an "affiliate" of the Company (as that term is defined in Rule
     144 promulgated under the Act, and which generally includes directors and
     certain officers), by accepting this Agreement, you agree that you will
     dispose of the Shares acquired upon exercise of the Option only in
     compliance with Rule 144 or in such other manner as will not violate the
     Act and the rules and regulations promulgated thereunder, and any other
     applicable securities law.

<PAGE>

                                                                    EXHIBIT 10.1

6.   The Option is not transferable by you otherwise than by will or by the laws
     of descent and distribution, and is exercisable, during your life, only by
     you or by your guardian or legal representative. Any attempted assignment,
     transfer, pledge, hypothecation or other disposition of the Option contrary
     to the provisions hereof shall be null and void. The Option does not confer
     upon you any right with respect to continuation of employment with the
     Company or any of its Subsidiaries, and will not interfere in any way with
     the right of the Company or any of its Subsidiaries to terminate your
     employment.

7.   To the extent that the Option has not become exercisable it shall terminate
     on the earlier of (i) the Expiration Date, or (ii) at the date of the
     termination of your employment with the Company or its Subsidiaries for any
     reason other than for death, Disability (as defined in the Plan) or
     Retirement (as defined in the Plan). Except as provided in the last
     sentence of this paragraph, to the extent that the Option has become
     exercisable, it shall terminate on the earlier of (i) the Expiration Date,
     or (ii) three months after the termination of your employment with the
     Company or its Subsidiaries for any reason other than death, Disability or
     Retirement. Subject to paragraph 8, and the condition that the Option may
     not be exercised in whole or in part after the Expiration Date or its
     expiration as otherwise provided in this paragraph, the Option may be
     exercised in whole or in part within a period of five years after the
     termination of your employment due to Disability or Retirement and any
     period of Disability or Retirement shall be considered continued employment
     for purposes of paragraph 2. The Option terminates immediately upon
     termination of your employment for good cause (as determined by the
     Company).

8.   If you die while employed or during a period of Disability or Retirement
     described above, the legal representative to whom your rights hereunder are
     transferred by will or the laws of descent and distributions may exercise
     some or all of this Option at any time prior to the earlier of (i) the
     Expiration Date, or (ii) twenty-four months from the date of your death,
     regardless of whether the requirements of paragraph 2 have been satisfied.
     As of the earlier of such dates, the Option shall terminate and expire.

9.   If a stock dividend, stock split, recapitalization, merger, consolidation,
     combination, exchange of shares or other similar corporate change occurs,
     the Committee may adjust the terms of this Option in such manner as it
     deems equitable.

10.  The Option shall be irrevocable during the Option period and its validity
     and construction shall be governed by the laws of the State of Delaware.
     The terms and conditions herein set forth are subject in all respects to
     the terms and conditions of the Plan, which shall be controlling. You agree
     to execute such other agreements, documents or assignments as may be
     necessary or desirable to effect the purposes of this Agreement.




                                         BOWATER INCORPORATED


                                         ---------------------------------------
                                         James T. Wright
                                         Senior Vice President - Human Resources

- --------------------------------------------------------------------------------


I hereby acknowledge receipt of the Non-Qualified Stock Option (the "Option")
granted on the date shown above, which has been issued to me under the terms and
conditions of the Bowater Incorporated 2002 Stock Option Plan (the "Plan"). I
agree to conform to all of the terms and conditions of the Option and the Plan.


Date: ________________________ Your Signature: _________________________________


[NQO-2 YEAR VESTING]

[020304]







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12.1
<SEQUENCE>3
<FILENAME>g91750exv12w1.htm
<DESCRIPTION>EX-12.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Ex-12.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt"><B>Exhibit&nbsp;12.1</B>



<P align="left" style="font-size: 10pt"><B>Bowater Incorporated<BR>
Statement of Computation of Unaudited Ratio of Earnings to Fixed Charges<BR>
(in millions, except ratio information)</B>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="77%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Nine Months Ended September 30,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Earnings:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before income taxes, minority interests
and cumulative effect of accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(99.8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(211.5</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Add: Fixed charges from below</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>150.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less: Capitalized interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>50.7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(79.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Fixed Charges:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest expense, net of interest capitalized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>146.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127.9</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Capitalized interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Estimate of interest within rental expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2.1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortized premium and discounts related to indebtedness</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1.9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>150.5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">140.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Deficiency of Earnings to Fixed Charges</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>99.8</B></TD>
    <TD nowrap><B></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">219.0</TD>
    <TD nowrap></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>


</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>g91750exv31w1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>Ex-31.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt">EXHIBIT&nbsp;31.1



<P align="center" style="font-size: 10pt"><B>Certification</B>


<P align="left" style="font-size: 10pt">I, Arnold M. Nemirow, Chairman, President and Chief Executive Officer of
Bowater Incorporated, certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Form 10-Q for the quarterly period ended September
30, 2004 of Bowater Incorporated;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant
and have:</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evaluated the effectiveness of the registrant&#146;s
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report
based on such evaluation; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred during the
registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect,
the registrant&#146;s internal control over financial reporting; and</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant&#146;s auditors and the audit committee of
registrant&#146;s board of directors (or persons performing the equivalent
function):</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant&#146;s ability to record,
process, summarize and report financial information; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant&#146;s internal controls over financial reporting.</TD>
</TR>

</TABLE>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: November&nbsp;9, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Arnold M. Nemirow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top"><HR size="1" noshade><DIV style="margin-left:0px; text-indent:-0px">Arnold M. Nemirow</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Chairman, President and Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<P align="center" style="font-size: 10pt">
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<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>5
<FILENAME>g91750exv31w2.htm
<DESCRIPTION>EX-31.2
<TEXT>
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<HEAD>
<TITLE>Ex-31.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="right" style="font-size: 10pt">EXHIBIT&nbsp;31.2

<P align="center" style="font-size: 10pt"><B>Form of Certification for Quarterly Reports on Form&nbsp;10-Q</B>


<P align="left" style="font-size: 10pt">I, David G. Maffucci, Executive Vice President and Chief Financial Officer of
Bowater Incorporated, certify that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this Form 10-Q for the quarterly period ended September
30, 2004 of Bowater Incorporated;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) for the registrant
and have:</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Evaluated the effectiveness of the registrant&#146;s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Disclosed in this report any change in the registrant&#146;s
internal control over financial reporting that occurred during the
registrant&#146;s most recent fiscal quarter (the registrant&#146;s fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant&#146;s internal control over financial reporting; and</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant&#146;s auditors and the audit committee of the
registrant&#146;s board of directors (or persons performing the equivalent
functions):</TD>
</TR>

</TABLE>

<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant&#146;s
ability to record, process, summarize and report financial
information; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant&#146;s internal control over financial reporting.</TD>
</TR>

</TABLE>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: November&nbsp;8, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ David G. Maffucci</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top"><HR size="1" noshade><DIV style="margin-left:0px; text-indent:-0px">David G. Maffucci</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Executive Vice President and Chief Financial Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules&nbsp;13a-14(a) and
15d-14(a).




<P align="center" style="font-size: 10pt">
</DIV>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>6
<FILENAME>g91750exv32w1.htm
<DESCRIPTION>EX-32.1
<TEXT>
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<HEAD>
<TITLE>Ex-32.1</TITLE>
</HEAD>
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt">EXHIBIT 32.1



<P align="center" style="font-size: 10pt"><B>Certification</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to 18 U.S.C. &#167; 1350, the undersigned officer of Bowater
Incorporated (the &#147;Company&#148;), hereby certifies, to such officer&#146;s knowledge,
that the Company&#146;s Quarterly Report on Form 10-Q for the quarter ended
September&nbsp;30, 2004 (the &#147;Report&#148;) fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dated: November&nbsp;9, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Arnold M. Nemirow</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name: Arnold M. Nemirow</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: Chief Executive Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing certification is being furnished solely pursuant to 18
U.S.C. &#167; 1350 and is not being filed as part of the Report or as a separate
disclosure document.



<P align="center" style="font-size: 10pt">
</DIV>


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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>7
<FILENAME>g91750exv32w2.htm
<DESCRIPTION>EX-32.2
<TEXT>
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<HEAD>
<TITLE>Ex-32.2</TITLE>
</HEAD>
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="right" style="font-size: 10pt">EXHIBIT 32.2



<P align="center" style="font-size: 10pt"><B>Certification</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to 18 U.S.C. &#167; 1350, the undersigned officer of Bowater
Incorporated (the &#147;Company&#148;), hereby certifies, to such officer&#146;s knowledge,
that the Company&#146;s Quarterly Report on Form 10-Q for the quarter ended
September&nbsp;30, 2004 (the &#147;Report&#148;) fully complies with the requirements of
Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934
and that the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dated: November&nbsp;8, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ David G. Maffucci</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name: David G. Maffucci</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title: Chief Financial Officer</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The foregoing certification is being furnished solely pursuant to 18
U.S.C. &#167; 1350 and is not being filed as part of the Report or as a separate
disclosure document.



<P align="center" style="font-size: 10pt">
</DIV>


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