<SUBMISSION>
<ACCESSION-NUMBER>0000950144-08-008708
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20080930
<FILING-DATE>20081114
<DATE-OF-FILING-DATE-CHANGE>20081114
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BOWATER INC
<CIK>0000743368
<ASSIGNED-SIC>2621
<IRS-NUMBER>620721803
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-08712
<FILM-NUMBER>081192705
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>55 EAST CAMPERDOWN WAY
<STREET2>P O BOX 1028
<CITY>GREENVILLE
<STATE>SC
<ZIP>29601
<PHONE>8642717733
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>55 EAST CAMPERDOWN WAY
<STREET2>P O BOX 1028
<CITY>GREENVILLE
<STATE>SC
<ZIP>29602
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>g16609qe10vq.htm
<DESCRIPTION>10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>10-Q</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

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

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-Q</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(Mark One)
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008</B>
</B>
</DIV>




<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>FOR THE TRANSITION PERIOD FROM &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; TO</B>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>COMMISSION FILE NUMBER: 001-08712</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>BOWATER INCORPORATED</B>
</DIV>

<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="48%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="48%">&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" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction of incorporation or organization )
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. employer identification number)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">1155 Metcalfe Street, Suite&nbsp;800; Montr&#233;al, Qu&#233;bec; Canada H3B 5H2</DIV>

<DIV align="center"><DIV style="font-size: 3pt; margin-top: 1pt; width: 100%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt">(Address of principal executive offices) (Zip Code)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt">(514)&nbsp;875-2160</DIV>

<DIV align="center"><DIV style="font-size: 3pt; margin-top: 1pt; width: 100%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt">(Registrant&#146;s telephone number, including area code)</DIV>


<DIV align="center"><DIV style="font-size: 3pt; margin-top: 16pt; width: 100%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>

<DIV align="center" style="font-size: 10pt">(Former name, former address and former fiscal year, if changed since last report)</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 the filing requirements for at least the past 90&nbsp;days.
Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of &#147;large
accelerated filer,&#148; &#147;accelerated filer&#148; and &#147;smaller reporting company&#148; in Rule 12b-2 of the Exchange Act. (Check one):</DIV>



<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 10pt">
<TR style="font-size: 0pt">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left" valign="top">Large accelerated filer
<FONT face="Wingdings">&#111;</FONT>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#111;</FONT>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD nowrap align="center">Non-accelerated filer &nbsp;
<FONT face="Wingdings">&#254;</FONT><BR>
(Do not check if a smaller reporting company)</TD>
    <TD align="center">&nbsp;</TD>
    <TD nowrap align="center" valign="top">Smaller reporting company <FONT face="Wingdings">&#111;</FONT>&nbsp;</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined in Rule&nbsp;12b-2 of the
Exchange Act).
Yes <FONT face="Wingdings">&#111;</FONT> No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Bowater Incorporated is a wholly-owned subsidiary of AbitibiBowater Inc., and there is no market
for the registrant&#146;s common stock. As of October&nbsp;31, 2008, 100 shares of the registrant&#146;s common
stock were outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Bowater Incorporated meets the conditions set forth in, and is filing this form with the reduced
disclosure format prescribed by, General Instructions H (1)(a) and (b)&nbsp;of </B><B>Form 10-Q</B><B>.</B>
</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</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">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
TABLE OF CONTENTS</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="90%">&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="3" style="border-bottom: 1px solid #000000">Page Number</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PART I FINANCIAL INFORMATION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Item&nbsp;1. Financial Statements:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:-15px"><A href="#101">Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September&nbsp;30, 2008 and 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan="2">1</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:-15px"><A href="#102">Condensed Consolidated Balance Sheets as of September&nbsp;30, 2008 and December&nbsp;31, 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  <TD align="right" colspan="2">2</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:-15px"><A href="#103">Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September&nbsp;30, 2008 and 2007</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">3</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</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:-15px"><A href="#104">Notes to Unaudited Condensed Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">4</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;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" colspan="2">15</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Item&nbsp;4T. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">25</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">PART II OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" colspan="2">26</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;1A. Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">26</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;5. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">29</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">29</TD>

</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">SIGNATURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD align="right" colspan="2">30</TD>

</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g16609qexv31w1.htm">EX-31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="g16609qexv31w2.htm">EX-31.2</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>

<DIV align="left">
<A name="101"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited, in millions)</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="52%">&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: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&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" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><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>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>854</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2,524</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,385</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs and 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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cost of sales, excluding depreciation, amortization
and cost of timber harvested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>662</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">672</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,954</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,912</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation, amortization and cost of timber harvested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>59</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>202</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distribution costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>85</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>245</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>118</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Arbitration award</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">28</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">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Closure costs, impairment and other related charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>127</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>140</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net gain on disposition of assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(4</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(17</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(44</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(140</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(115</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(82</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in loss of Abitibi-Consolidated Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(24</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>(92</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>21</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(51</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(47</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(154</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(142</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income
(expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>3</B></TD>
    <TD nowrap><B></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>7</B></TD>
    <TD nowrap><B></B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Loss before income taxes and minority interests</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(166</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(295</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(219</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax benefit (provision)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(1</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">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 nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net loss</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(149</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(142</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(294</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(240</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to unaudited condensed consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->1<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED BALANCE SHEETS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited, in millions, except share data)</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="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: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&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">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</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:15px; text-indent:-15px"><B>Current assets:</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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>473</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">462</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable from affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10</B></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:30px; text-indent:-15px">Inventories, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>344</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>181</B></TD>
    <TD>&nbsp;</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:-15px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>38</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Total current assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,146</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">961</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,690</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,584</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>407</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">591</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in Abitibi-Consolidated Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>148</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>258</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">246</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Total assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>3,649</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and shareholder&#146;s (deficit)&nbsp;equity</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:15px; text-indent:-15px"><B>Current liabilities:</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: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable and accrued liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>417</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short-term bank debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>382</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current installments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>262</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Liabilities associated with assets held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13</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 colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Total current liabilities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,074</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">690</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt, net of current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,964</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,242</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>402</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">421</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>225</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">365</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests in subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>75</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholder&#146;s (deficit)&nbsp;equity:</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:30px; text-indent:-15px">Common
stock, $.01 par value and 100 shares at September&nbsp;30, 2008 and<BR>
$1 par value and 56.3&nbsp;million shares at December&nbsp;31, 2007</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">56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exchangeable
shares, no par value. 4.4&nbsp;million shares at
September&nbsp;30, 2008; <BR>
5.1&nbsp;million shares at December&nbsp;31, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>242</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">276</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,388</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,207</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Note
receivable from AbitibiBowater Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(681</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(910</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(600</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(130</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Total shareholder&#146;s (deficit)&nbsp;equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">821</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px"><B>Total liabilities and shareholder&#146;s (deficit)&nbsp;equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>3,649</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to unaudited condensed consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B></DIV>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited, in millions)</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="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: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&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 nowrap align="left" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><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>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net cash used in operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(125</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(114</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from 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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash invested in fixed assets, timber and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(39</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(73</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dispositions of assets, including timber and timberlands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>55</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Direct acquisition costs related to the merger with
Abitibi-Consolidated Inc.</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">(17</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net cash provided by investing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from 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">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends</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">(35</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term financing, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>177</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(20</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payments of credit facility fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(11</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net cash provided by financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>146</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash and cash equivalents:</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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>63</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">End of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>100</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">See accompanying notes to unaudited condensed consolidated financial statements.
</DIV>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>
<DIV align="center" style="font-size: 10pt; margin-top: 0pt"><B>Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Organization and Basis of Presentation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Basis of Presentation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying condensed consolidated financial statements include the accounts of Bowater
Incorporated and its subsidiaries (&#147;Bowater,&#148; also referred to as the &#147;Company,&#148; &#147;we&#148; or &#147;our&#148;). On
October&nbsp;29, 2007, we combined with Abitibi-Consolidated Inc. (&#147;Abitibi&#148;) in a merger of equals (the
&#147;Combination&#148;). As a result of the Combination, we and Abitibi each became a wholly-owned
subsidiary of AbitibiBowater Inc. (&#147;AbitibiBowater&#148;) and we became an 18% shareholder of Abitibi.
The accompanying condensed consolidated financial statements are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission (the &#147;SEC&#148;).
Accordingly, certain information and disclosures normally included in financial statements prepared
in accordance with U.S. generally accepted accounting principles (&#147;GAAP&#148;) have been condensed or
omitted pursuant to such rules and regulations. In our opinion, these condensed consolidated
financial statements reflect all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the results of our operations for the periods presented. The results of
the interim period ended September&nbsp;30, 2008 are not necessarily indicative of the results to be
expected for the full year. These unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and related notes included
in our Annual Report on Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008.
Certain prior-year amounts in the unaudited condensed consolidated financial statements have been
reclassified to conform to the 2008 presentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Reduction
in Common Stock</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In January&nbsp;2008, AbitibiBowater, Bowater&#146;s sole shareholder, approved an amendment to the
Certificate of Incorporation, reducing the number of Bowater&#146;s
outstanding common shares from approximately 56.3&nbsp;million shares to 100
shares, and reducing the par value of those shares from $1.00 to $0.01. Accordingly, as of September&nbsp;30, 2008, &#147;Common stock&#148; decreased and &#147;Additional
paid-in capital&#148; increased by approximately $56&nbsp;million on our Condensed Consolidated Balance Sheets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note Contribution and Spin-off During the Second Quarter of 2008</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;15, 2008, we transferred the ownership interest we held in our wholly-owned subsidiary,
Bowater Newsprint South LLC (&#147;Newsprint South&#148;), to AbitibiBowater (the &#147;Spin-off&#148;). Newsprint
South, now a direct and wholly-owned subsidiary of AbitibiBowater, owns and operates the Coosa
Pines, Alabama and Grenada, Mississippi mills, as well as the Westover, Alabama sawmill. The
Spin-off was completed to fulfill the requirement of our bank lenders, under our U.S. and Canadian
credit facilities, that we transfer the Coosa Pines and Grenada mills to AbitibiBowater. We charged
the distribution of our $569&nbsp;million investment in Newsprint South to additional paid-in-capital.
(See Note 7, &#147;Note Contribution and Spin-off During the Second Quarter of 2008&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;12, 2008, AbitibiBowater contributed to Bowater, as additional paid-in capital, a 12.5%
promissory note in the amount of $650&nbsp;million due June&nbsp;30, 2013, executed by AbitibiBowater in
favor of Bowater. Interest on the note is due semi-annually and is
recorded in interest income on our Unaudited Condensed Consolidated Statements of Operations. This note is guaranteed by Newsprint South and
certain of its subsidiaries. Since the note receivable is due from our parent, AbitibiBowater, it
has been classified as a separate caption in shareholder&#146;s
(deficit) equity. Subsequent repayments of the
note by AbitibiBowater will result in a reduction of the note, which will result in an increase in
shareholder&#146;s (deficit) equity. On October&nbsp;15, 2008,
AbitibiBowater elected to make the interest payment due on that date
through the issuance of an additional note with similar terms. As a
result, the interest receivable on the note as of September&nbsp;30,
2008 of $31&nbsp;million is included in &#147;Note receivable from
AbitibiBowater Inc.&#148; in shareholder&#146;s (deficit) equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the Spin-off, the unaudited condensed consolidated financial statements included
herein do not reflect the financial position or results of operations of our former Coosa Pines,
Grenada and Westover mills after May&nbsp;15, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Impact of Recently Adopted Accounting Pronouncement</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2006, the FASB issued Statement No.&nbsp;158, &#147;Employers&#146; Accounting for Defined Benefit
Pension and Other Postretirement Plans&#148; (&#147;SFAS 158&#148;). SFAS 158&#146;s measurement date provisions are
effective for fiscal years
ending after December&nbsp;15, 2008. Prior to the adoption of SFAS 158, a measurement date of
September&nbsp;30, 2007 was
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">used for all of our plans. SFAS 158 requires us to use a December&nbsp;31
measurement date. We have elected to use the 15-month transition method to determine the amount of
the adjustment to our opening deficit balance and opening accumulated other comprehensive loss
balance on January&nbsp;1, 2008. The adjustment increased our opening deficit by $6&nbsp;million, net of
taxes of $2&nbsp;million, and increased our opening accumulated other comprehensive loss by $11&nbsp;million,
net of taxes of $1&nbsp;million. The increase to our accumulated other comprehensive loss primarily
represents the additional net actuarial loss that arose from our settlement and curtailment events
in the fourth quarter of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>New Accounting Pronouncements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In March&nbsp;2008, the FASB issued Statement No.&nbsp;161, &#147;Disclosures about Derivative Instruments and
Hedging Activities&#148; (&#147;SFAS 161&#148;). This Statement changes the disclosure requirements for derivative
instruments and hedging activities, requiring us to provide enhanced disclosures about (a)&nbsp;how and
why we use derivative instruments, (b)&nbsp;how derivative instruments and related hedged items are
accounted for under FASB Statement No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging
Activities&#148; (&#147;SFAS 133&#148;) and (c)&nbsp;how derivative instruments and related hedged items affect our
financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years
beginning after November&nbsp;15, 2008. We do not expect the adoption of this accounting guidance to
impact our results of operations or financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In April&nbsp;2008, the FASB issued Staff Position No.&nbsp;FAS 142-3, &#147;Determination of the Useful Life of
Intangible Assets&#148; (&#147;FSP FAS 142-3&#148;). This Staff Position amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under FASB Statement No.&nbsp;142, &#147;Goodwill and Other Intangible Assets.&#148;
This new guidance also provides additional disclosure requirements related to recognized intangible
assets. FSP FAS 142-3 is effective for fiscal years beginning after December&nbsp;15, 2008. Early
adoption is prohibited. We do not expect the adoption of this accounting guidance to impact our
results of operations or financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In May&nbsp;2008, the FASB issued Statement No.&nbsp;162, &#147;Hierarchy of Generally Accepted Accounting
Principles&#148; (&#147;SFAS 162&#148;). This Statement identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP. SFAS 162 is effective 60&nbsp;days
following the Securities and Exchange Commission&#146;s approval of the Public Company Accounting
Oversight Board amendments to AU Section&nbsp;411, &#147;The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.&#148; We do not expect the adoption of this accounting
guidance to impact our results of operations or financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2008, the EITF reached a consensus in Issue No.&nbsp;08-3, &#147;Accounting by Lessees for
Nonrefundable Maintenance Deposits&#148; (&#147;EITF 08-3&#148;). This issue addresses the accounting for
nonrefundable maintenance deposits paid by the lessee to the lessor. EITF 08-3 is effective for
fiscal years beginning after December&nbsp;15, 2008, and interim periods within those fiscal years.
Earlier application is not permitted. We have not determined the impact of adoption of this
accounting guidance on our results of operations or financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Inventories, Net</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="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: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&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">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At lower of cost or market:</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:30px; text-indent:-15px">Raw materials and work in process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>49</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>154</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">143</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Mill stores and other supplies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>155</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>358</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">391</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Excess of current cost over LIFO inventory value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(14</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>344</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Liquidity and Debt</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Liquidity, Short-term Bank Debt and Current Installments of Long-Term Debt</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2008, total short-term bank debt and current installments of long-term debt
totaled $644&nbsp;million. In order to address our significant upcoming debt maturities, which primarily
consist of: (i)&nbsp;our Canadian credit facility which matures on June&nbsp;5, 2009 ($67&nbsp;million outstanding
at September&nbsp;30, 2008) and (ii)&nbsp;our $248&nbsp;million 9% debentures due August&nbsp;1, 2009, we are currently
pursuing refinancing alternatives and the sale of assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our primary sources of liquidity and capital resources are cash on hand, cash provided from
operations and available borrowings under our bank credit facilities. As of September&nbsp;30, 2008, we
had cash on hand of approximately $100&nbsp;million. Our third quarter 2008 cash used in operations was
$62&nbsp;million, an increase of $18&nbsp;million as compared to the second quarter of 2008. In addition, we
had $76&nbsp;million of available borrowings under our bank credit facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There is no assurance that we will have sufficient cash to repay our $248&nbsp;million 9% debentures due
August&nbsp;1, 2009, without significant asset sales or external financing as presently contemplated by
our available refinancing plans. Additionally, our $144&nbsp;million Canadian bank credit facility will
expire on June&nbsp;5, 2009 ($67&nbsp;million outstanding at September&nbsp;30, 2008). We are currently seeking to
replace both the U.S. and Canadian credit facilities with a senior secured asset-based revolving
credit facility with a syndicate of lenders and are exploring the
feasibility of issuing senior secured notes
contingent upon the consummation of the new asset-based revolving credit facility. The proceeds of
any such notes offering would be used to repay our 9% debentures due August&nbsp;1, 2009 and for working
capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Bank Credit Facilities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2008, available borrowings under our bank credit facilities were as follows:
</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="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: 1px">
    <TD colspan="21" align="left" style="border-top: 1px solid #000000">&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 nowrap align="center" colspan="3"><B>Weighted</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>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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Commitment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Available</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Interest Rate</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(2)</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="21" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">05/11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canadian credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">06/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="21" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <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 colspan="21" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The commitment available under each of these revolving bank credit facilities is subject to
collateral requirements and covenant restrictions (after giving
effect to the financial covenant waivers included in the
November&nbsp;12, 2008 amendment) as described below or in our Annual Report
on Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008, in our Quarterly
Report on Form 10-Q for the quarter ended March&nbsp;31, 2008, filed on May&nbsp;15, 2008 or in our
Quarterly Report on Form 10-Q for the quarter ended June&nbsp;30, 2008, filed on August&nbsp;22, 2008,
and is reduced by outstanding letters of credit of $70&nbsp;million for our U.S. credit facility
and $31&nbsp;million for our Canadian credit facility. Commitment fees for unused portions of our
U.S. and Canadian credit facilities are 50 and 25 basis points, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Borrowings under the bank credit facilities incur interest based, at our option, on specified
market interest rates plus a margin.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our U.S. credit agreement is guaranteed by AbitibiBowater, Newsprint South and certain wholly-owned
U.S. subsidiaries of Bowater and Newsprint South, and is secured by (i)&nbsp;liens on the inventory,
accounts receivable and deposit accounts of Bowater, Newsprint South and their subsidiaries that
are guarantors, (ii)&nbsp;pledges of 65% of the stock of certain of our foreign subsidiaries, (iii)
pledges of the stock of our U.S. subsidiaries that do not own mills or converting facilities and
(iv)&nbsp;pledges of the stock of the subsidiaries of Newsprint South. Availability under the U.S.
credit facility is limited to 75% of the net consolidated book value of our accounts receivable and
inventory, excluding Bowater Canadian Forest Products Inc. (&#147;BCFPI&#148;) and its subsidiaries, and is
reduced by the amount of outstanding letters of credit.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Canadian credit agreement is secured by liens on the inventory, accounts receivable and deposit
accounts of BCFPI and is guaranteed by us, Newsprint South and certain of their wholly-owned
subsidiaries and certain subsidiaries of BCFPI. Availability under the Canadian credit facility is
limited to 60% of the net book value of the accounts receivable and inventory of BCFPI and its
subsidiaries, and is reduced by the amount of outstanding letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Amendments to Bank Credit Facilities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For a more complete discussion of our U.S. credit facility, our Canadian credit facility, as well
as certain amendments to these bank credit facilities entered into on November&nbsp;2, 2007, February
25, 2008 and March&nbsp;31, 2008, reference is made to our Annual Report on Form 10-K for the year ended
December&nbsp;31, 2007, filed on April&nbsp;14, 2008, for amendments to these bank credit facilities entered
into on April&nbsp;30, 2008, reference is made to our Quarterly Report on Form 10-Q for the quarter
ended March&nbsp;31, 2008, filed on May&nbsp;15, 2008 and for amendments to these bank credit facilities
entered into on June&nbsp;6, 2008 and August&nbsp;7, 2008, reference is made to our Quarterly Report on Form
10-Q for the quarter ended June&nbsp;30, 2008, filed on August&nbsp;22, 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the second quarter of 2008 and the first nine months of 2008, we incurred fees of $11
million associated with the amendments to the bank credit facilities, which are being amortized to
interest expense over the term of the facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our U.S. credit facility permits us to send distributions to AbitibiBowater to service interest on
its convertible debt provided that no default exists under this facility at the time of such
payment and we are in pro forma compliance with this facility&#146;s financial covenants at the time of
such payment. Under previous amendments, the lenders under our U.S. and Canadian credit facilities
implemented a more restrictive borrowing base, using more extensive eligibility criteria and
imposing additional reporting obligations on us (although, as described below, the date by which we
must comply with these more restrictive requirements is now to be phased in through March&nbsp;31,
2009).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;12, 2008, we and the other parties to our U.S. and Canadian credit facilities entered
into amendments to those facilities that, among other things: (1)&nbsp;waive the requirement that we are
required to comply immediately with the more restrictive borrowing base requirements by November
15, 2008 and provide instead for phased-in implementation through March&nbsp;31, 2009 (extending to
April&nbsp;29, 2009 under certain circumstances) and waive compliance with certain financial covenant
requirements for the third quarter of 2008 (absent such waiver, we would have been in violation of the senior secured leverage ratio and the interest coverage ratio covenants under the credit facilities for the third quarter);
 (2)&nbsp;amend certain covenants, including the leverage
ratio, for the fourth quarter of 2008; (3)&nbsp;increase the interest rate under each facility by 125
basis points; (4)&nbsp;provide a lien on substantially all Canadian fixed assets and the shares of our
South Korean subsidiary (which operates our Mokpo mill) to Canadian lenders, as security for
indebtedness in a principal amount not to exceed 10% of the shareholders&#146; equity of BCFPI as of
September&nbsp;30, 2008; (5)&nbsp;add a provision requiring that 75% of the proceeds of asset sales by us or
our subsidiaries be used to reduce amounts outstanding under both facilities on a pro rata basis;
(6)&nbsp;reduce, pro rata, the aggregate amount of the commitment under both facilities by $10&nbsp;million;
and (7)&nbsp;require that we maintain no more than $70&nbsp;million of cash on hand, with any excess to be
used to reduce amounts outstanding under the facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We expect to be in compliance with the financial covenants of the amended credit facilities through
March&nbsp;31, 2009. However, as discussed above, we expect to refinance our U.S. and Canadian credit
facilities prior to March&nbsp;31, 2009. Our ability to consummate such refinancing will be subject to
market and other conditions, and no assurance can be made that such transactions will be
consummated on terms acceptable to us, or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The U.S. and Canadian credit facilities further provide that we may make dividends and
distributions to AbitibiBowater sufficient to pay (1)&nbsp;taxes attributable to us and our subsidiaries
and (2)&nbsp;up to $10&nbsp;million more than 50% of certain of AbitibiBowater&#146;s annual overhead expenses,
such as accounting and auditing costs, director fees, director and officer insurance premiums,
franchise taxes, transfer agent fees and legal and other expenses connected to AbitibiBowater&#146;s
status as a public company. Overhead expenses do not include management fees, salaries, bonuses or
debt service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may also, from time to time, subject to any applicable
restrictions contained in any indebtedness documents, enter into transactions with related parties,
including AbitibiBowater, for management and other services (such as IT, environmental, human
resources and legal services) and intercompany advances, loans and investments, intercompany
product sales and purchases.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. Accumulated Other Comprehensive Loss</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of &#147;Accumulated other comprehensive loss&#148; in the Condensed Consolidated Balance
Sheets are as follows:
</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="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: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&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">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unamortized prior service costs <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unamortized actuarial losses <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(151</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(135</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized loss on hedging transactions <SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></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">(2</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(130</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(118</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Net of deferred tax provision of $16&nbsp;million and $13&nbsp;million as of September&nbsp;30, 2008 and
December&nbsp;31, 2007, respectively. Net of minority interest of $3&nbsp;million and $2&nbsp;million as of
September&nbsp;30, 2008 and December&nbsp;31, 2007, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Net of deferred tax benefit of $71&nbsp;million and $67&nbsp;million as of September&nbsp;30, 2008 and
December&nbsp;31, 2007, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>No tax effect is recorded for foreign currency translation since the foreign net assets
translated are deemed indefinitely invested.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(4)</TD>
    <TD>&nbsp;</TD>
    <TD>Net of deferred tax benefit of $1&nbsp;million as of September&nbsp;30, 2008 and December&nbsp;31, 2007.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our comprehensive loss, which includes our net loss and the changes in our accumulated other
comprehensive loss, was $149&nbsp;million and $295&nbsp;million for the three and nine months ended September
30, 2008, respectively, and $143&nbsp;million and $243&nbsp;million for the three and nine months ended
September&nbsp;30, 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Closure Costs, Impairment and Other Related Charges</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&#147;Closure costs, impairment and other related charges&#148; in the Condensed Consolidated Statements of
Operations includes the following:
</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="52%">&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: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&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" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asset impairment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>127</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>127</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other closure 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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Noncancelable contracts</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>10</B></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:30px; text-indent:-15px">Severance and other</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>3</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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>127</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>140</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Immediately upon the Combination, AbitibiBowater began a comprehensive strategic review of its
operations to reduce costs and improve its profitability. On November&nbsp;29, 2007, AbitibiBowater
announced the results of the initial phase of its comprehensive review, which included a decision
to reduce its newsprint and specialty papers production capacity by approximately one million
metric tons per year. The reductions included the permanent closure of our Dalhousie, New Brunswick
paper mill, as well as the indefinite idling of our Donnacona, Quebec paper mill. Additionally,
AbitibiBowater decided to permanently close paper machine no. 3 at our Gatineau, Quebec facility.
The actions were completed in the first quarter of 2008. We recorded charges of $123&nbsp;million for
long-lived asset impairment, severance and termination costs associated with our mills in the
fourth quarter of 2007. During the nine months ended September&nbsp;30, 2008, we recorded additional
costs for noncancelable contracts of $10&nbsp;million and severance and other costs of $3&nbsp;million at our
Dalhousie and Donnacona operations.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2008, AbitibiBowater announced the permanent closure of our previously idled Donnacona
paper mill, based on current market conditions. Upon review of the recoverability of the long-lived
assets at this facility, we used this additional information and recorded long-lived asset
impairment charges of $127&nbsp;million at our Donnacona paper mill for the three and nine months ended
September&nbsp;30, 2008. The fair
value of the long-lived assets of Donnacona of $10&nbsp;million was determined based on its estimated
sale and salvage values. Additionally, $7&nbsp;million of mill stores inventory was determined to be
unusable and was recorded in cost of sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. Pension and Other Postretirement Expense</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of net periodic benefit costs relating to our pension and other postretirement
benefit plans (&#147;OPEB plans&#148;) (prior to the charges to Newsprint South &#151; see Note 8, &#147;Transactions
with Related Parties&#148;) are as follows for the three and nine months ended September&nbsp;30, 2008 and
2007:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Pension Plans:</I>
</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="52%">&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: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&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" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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:30px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>7</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>20</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>34</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>103</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Expected return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(40</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(119</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(100</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3</B></TD>
    <TD>&nbsp;</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:-15px">Recognized net actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Special termination benefits</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">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">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Curtailments and settlements</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">5</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">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net periodic benefit cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>13</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>OPEB Plans:</I>
</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="52%">&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: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&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" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">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:30px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>&#151;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization of prior service credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(2</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(8</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Recognized net actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4</B></TD>
    <TD>&nbsp;</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:-15px">Curtailments and settlements</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>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net periodic benefit cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>9</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="17" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Events Impacting Net Periodic Benefit Cost for the Three and Nine Months Ended September&nbsp;30, 2008</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2008, the cumulative number of employees terminated as a result of the Combination became
significant, triggering a curtailment. As a result, a curtailment loss of $2&nbsp;million was included
in the net periodic benefit cost of our OPEB plans during the nine months ended September&nbsp;30, 2008.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Events Impacting Net Periodic Benefit Cost for the Three and Nine Months Ended September&nbsp;30, 2007</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In June&nbsp;2007, union members at our Dolbeau, Quebec facility ratified a new labor agreement. As a
result of a mill-wide restructuring of this facility, 130 jobs were eliminated. A curtailment loss
of approximately $2&nbsp;million was included in the net periodic benefit cost of our pension plans for
the three and nine months ended September&nbsp;30, 2007 as a result of the employee reduction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In May&nbsp;2007, union members at our Gatineau, Quebec facility ratified a new labor agreement. As a
result of a mill-wide restructuring of this facility, 143 jobs were eliminated. A curtailment loss
of approximately $2&nbsp;million and special termination benefits of approximately $3&nbsp;million were
included in the net periodic benefit cost of our pension plans for the three and nine months ended
September&nbsp;30, 2007 as a result of the employee reduction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At various dates from December&nbsp;2006 to June&nbsp;2007, certain employees received lump-sum payouts
from two of our retirement pension plans. Accordingly, settlement
losses of $1&nbsp;million and $6&nbsp;million were
included in the net periodic benefit cost of our pension plans during
the three and nine months ended
September&nbsp;30, 2007, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In February&nbsp;2007, as a result of a mill-wide restructuring of our Thunder Bay, Ontario facility,
157 jobs were eliminated. As a result, a curtailment loss of $2&nbsp;million and special termination
benefits of $4&nbsp;million were included in the net periodic benefit cost of our pension plans during
the nine months ended September&nbsp;30, 2007. This event will also result in a settlement loss at the time
the benefits are paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In October&nbsp;2006, we approved changes to our OPEB plan for our U.S. salaried employees.
Benefits for employees were either eliminated or reduced depending on whether the employee met
certain age and years of service criteria. As a result, a curtailment gain of $3&nbsp;million was
included in the net periodic benefit cost of our OPEB plans during the nine months ended
September&nbsp;30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Note Contribution and Spin-off During the Second Quarter of 2008</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;12, 2008, AbitibiBowater contributed to Bowater, as additional paid-in capital, a 12.5%
promissory note in the amount of $650&nbsp;million due June&nbsp;30, 2013, executed by AbitibiBowater in
favor of Bowater. Interest on the note is due semi-annually and is recorded in interest income on
our Condensed Consolidated Statements of Operations. This note is guaranteed by Newsprint South and
certain of its subsidiaries. Since the note receivable is due from our parent, AbitibiBowater, it
has been classified as a separate caption in shareholder&#146;s
(deficit) equity. Subsequent repayments of the
note by AbitibiBowater will result in a reduction of the note, which will result in an increase in
shareholder&#146;s (deficit) equity. Prior to May&nbsp;15, 2008, Newsprint South was a wholly-owned subsidiary of
Bowater. Subsequently on May&nbsp;15, 2008, Newsprint South became a direct subsidiary of AbitibiBowater
as a result of the Spin-off (see Note 1, &#147;Organization and Basis of Presentation&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The impact
on the additional paid-in capital account in shareholder&#146;s
(deficit) equity, resulting from the
note contributed and investment distributed in the Spin-off, was as follows:
</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="88%">&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 nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Note contributed</B></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:-15px">Note receivable &#151; AbitibiBowater</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>650</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total note contributed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>650</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Investment distributed</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>68</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>503</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>184</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(47</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(5</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(3</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(131</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Bowater&#146;s investment in Newsprint South</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>569</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase
in additional paid-in capital account in shareholder&#146;s (deficit) equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>81</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Review of Long-lived Assets (Including Goodwill)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We considered the Spin-off a &#147;triggering event&#148; requiring review of Newsprint South&#146;s long-lived
assets for recoverability. The cash flows of the Grenada paper mill, the Coosa Pines paper mill and
the Westover sawmill are each at the lowest level for which we are able to identify separate cash
flows that are largely independent of cash flows associated with other assets groups. Reference is
made to our Annual Report on Form 10-K for the year ended December&nbsp;31, 2007, filed April&nbsp;14, 2008,
for details about assumptions used in the testing of our long-lived assets for impairment. Our
testing indicated that the long-lived assets of Newsprint South are recoverable, and that no
impairment existed immediately before the Spin-off.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Spin-off was also considered a &#147;triggering event&#148; requiring review of our goodwill to determine
if an impairment test was needed immediately before the Spin-off (i.e., whether we considered it
likely that the fair value of our goodwill was impaired). We have two reporting units with goodwill
allocated to them: the Newsprint reporting unit and the Specialty Papers reporting unit. Our
Grenada paper mill and a portion of our Coosa Pines paper mill were components of the Newsprint
reporting unit. The Westover sawmill was not a component of a reporting unit with allocated
goodwill. Upon review of the facts, we concluded that it was not likely that the fair value of our
Newsprint reporting unit had fallen below its carrying value just prior to the Spin-off; thus, no
test for impairment was performed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since the Spin-off comprised a portion of a reporting unit that constitutes a business, a portion
of the goodwill in the Newsprint reporting unit was allocated to the components that were included
in the Spin-off based on the fair value of the newsprint operations of the Grenada and Coosa Pines
paper mills relative to the fair value of the other components of the Newsprint reporting unit that
will remain with Bowater. The allocation of goodwill to the components included in the Spin-off is
as follows:
</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="88%">&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: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Allocation of Goodwill</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Components of Newsprint Reporting Unit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>as of May 15, 2008</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Components included in the Spin-off</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>184</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other components that will remain with Bowater</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>342</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>526</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="5" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Immediately after the Spin-off, we evaluated our Newsprint reporting unit, consisting of the
remaining components, for impairment. Reference is made to our Annual Report on Form 10-K for the
year ended December&nbsp;31, 2007, filed April&nbsp;14, 2008, for details about assumptions used in the
testing of our goodwill for impairment. No significant changes to those assumptions were needed for
this interim test. Our test indicated that there was no impairment of the $342&nbsp;million remaining
goodwill immediately following the Spin-off.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Transactions with Related Parties</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;1, 2008, we began providing certain corporate administrative services on behalf of
AbitibiBowater and certain of its subsidiaries (referred to as &#147;Affiliates&#148;) including legal,
finance, tax, risk management, IT, executive management, payroll and employee benefits. As such, we
have charged a portion of our general and administrative expenses to our Affiliates and recorded
this charge as a reduction of our costs, based on specific identification or on
an appropriate allocation key (e.g., sales, purchases, headcount, etc.) determined by the type of
expense or department. During the three and nine months ended September&nbsp;30, 2008, we charged our
Affiliates approximately $1&nbsp;million and $8&nbsp;million, respectively, for certain corporate
administrative expenses that we incurred on their behalf, net of expenses our Affiliates incurred
on our behalf.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We maintain a centralized domestic sales force. We buy products from our Affiliates at the same
price we sell those products to third party customers. In order to compensate us for these
services, we charge our Affiliates and our subsidiaries a service fee equal to 120% of our selling
costs based on the value of the products acquired from them. The fees charged to our wholly-owned
subsidiaries are eliminated in consolidation. During the nine months ended September&nbsp;30,
2008, we charged our Affiliates $2&nbsp;million for these services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since the Spin-off, from May&nbsp;15, 2008 through September&nbsp;30, 2008, goods in the amount of $157
million were purchased from Newsprint South, now an Affiliate, of which $85&nbsp;million were purchased
during the third quarter of 2008. Additionally, during the three and nine months ended September
30, 2008, we sold $11&nbsp;million and $25&nbsp;million, respectively, of wood products to, and purchased $12
million and $25&nbsp;million, respectively, of recycled fiber from, our Abitibi Affiliates at market
prices. During the three and nine months ended September&nbsp;30,
2008, we also purchased $47&nbsp;million of paper from our Abitibi
Affiliates at market prices, which was subsequently sold to
third-party customers. These
transactions were made in the normal course of business and have been recorded at the exchanged
amounts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We sponsor a number of defined benefit pension plans and other postretirement benefit plans
covering our employees and employees of Newsprint South. Since the Spin-off, we have charged
Newsprint South for pension and other postretirement benefit costs based on an actuarial
determination of the current service cost associated with its employees. This charge, of less than
$1&nbsp;million for the third quarter of 2008 and $1&nbsp;million for the period from May&nbsp;15, 2008 through
September&nbsp;30, 2008, is recorded as a reduction to our pension benefit costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We maintain a number of share-based compensation programs that provided for grants of stock
options, restricted stock units and deferred stock units to our directors, officers and certain key
employees (as well as certain key employees of Newsprint South). After the Combination with
Abitibi, any new grants of share-based awards are made through AbitibiBowater&#146;s plans. Since the
Spin-off, we have charged Newsprint South for share-based compensation based on the fair value of
the unvested awards granted to its employees. This charge, of less than $1&nbsp;million for both the
third quarter of 2008 and the period from May&nbsp;15, 2008 through September&nbsp;30, 2008, is recorded as a
reduction to our share-based compensation costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">From May&nbsp;12, 2008 through September&nbsp;30, 2008, we recorded $31&nbsp;million of interest income on the
note receivable from AbitibiBowater, of which $20&nbsp;million was recorded in the third quarter of
2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Commitments and Contingencies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are 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. Although
the final outcome of any of these matters is subject to many variables and cannot be predicted with
any degree of certainty, we establish reserves for a matter when we believe an adverse outcome is
probable and the amount can be reasonably estimated. We believe that the ultimate disposition of
these matters will not have a material adverse effect on our financial condition, but it could have
a material adverse effect on the results of operations in a given quarter or the year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There have been no material developments to the legal proceedings described in our Annual Report on
Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008, as updated in our
Quarterly Report on Form 10-Q for the quarter ended March&nbsp;31, 2008, filed on May&nbsp;15, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Off-Balance Sheet Debt Guarantees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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, one of our Qualified
Special Purpose Entities (&#147;QSPEs&#148;). Bowater guarantees approximately $5&nbsp;million of the investor
notes&#146; principal balance as of September&nbsp;30, 2008. This guarantee is proportionately reduced by
annual principal repayments on the investor notes (annual minimum repayments of $2&nbsp;million) through
2008. The remaining investor notes&#146; principal amount is to be repaid in 2009.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Timber Note Holdings
LLC has assets of approximately $24&nbsp;million and obligations of approximately $22&nbsp;million, which
include the investor notes. Bowater would be required to perform on the guarantee if the QSPE were
to default on the investor notes or if there were a default on the notes receivable, neither of
which has ever occurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;1, 2008, AbitibiBowater consummated a private sale of $350&nbsp;million of 8% convertible notes
due April&nbsp;15, 2013 (the &#147;Convertible Notes&#148;) to Fairfax Financial Holdings Limited and certain of
its designated subsidiaries. The Convertible Notes bear interest at a rate of 8% per annum (10% per
annum if payment of interest is made through the issuance of additional convertible notes as &#147;pay
in kind&#148;). We provided a full and unconditional guarantee of the payment of principal and interest
on the Convertible Notes. Our guarantee ranks equally in right of payment with all of our existing
and future senior indebtedness. On October&nbsp;15, 2008, AbitibiBowater elected to make the interest
payment due on that date through the issuance of additional convertible notes. As a result, the
balance of the Convertible Notes currently outstanding is $369&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Segment Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We manage our business based on the products that we manufacture and sell to external customers.
Our reportable segments are newsprint, coated papers, specialty papers, market pulp and lumber.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">None of the income or loss items following &#147;Operating loss&#148; in our Condensed Consolidated
Statements of Operations are allocated to our segments, since those items are reviewed separately
by management. For the same reason, closure costs, impairment and other related charges, employee
termination costs, gains on dispositions of assets and other discretionary charges or credits are
not allocated to the segments. Share-based compensation expense is, however, allocated to our
segments. We also allocate depreciation expense to our segments, although the related fixed assets
are not allocated to segment assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following tables summarize information about segment sales and operating income (loss)&nbsp;for the
three and nine months ended September&nbsp;30, 2008 and 2007:
</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="20%">&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="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="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: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&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 nowrap align="center" colspan="3"><B>Coated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Specialty</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Market</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Wood</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>Consolidated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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>Papers</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Pulp</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 Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Sales</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>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>354</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>176</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>166</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>108</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>50</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</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>854</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">296</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">815</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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:15px; text-indent:-15px">Year to date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><B>960</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right"><B>512</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>486</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>412</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>153</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,524</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year to date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,385</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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 colspan="5" align="left"><B>Operating income
(loss)</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>40</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>30</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>11</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>4</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>(6</B></TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>(194</B></TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>$</B></TD>
    <TD align="right"><B>(115</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(82</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <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: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year to date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD colspan="2" align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>99</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>53</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>(27</B></TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
<TD colspan="2" align="right"><B>(234</B></TD>
    <TD nowrap>)</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right"><B>(91</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year to date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="33" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>&#147;Corporate and Other&#148; operating loss included a net gain from disposition of assets of
$4&nbsp;million and $17&nbsp;million for the three months ended September&nbsp;30, 2008 and 2007,
respectively, and $44&nbsp;million and $140&nbsp;million for
the nine months ended September&nbsp;30, 2008 and 2007, respectively, and closure costs, impairment
and other related charges of $127&nbsp;million and $140&nbsp;million for the three and nine months ended
September&nbsp;30, 2008, respectively, as well as charges for the writedown of mill stores inventory
related to the permanent closure of our Donnacona paper mill of $7&nbsp;million for the three and
nine months ended September&nbsp;30, 2008. &#147;Corporate and Other&#148; operating loss also included a pre-tax charge for an
arbitration award of $28&nbsp;million for the three and nine months ended September&nbsp;30, 2007.</TD>
</TR>

</TABLE>
</DIV>

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

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






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED<BR>
Notes to Unaudited Condensed Consolidated Financial Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Only assets which are identifiable by segment and reviewed by our management are allocated to
segment assets. Allocated assets include goodwill and finished goods inventory. All other assets
are not identifiable by segment and are included in &#147;Corporate and Other.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table summarizes information about segment assets as of September&nbsp;30, 2008 and
December&nbsp;31, 2007:
</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="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: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&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">December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Newsprint <SUP style="font-size: 85%; vertical-align: text-top"> (1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>403</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">587</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Coated papers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Specialty papers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>92</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Market pulp <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Lumber</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Corporate and other <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,088</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,883</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>$</B></TD>
    <TD align="right"><B>3,649</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,619</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>We transferred our investment in Newsprint South to AbitibiBowater. Prior to the transfer, our
Newsprint, Market pulp and Corporate and other segments included assets of Newsprint South. See
Note 7, &#147;Note Contribution and Spin-off During the Second Quarter of 2008&#148; for additional
information. Included in our investment was $184&nbsp;million of goodwill previously included in our
Newsprint segment.</TD>
</TR>

</TABLE>
</DIV>

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

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






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(Abbreviated pursuant to General Instructions H(1)(a) and (b)&nbsp;of Form&nbsp;10-Q.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This Management&#146;s Discussion and Analysis includes the accounts of Bowater Incorporated and
subsidiaries (&#147;Bowater,&#148; also referred to as &#147;the Company,&#148; &#147;we&#148; or &#147;our&#148;). On October&nbsp;29, 2007, we
combined with Abitibi-Consolidated Inc. (&#147;Abitibi&#148;) in a merger of equals (the &#147;Combination&#148;). As a
result of the Combination, we and Abitibi each became a wholly-owned subsidiary of AbitibiBowater
Inc. (&#147;AbitibiBowater&#148;), and we became an 18% shareholder of Abitibi.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">This discussion should be read in conjunction with, and is qualified in its entirety by reference
to, the Unaudited Condensed Consolidated Financial Statements and related notes appearing in Item&nbsp;1
of this Form 10-Q.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note Contribution and Spin-off During the Second Quarter of 2008</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;15, 2008, we transferred the ownership interest we held in our wholly-owned subsidiary
Bowater Newsprint South LLC (&#147;Newsprint South&#148;) to AbitibiBowater (the &#147;Spin-off&#148;). Newsprint
South, now a direct and wholly-owned subsidiary of AbitibiBowater, owns and operates the Coosa
Pines, Alabama and Grenada, Mississippi mills, as well as the Westover, Alabama sawmill. The
Spin-off was completed to fulfill the requirement of our bank lenders, under our U.S. and Canadian
credit facilities, that we transfer the Coosa Pines and Grenada mills to AbitibiBowater. We charged
the distribution of our $569&nbsp;million investment in Newsprint South to additional paid-in-capital.
(See Note 7, &#147;Note Contribution and Spin-off During the Second Quarter of 2008&#148; to our Unaudited
Condensed Consolidated Financial Statements in Item&nbsp;1 of this Form 10-Q).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;12, 2008, AbitibiBowater contributed to Bowater, as additional paid-in capital, a 12.5%
promissory note in the amount of $650&nbsp;million due June&nbsp;30, 2013, executed by AbitibiBowater in
favor of Bowater. Interest on the note is due semi-annually. This note is guaranteed by Newsprint South and
certain of its subsidiaries. Since the note receivable is due from our parent, AbitibiBowater, it
has been classified as a separate caption in shareholder&#146;s
(deficit) equity. Subsequent repayments of the
note by AbitibiBowater will result in a reduction of the note, which will result in an increase in
shareholder&#146;s (deficit) equity. On October&nbsp;15, 2008,
AbitibiBowater elected to make the interest payment due on that date
through the issuance of an additional note with similar terms. As a
result, the interest receivable on the note as of September&nbsp;30,
2008 of $31&nbsp;million is included in &#147;Note receivable from
AbitibiBowater Inc.&#148; in shareholder&#146;s (deficit) equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As a result of the Spin-off, the
Unaudited Condensed Consolidated Financial Statements included
herein do not reflect the financial position or results of operations of our former Coosa Pines,
Grenada and Westover mills after May&nbsp;15, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Cautionary Statements Regarding Forward-Looking Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Statements in this report that are not reported financial results or other historical information
are &#147;forward-looking statements&#148; within the meaning of the Private Securities Litigation Reform Act
of 1995. They include, for example, statements relating to our refinancing activities, our efforts
to improve operating and financial performance, our plans for future price increases for certain of
our products, our efforts to reduce costs and increase revenues and profitability, our business
outlook, our curtailment of production of certain of our products, our assessments of market
conditions, our ability to achieve targeted synergies (as part of the overall AbitibiBowater
program), AbitibiBowater&#146;s ability to meet its $1&nbsp;billion debt reduction target (including the
success of its program to sell non-core assets and the success of other actions aimed at reducing
our debt, as well as the debt of Abitibi) and our strategies for
achieving our goals generally. Forward-looking statements may be identified by the use of
forward-looking terminology such as the words &#147;should,&#148; &#147;would,&#148; &#147;could,&#148; &#147;will,&#148; &#147;may,&#148; &#147;expect,&#148;
&#147;believe,&#148; &#147;anticipate&#148; and other terms with similar meaning indicating possible future events or
potential impact on the business of Bowater.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The reader is cautioned not to place undue reliance on these forward-looking statements, which are
not guarantees of future performance. These statements are based on management&#146;s current
assumptions, beliefs and expectations, all of which involve a number of business risks and
uncertainties that could cause actual results to differ materially. These
</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">risks and uncertainties include, but are not limited to, our substantial indebtedness and our
ability to refinance our existing indebtedness or to obtain financing or otherwise derive
additional liquidity, especially in light of the current decline in the global economy and the
credit crisis, our capital intensive operations and the adequacy of our capital resources,
AbitibiBowater&#146;s ability to meet the continued listing requirements of the New York Stock Exchange,
industry conditions generally and further growth in alternative media, our ability to realize
announced price increases, our ability to obtain timely contributions to our cost-reduction
initiatives from our unionized and salaried employees, the prices and terms under which we would be
able to sell targeted assets, the volatility of the U.S. dollar against the Canadian dollar, the
costs of raw materials such as energy, chemicals and fiber and the success of our post-merger
integration activities, including the rollout of information technology platforms and billing and
procurement systems as well as the impact of our liquidity position on the relationship with our
customers, vendors and trade creditors. In addition, with respect to forward-looking statements
relating to the Combination, the following factors, among others, could cause actual results to
differ materially from those set forth in the forward-looking statements: the risk that the
businesses will not be integrated successfully or that the improved financial performance, product
quality and product development will not be achieved; the risk that other combinations within the
industry or other factors may limit our ability to improve our competitive position; the risk that
the cost savings and other expected synergies from the Combination may not be fully realized or may
take longer to realize than expected; and disruption from the transaction making it more difficult
to maintain relationships with customers, employees or suppliers. Additional risks that could cause
actual results to differ from forward-looking statements are enumerated in our Annual Report on
Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008, as further updated in Item
1A. &#147;Risk Factors&#148; in Part&nbsp;II of this Form 10-Q. All forward-looking statements in this report are
expressly qualified by information contained in this report and in our other filings with the SEC.
We disclaim any obligation to publicly update or revise any forward-looking information, whether as
a result of new information, future events or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following discussion and analysis provides information that we believe is useful in
understanding our operating results, cash flows and financial condition in our Unaudited
Condensed Consolidated Financial Statements included in this quarterly report. Our significant accounting
policies are described in Note 2 to the Consolidated Financial Statements in our Annual Report on
Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008, as updated below for
Goodwill and Long-lived Asset Impairment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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
Unaudited Condensed Consolidated Financial Statements. It is important that the reader of our financial
statements understand that actual results could differ materially from these estimates,
assumptions, projections and judgments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Goodwill</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have a
significant amount of goodwill recorded in our Unaudited Condensed Consolidated Balance Sheets. We review the
carrying value of our goodwill for impairment in the fourth quarter of each year or more
frequently, if an event occurs that triggers such an interim review. Goodwill is allocated to
reporting units for purposes of performing a test for impairment. If a reporting unit&#146;s carrying
value exceeds its fair value, an impairment charge equal to the difference in the carrying value of
the goodwill and the implied fair value of the goodwill is recorded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We determined the fair values of our reporting units relying primarily on the discounted cash flow
method. This method uses projections of cash flows from each of the reporting units. Several of the
key assumptions used in our valuation models include periods of operation, projections of product
pricing, production levels, product costs,
market supply and demand, foreign exchange rates, inflation, weighted average cost of capital and
capital spending. We derive these assumptions from several sources, including our internal budgets,
which contain existing sales data based
</DIV>

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

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">on current product lines and assumed production levels,
manufacturing costs and product pricing. We believe that our internal forecasts are consistent with
those that would be used by a potential buyer in valuing our reporting units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our products are commodity products; therefore, pricing is inherently volatile and often follows a
cyclical pattern. The average price over a commodity cycle forms the basis of our product pricing
assumption. We derive our pricing estimates from information generated internally, from industry
research firms and from other published reports and forecasts. As of December&nbsp;31, 2007, because the
strength of the Canadian dollar (as compared to the U.S. dollar) was near historical highs, we
believed a potential buyer would consider a shorter-term view of exchange rates between the
Canadian and U.S. dollar. Therefore, we used foreign exchange rates that are based on market
forward rates followed by a gradual reversion to a 5-year historical average.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Determining the reporting units to which we should allocate the goodwill takes considerable
judgment and is based upon the determination of the reportable segments, which in and of itself,
requires management&#146;s judgment. We are required to evaluate whether each component (i.e., one level
below the reportable segment) is a business by assessing those business elements (inputs,
processes, outputs) that are present within the component, those business elements that are missing
from the component, and the degree of difficulty in replacing the missing elements. Further, if any
of the components are considered a business, we are required to determine whether they are similar
for purposes of aggregation into a single reporting unit. Our similarity assessment included a
review of the customers, products, distribution methods and other pertinent information associated
with each component that qualifies as a business and prepares discrete financial information and is
regularly reviewed by segment management. Once the reporting units are defined, we were required to
determine which reporting units benefited synergistically from an acquisition and allocate the
acquired goodwill to those reporting units based on a reasonable and supportable methodology that
is conceptually consistent with the amount of goodwill that would be recognized in a purchase
combination involving these reporting units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our 2007 impairment test, there were no indications of impairment for any of our reporting
units, and the fair value of each reporting unit exceeded the respective carrying value of each
reporting unit by at least 10%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the third quarter of 2008 and subsequent to the end of the third quarter, AbitibiBowater
experienced a significant decline in the price of its publicly-traded common stock and,
accordingly, a significant decline in its market capitalization. We believe the decline in
AbitibiBowater&#146;s stock price was principally driven by the current economic environment and the
extraordinary decline in worldwide stock markets as a whole. It has also been impacted by our
and Abitibi&#146;s liquidity concerns. We do not believe that these events impact the fair value of our
reporting units with allocated goodwill; however, they would impact AbitibiBowater&#146;s ability to
reconcile the fair value of its reporting units to its market capitalization. As part of our annual
goodwill impairment test, which we will perform in the fourth quarter of 2008, AbitibiBowater will
prepare a reconciliation of the fair value of its reporting units to its market capitalization. As
a result of this reconciliation process, and if AbitibiBowater&#146;s stock price remains at current
levels for a more extended period of time, it is possible that AbitibiBowater could identify
factors impacting enterprise value that have not yet been reflected in its assessment of reporting
unit fair value. Any consequent reduction in the estimated fair value of our reporting units as a
result of the identification of such factors could result in a non-cash goodwill impairment charge.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Long-lived Asset Impairment</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Losses related to impairment of long-lived assets are recognized when circumstances indicate the
carrying values of the assets may not be recoverable, such as continuing losses in certain
locations. When certain indicators that the carrying value of a long-lived asset may not be
recoverable are triggered, we evaluate the carrying value of the asset in relation to its expected
undiscounted future cash flows. If the carrying value of the asset is greater than the expected
undiscounted future cash flows, an impairment charge is recorded based on the excess of the
long-lived asset&#146;s carrying value over its fair value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Asset impairment loss calculations require us to apply judgment in estimating asset fair values and
future cash flows, including periods of operation, projections of product pricing, first quality
production levels, product costs, market supply and demand, foreign exchange rates, inflation,
projected capital spending, estimated useful lives and discount rates. One key assumption,
especially for our long-lived assets in Canada, is the foreign exchange rate. We determined the
foreign exchange rates based on market forward rates followed by a gradual reversion to a 5-year
historical average.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Immediately upon the Combination, AbitibiBowater began a comprehensive strategic review of its
operations to reduce costs and improve its profitability. On November&nbsp;29, 2007, AbitibiBowater
announced the results of the initial phase of its comprehensive review, which, among
other things, included AbitibiBowater&#146;s decision to reduce its newsprint and specialty papers
production capacity by approximately one million metric tons per year. The reductions include the
permanent closure of our Dalhousie, New Brunswick facility, the indefinite idling of our Donnacona,
Quebec facility and the permanent closure of paper machine no. 3 at our Gatineau, Quebec facility.
These actions were completed in the first quarter of 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2008, we announced the permanent closure of our previously idled Donnacona paper mill,
based on current market conditions. Upon review of the recoverability of the long-lived assets at
this facility, we used this additional information and recorded long-lived asset impairment charges
of $127&nbsp;million at our Donnacona paper mill for the three and nine months ended September&nbsp;30, 2008.
The fair value of the long-lived
assets of Donnacona of $10&nbsp;million was determined based on its estimated sale and salvage values.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Business and Financial Review</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="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>Nine Months Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Change</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>2,524</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>139</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(91</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(42</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(49</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(294</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(240</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(54</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp; &nbsp; &nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Significant items that improved
(lowered)&nbsp;operating loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Product pricing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>$</B></TD>
    <TD align="right"><B>326</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Shipment volume</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"><B>(187</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in 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>&nbsp;</TD>
    <TD align="right"><B>139</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in cost of sales and depreciation, amortization and cost of timber harvested </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="left">&nbsp;</TD>
    <TD align="right"><B>(4</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
Change in 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="left">&nbsp;</TD>
    <TD align="right"><B>(3</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in 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"><B>27</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in arbitration award</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"><B>28</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in closure costs, impairment and other related charges </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="left">&nbsp;</TD>
    <TD align="right"><B>(140</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
Change in net gain on disposition of 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>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(96</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in operating 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 nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(49</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR><TD align="left" valign="top">&nbsp;</TD></TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other significant items that improved
(lowered)&nbsp;net 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>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in equity in loss of Abitibi</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="left">&nbsp;</TD>
    <TD align="right"><B>(92</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in interest 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 align="right"><B>29</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in interest expense</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="left">&nbsp;</TD>
    <TD align="right"><B>(12</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in
other income (expense), net</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"><B>48</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in income tax benefit (provision)</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"><B>20</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Change in minority interests, 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 align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&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 nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in net 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 nowrap align="left"><B>$</B></TD>
    <TD align="right"><B>(54</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 3px double #000000">&nbsp; &nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nine months ended September&nbsp;30, 2008 versus September&nbsp;30, 2007</B>
</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Sales</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales increased in the first nine months of 2008 as compared to the same period of 2007, primarily
due to higher transaction prices for newsprint, coated papers, specialty papers and market pulp.
Shipments of coated papers and specialty papers were flat and were lower for newsprint, market pulp
and lumber for the nine months ended September&nbsp;30, 2008 as compared to the same period of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Operating loss</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Operating
loss in the first nine months of 2008 increased by $49&nbsp;million compared to the same period of 2007, due
to changes in costs as listed in the table above and discussed below.
</DIV>

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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Manufacturing Costs</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our manufacturing costs were slightly higher in the first nine months of 2008 as compared to the
first nine months of 2007, primarily due to increased costs for fiber
and wood and energy, partially offset by lower costs for labor and benefits, maintenance repairs, lower
volumes, depreciation and other favorable costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Distribution costs</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our distribution costs were slightly higher in the first nine months of 2008 as compared to the
first nine months of 2007, despite a significant reduction in shipments year over year.
Distribution costs per ton in 2008 were significantly higher as a result of our market mix of
domestic versus export shipments, higher fuel charges by our carriers and the destination of
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling
and administrative expenses</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Selling
and administrative expenses decreased by $27 million in the first
nine months of 2008 compared to the same period in 2007, primarily as
a result of synergies from the Combination and the allocation of
$10&nbsp;million of our administrative costs to our Affiliates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Arbitration award</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2007, we received a decision in an arbitration related to the 1998 sale to
Weyerhaeuser Company (&#147;Weyerhaeuser&#148;) of our former pulp and paper facility in Dryden, Ontario. We
and Weyerhaeuser had been arbitrating a claim regarding the cost of certain environmental costs
related to the mill. The arbitrators awarded Weyerhaeuser approximately $43&nbsp;million, including
interest. As a result of the decision, which was binding upon us and not subject to appeal, we
recorded a pre-tax charge of $28&nbsp;million during the third quarter of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Closure costs, impairment and other related charges</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Immediately upon the Combination, AbitibiBowater began a comprehensive strategic review of its
operations to reduce costs and improve its profitability. On November&nbsp;29, 2007, AbitibiBowater
announced the results of the initial phase of its comprehensive review, which included a decision
to reduce its newsprint and specialty papers production capacity by approximately one million
metric tons per year. The reductions included the permanent closure of our Dalhousie, New Brunswick
paper mill, as well as the indefinite idling of our Donnacona, Quebec paper mill. Additionally,
AbitibiBowater decided to permanently close paper machine no. 3 at our Gatineau, Quebec facility.
The actions were completed in the first quarter of 2008. We recorded charges of $123&nbsp;million for
long-lived asset impairment, severance and termination costs associated with our mills in the
fourth quarter of 2007. During the nine months ended September&nbsp;30, 2008, we recorded additional
costs for noncancelable contracts of $10&nbsp;million and severance and other costs of $3&nbsp;million at our
Dalhousie and Donnacona operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2008, AbitibiBowater announced the permanent closure of our previously idled Donnacona
paper mill, based on current market conditions. Upon review of the recoverability of the long-lived
assets at this facility, we used this additional information and recorded long-lived asset
impairment charges of $127&nbsp;million at our Donnacona paper mill for the nine months ended
September&nbsp;30, 2008.  Additionally,
$7&nbsp;million of mill stores inventory was determined to be unusable and was recorded in cost of
sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net gain on disposition of assets</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our net
gain on disposition of assets relates primarily to land sales. The
decrease of $96&nbsp;million is due to lower
levels of land and other asset sales in the first nine months of 2008 compared to the first nine
months of 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net loss</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the increase in operating loss as noted above, the increase in our net loss was also
the result of a number of other factors described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The change in our equity in the loss of Abitibi for the first nine months of 2008 ($92&nbsp;million)
arises because of our ownership interest that was acquired as a result of the Combination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our
interest income increased by $29&nbsp;million in the first nine months of 2008 compared to the same
period of 2007, primarily due to interest earned on a note receivable from AbitibiBowater.
</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our other
income (expense), net, improved by $48&nbsp;million primarily due to foreign exchange gains resulting from our
Canadian dollar denominated debt obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our effective tax rate, which resulted from the recording of a tax benefit on a pre-tax loss for
the first nine months of 2008 was 0% compared to a tax provision on a pre-tax loss of (9%) in the
same period of 2007. Most of our operations outside of the United States have continued to
experience operating losses. Consequently, income tax benefits and tax credits were offset by tax
charges to increase our tax valuation allowance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our effective tax rate varies frequently and substantially from the weighted-average effect of both
domestic and foreign statutory tax rates primarily as a result of the tax treatment on foreign
currency gains and losses. We have a number of foreign subsidiaries whose unconsolidated foreign
currency gains and losses are taxed in the local country. Upon consolidation, such income and gains
are eliminated, but we are still liable for the local country taxes. Due to the variability and
volatility of foreign exchange rates, we are unable to estimate the impact of future changes in
exchange rates on our effective tax rate. Additionally, we will probably not be recording income
tax benefits on the majority of any 2008 operating losses generated outside the United States,
which would have an adverse impact on our overall effective income tax rate in future periods. For
the three and nine months ended September&nbsp;30, 2008, our income tax provision calculation was
changed from a method using a forecasted global effective tax rate to a method which calculates the
effective tax rate based on the actual income in each separate legal entity. This method is
provided under FASB Interpretation No.&nbsp;18, &#147;Accounting for Income Taxes in Interim Periods &#151; an
interpretation of APB No.&nbsp;28&#148; and is permitted in circumstances where reliable forecasts of income
on a legal entity basis are not available.
</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Overview</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our primary sources of liquidity and capital resources are cash on hand, cash provided from
operations and available borrowings under our credit facilities. We also periodically review
timberland holdings and sell timberlands as a source of additional liquidity. AbitibiBowater has
targeted approximately $750&nbsp;million in asset sales by the end of 2009, including our Mokpo, South
Korea paper mill, as well as additional sales including timberlands, sawmills and other assets. It
is unclear how the current global credit crisis may impact our ability to sell any of these assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have significant short-term debt maturities which primarily consist of: (i)&nbsp;our Canadian credit
facility which matures on June&nbsp;5, 2009 ($67&nbsp;million outstanding at September&nbsp;30, 2008) and (ii)&nbsp;our
$248&nbsp;million 9% debentures due August&nbsp;1, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We believe that cash on hand, cash generated from our operations and access to our existing credit
facilities will be sufficient to provide for our anticipated requirements for working capital,
capital expenditures and contractual obligations (excluding debt maturities) for the next twelve
months. However, the weakening U.S. and global economy, together with the current credit
environment, could reduce our ability to generate cash from operations. In the event we do not
generate adequate cash from operations, our existing credit facilities may not provide us with
sufficient liquidity to support our operations. In addition, we will need to refinance our $248
million 9% debentures due August&nbsp;1, 2009, which may prove difficult in the current market and
economic environment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The ongoing and unprecedented disruption in the credit markets has had a significant adverse impact
on a number of financial institutions and companies, and has impacted our ability to refinance our
short-term obligations. These financial market conditions have reduced the ability of many
companies, including us, to refinance short-term credit facilities and other short-term
indebtedness. Our operations are funded by cash generated through our operations and available
borrowings under our credit facilities, although these sources will not be sufficient alone to
refinance our short-term obligations. We are currently working on refinancing plans for our
short-term obligations and intend to refinance these short-term obligations before their due dates.
More specifically, we intend to engage in a series of refinancing transactions prior to March&nbsp;31,
2009, which we expect to consist of some combination of replacing our U.S. and Canadian credit
facilities with a senior secured asset-based revolving credit facility and issuing new senior
secured notes, among others. However, considering current market conditions and the instability of
the credit markets, no assurance can be made that we will be able to complete these refinancing
transactions or that they will be completed on terms acceptable to us. If such refinancings are not
consummated, we believe our liquidity could approach the minimum amounts necessary to operate our
business and we would be highly dependent on the success of our previously announced initiatives,
including the receipt of substantial proceeds from asset sales and improved operating performance
and conditions. If our future cash flow is insufficient and refinancing or additional financing is
unavailable, we may be unable to meet our debt obligations. If we default under the terms of some
of our indebtedness, the relevant debt holders may accelerate the maturity of its obligations,
which could cause cross-defaults or cross-acceleration under our other obligations. There are no
cross-defaults or cross-acceleration provisions under our obligations as it relates to Abitibi;
however, AbitibiBowater has guaranteed certain of our debt
obligations and the debt obligations of certain of our
subsidiaries.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Liquidity, Short-term Bank Debt and Current Installments of Long-Term Debt</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2008, total short-term bank debt and current installments of long-term debt
totaled $644&nbsp;million. In order to address our significant upcoming debt maturities, which, as noted
above, primarily consist of: (i)&nbsp;our Canadian credit facility which matures on June&nbsp;5, 2009 ($67
million outstanding at September&nbsp;30, 2008) and (ii)&nbsp;our $248&nbsp;million 9% debentures due August&nbsp;1,
2009, we are currently pursuing refinancing alternatives and the sale of assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our primary sources of liquidity and capital resources are cash on hand, cash provided from
operations and available borrowings under our bank credit facilities. As of September&nbsp;30, 2008, we
had cash on hand of approximately $100&nbsp;million. Our third quarter 2008 cash used in operations was
$62&nbsp;million, an increase of $18&nbsp;million as compared to the second quarter of 2008. In addition, we
had $76&nbsp;million of available borrowings under our bank credit facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are forecasting improved quarterly
cash from operations, but there is no assurance that we will
have sufficient cash to repay our $248&nbsp;million 9% debentures due
August&nbsp;1, 2009 or our $144&nbsp;million Canadian bank credit
facility, without
significant asset sales or external financing as presently contemplated by our available
refinancing plans. We are currently
seeking to replace both the U.S. and Canadian credit facilities with a senior secured asset-based
revolving credit facility with a
</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">syndicate of lenders. The U.S. facility would be expected to have
a maturity of five years and be secured by a first lien on substantially all of our U.S. working
capital assets. The Canadian facility would be expected to have a maturity of 364&nbsp;days and be
secured by a first lien on substantially all of the Canadian working
capital assets of Bowater Canadian Forest Products Inc.
(&#147;BCFPI&#148;) and a
second lien on substantially all of our U.S. working capital assets.
In addition, subject to market conditions, we are exploring the
feasibility of issuing senior secured notes contingent upon the consummation of the new asset-based revolving
credit facility. The proceeds of any such notes offering would be used to repay our 9% debentures
due August&nbsp;1, 2009 and for working capital. Any new notes and related guarantees would likely be
secured by security interests in certain collateral subject to permitted liens. However,
considering current market conditions and the credit environment, no assurance can be made that we
will be able to complete these refinancing transactions or that they will be completed on terms
that are acceptable to us. Management believes that our short-term liquidity constraints, although
elevating risks, do not materially affect the financial condition of Abitibi or AbitibiBowater on a
stand-alone basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Bank Credit Facilities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2008, available borrowings under our bank credit facilities were as follows:
</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="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: 1px">
    <TD colspan="21" align="left" style="border-top: 1px solid #000000">&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 nowrap align="center" colspan="3"><B>Weighted</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>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>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><I>(Unaudited, in millions)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Commitment</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Available</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Date</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Interest Rate</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(2)</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="21" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">U.S. credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">05/11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Canadian credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">144</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">06/09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="21" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">382</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <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 colspan="21" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>The commitment available under each of these revolving bank credit facilities is subject to
collateral requirements and covenant restrictions (after giving
effect to the financial covenant waivers included in the
November&nbsp;12, 2008 amendment) as described below or in our Annual Report
on Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008, in our Quarterly
Report on Form 10-Q for the quarter ended March&nbsp;31, 2008, filed on May&nbsp;15, 2008 or in our
Quarterly Report on Form 10-Q for the quarter ended June&nbsp;30, 2008, filed on August&nbsp;22, 2008,
and is reduced by outstanding letters of credit of $70&nbsp;million for our U.S. credit facility
and $31&nbsp;million for our Canadian credit facility. Commitment fees for unused portions of our
U.S. and Canadian credit facilities are 50 and 25 basis points, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Borrowings under the bank credit facilities incur interest based, at our option, on specified
market interest rates plus a margin.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our U.S. credit agreement is guaranteed by AbitibiBowater, Newsprint South and certain wholly-owned
U.S. subsidiaries of Bowater and Newsprint South, and is secured by (i)&nbsp;liens on the inventory,
accounts receivable and deposit accounts of Bowater, Newsprint South and their subsidiaries that
are guarantors, (ii)&nbsp;pledges of 65% of the stock of certain of our foreign subsidiaries, (iii)
pledges of the stock of our U.S. subsidiaries that do not own mills or converting facilities and
(iv)&nbsp;pledges of the stock of the subsidiaries of Newsprint South. Availability under the U.S.
credit facility is limited to 75% of the net consolidated book value of our accounts receivable and
inventory, excluding BCFPI and its subsidiaries, and is
reduced by the amount of outstanding letters of credit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our Canadian credit agreement is secured by liens on the inventory, accounts receivable and deposit
accounts of BCFPI and is guaranteed by Bowater, Newsprint South and certain of their wholly-owned
subsidiaries and certain subsidiaries of BCFPI. Availability under the Canadian credit facility is
limited to 60% of the net book value of the accounts receivable and inventory of BCFPI and its
subsidiaries, and is reduced by the amount of outstanding letters of credit.
</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Based on information currently available to us, we have no indication that the financial
institutions syndicated under our U.S. credit agreement and Canadian credit agreement would be
unable to fulfill their commitments. However, given the current economic environment and credit
risk market crisis, there is no assurance that this may not change in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Amendments to Bank Credit Facilities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For a more complete discussion of our U.S. credit facility, our Canadian credit facility, as well
as certain amendments to these bank credit facilities entered into on November&nbsp;2, 2007, February
25, 2008 and March&nbsp;31, 2008, reference is made to our Annual Report on Form 10-K for the year ended
December&nbsp;31, 2007, filed on April&nbsp;14, 2008, for amendments to these bank credit facilities entered
into on April&nbsp;30, 2008, reference is made to our Quarterly Report on Form 10-Q for the quarter
ended March&nbsp;31, 2008, filed on May&nbsp;15, 2008 and for amendments to these bank credit facilities
entered into on June&nbsp;6, 2008 and August&nbsp;7, 2008, reference is made to our Quarterly Report on Form
10-Q for the quarter ended June&nbsp;30, 2008, filed on August&nbsp;22, 2008.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our U.S. credit facility permits us to send distributions to AbitibiBowater to service interest on
its convertible debt provided that no default exists under this facility at the time of such
payment and we are in pro forma compliance with this facility&#146;s financial covenants at the time of
such payment. Under previous amendments, the lenders under our U.S. and Canadian credit facilities
implemented a more restrictive borrowing base, using more extensive eligibility criteria and
imposing additional reporting obligations on us (although, as described below, the date by which we
must comply with these more restrictive requirements is now to be phased in through March&nbsp;31,
2009).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;12, 2008, we and the other parties to our U.S. and Canadian credit facilities entered
into amendments to those facilities that, among other things: (1)&nbsp;waive the requirement that we are
required to comply immediately with the more restrictive borrowing base requirements by November
15, 2008 and provide instead for phased-in implementation through March&nbsp;31, 2009 (extending to
April&nbsp;29, 2009 under certain circumstances) and waive compliance with certain financial covenant
requirements for the third quarter of 2008 (absent such waiver, we would have been in violation of the senior secured leverage ratio and the interest coverage ratio covenants under the credit facilities for the third quarter);
(2)&nbsp;amend certain covenants, including the leverage
ratio, for the fourth quarter of 2008; (3)&nbsp;increase the interest rate under each facility by 125
basis points; (4)&nbsp;provide a lien on substantially all Canadian fixed assets and the shares of our
South Korean subsidiary (which operates our Mokpo mill) to Canadian lenders, as security for
indebtedness in a principal amount not to exceed 10% of the shareholders&#146; equity of BCFPI as of
September&nbsp;30, 2008; (5)&nbsp;add a provision requiring that 75% of the proceeds of asset sales by us or
our subsidiaries be used to reduce amounts outstanding under both facilities on a pro rata basis;
(6)&nbsp;reduce, pro rata, the aggregate amount of the commitment under both facilities by $10&nbsp;million;
and (7)&nbsp;require that we maintain no more than $70&nbsp;million of cash on hand, with any excess to be
used to reduce amounts outstanding under the facilities. </DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We expect to be in compliance with the financial covenants of the amended credit facilities through
March&nbsp;31, 2009. However, as discussed above, we expect to refinance our U.S. and Canadian credit
facilities prior to March&nbsp;31, 2009. Our ability to consummate such refinancing will be subject to
market and other conditions, and no assurance can be made that such transactions will be
consummated on terms acceptable to us, or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The U.S. and Canadian credit facilities further provide that we may make dividends and
distributions to AbitibiBowater sufficient to pay (1)&nbsp;taxes attributable to us and our subsidiaries
and (2)&nbsp;up to $10&nbsp;million more than 50% of certain of AbitibiBowater&#146;s annual overhead expenses,
such as accounting and auditing costs, director fees, director and officer insurance premiums,
franchise taxes, transfer agent fees and legal and other expenses connected to AbitibiBowater&#146;s
status as a public company. Overhead expenses do not include management fees, salaries, bonuses or
debt service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We may also, from time to time, subject to any applicable
restrictions contained in any indebtedness documents, enter into transactions with related parties,
including AbitibiBowater, for management and other services (such as IT, environmental, human
resources and legal services) and intercompany advances, loans and investments, intercompany
product sales and purchases.
</DIV>

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

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On April&nbsp;1, 2008, we provided a full and unconditional guarantee of the payment of principal and
interest on $350&nbsp;million of face amount of unregistered convertible notes issued by
AbitibiBowater on the same date. See Note 10, &#147;Off-Balance Sheet Debt Guarantees&#148; to our
Unaudited Condensed Consolidated Financial Statements in Item&nbsp;1 of this Form 10-Q for a further
discussion of this guarantee. On October&nbsp;15, 2008, AbitibiBowater elected to make the interest
payment due on that date through the issuance of additional convertible notes. As a result, the
balance of the convertible notes currently outstanding is $369&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employee Benefit Plans</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The determination of projected benefit obligations and the recognition of expenses related to
pension and other postretirement obligations are dependent on assumptions used in calculating these
amounts. These assumptions include: discount rates, expected rates of return on plan assets, rate
of future compensation increases, mortality, termination, health care inflation trend rates and
other factors. Management develops each assumption using relevant company experience in conjunction
with market related data for each individual country in which such plans exist. All assumptions are
reviewed periodically with third party actuarial consultants and adjusted as necessary.<BR>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Recent deterioration in the securities markets has impacted the value of the assets included in our
defined benefit pension plans, the effect of which has not been reflected in the accompanying
Unaudited Condensed Consolidated Financial Statements as of and for the nine months ended September&nbsp;30, 2008, based on
the provisions of SFAS 158, which require plan assets and obligations to be re-measured at December
31, 2008. In June&nbsp;2008, we embarked on a de-risking strategy with our pension plans by reducing the
equity component of such plans. Currently, our plans are comprised of approximately 25% equity and
75% fixed income. Accordingly, we mitigated the recent volatility that went through the equity
markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Should values not recover before December&nbsp;31, 2008, the decline in fair value of our plans would
result in increased total pension costs for 2009 as compared to total pension costs expected during
2008. However, future minimum cash contributions are not expected to be materially impacted in 2009
as a result of the continued market volatility since the 2009 contributions are largely based on
valuations performed as of or prior to January&nbsp;1, 2008. A continued decline in fair value of our
plans may, however, increase the minimum cash contributions that will be required in 2010.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4T. Controls and Procedures.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">(a)&nbsp;Evaluation of Disclosure Controls and Procedures:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have evaluated the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rules&nbsp;13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as
of September&nbsp;30, 2008. Based on that evaluation, the President and Vice President and Treasurer
concluded that our disclosure controls and procedures were effective as of such date in recording,
processing, summarizing, and timely reporting information required to be disclosed in our reports
to the Securities and Exchange Commission.
</DIV>

<DIV style="margin-top: 6pt">
<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="left">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Changes in Internal Control over Financial Reporting:</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

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

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>

<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PART II &#151; OTHER INFORMATION</B>
</DIV>

<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1. Legal Proceedings.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We are 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. Although
the final outcome of any of these matters is subject to many variables and cannot be predicted with
any degree of certainty, we establish reserves for a matter when we believe an adverse outcome is
probable and the amount can be reasonably estimated. We believe that the ultimate disposition of
these matters will not have a material adverse effect on our financial condition, but it could have
a material adverse effect on the results of operations in any given quarter or year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There have been no material developments to the legal proceedings described in our Annual Report on
Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008, as updated in our
Quarterly Report on Form 10-Q for the quarter ended March&nbsp;31, 2008, filed on May&nbsp;15, 2008.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1A. Risk Factors.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following risk factors are intended to update the risk factors set forth in our Annual Report
on Form 10-K for the year ended December&nbsp;31, 2007, filed on April&nbsp;14, 2008. In addition to the
other information set forth in this report, you should carefully consider the following factors
which could materially affect our business, financial condition or future results. The risks
described below are not the only risks we are facing. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may materially affect our
business, financial condition or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Our substantial indebtedness is currently affecting our financial health.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We, AbitibiBowater and Abitibi have a significant amount of indebtedness. As of September&nbsp;30, 2008,
AbitibiBowater, on a consolidated basis, had outstanding total debt of approximately $6.2&nbsp;billion,
of which approximately $1.1&nbsp;billion was secured debt, and shareholders&#146; equity of $1.2&nbsp;billion. At
September&nbsp;30, 2008, we had outstanding debt of approximately $2.6&nbsp;billion, of which $0.4&nbsp;billion
was secured debt, and a shareholder&#146;s deficit of $91&nbsp;million. AbitibiBowater has outstanding
long-term convertible notes and we have outstanding long-term notes. In addition, we
utilize bank credit facilities for working capital and other operating needs. Our substantial amount of debt could have important
negative consequences, by further:
</DIV>

<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limiting our ability to obtain additional financing, if needed, or refinancing, when
needed, for debt service requirements, working capital, capital expenditures or other
purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increasing our vulnerability to current and future adverse economic and industry
conditions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requiring us to dedicate a substantial portion of our cash flows from operations to
make payments on our debt;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>causing us and AbitibiBowater to monetize assets such as timberland or production
facilities on terms that may be unfavorable to us;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>causing us to offer debt securities on terms that may not be favorable to us;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reducing funds available for operations, future business opportunities or other
purposes;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limiting our flexibility in planning for, or reacting to, changes and opportunities
in our business and our industry;</TD>
</TR>

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

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


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increasing employee turnover and uncertainty, diverting management&#146;s attention from
routine business and hindering our ability to recruit qualified employees; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>placing us at a competitive disadvantage compared to our competitors that have less
debt.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our bank credit facilities, the indentures governing our various notes, debentures and other debt
securities and the terms and conditions of our other indebtedness may permit us or our subsidiaries
to incur or guarantee additional indebtedness, including secured indebtedness in some
circumstances. The terms of this indebtedness also restrict our and AbitibiBowater&#146;s ability to
sell assets, apply the proceeds of such sales, and reinvest in our business. As discussed in the
immediately following risk factor, we expect that we will incur additional or replacement
indebtedness in the near term. As a result, some or all of the risks discussed above may increase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There can be no assurance that we will be able to generate sufficient cash flows to repay our
outstanding indebtedness when it matures, in light of (1)&nbsp;the significant decreases in North
American demand for newsprint, which is our principal product, (2)&nbsp;the current weakness in the
housing and lumber markets, (3)&nbsp;current pricing for our coated, specialty and market pulp products
and (4)&nbsp;the strength of other currencies against the U.S. dollar. If our future cash flow is
insufficient and refinancing or additional financing is unavailable, we may be unable to meet our
debt obligations. If we default under the terms of some of our indebtedness, the relevant debt
holders may accelerate the maturity of its obligations, which could cause cross-defaults or
cross-acceleration under our other obligations. There are no cross-defaults or cross-acceleration
provisions under our obligations as it relates to Abitibi.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, both our and AbitibiBowater&#146;s substantial indebtedness and current liquidity situation
may cause concern to one or more of our customers, vendors or trade creditors. If any customer&#146;s,
vendor&#146;s or trade creditor&#146;s concern changes their business relations with us by stopping work,
ceasing sales, requiring sales on cash terms or other changes, these changes may materially
adversely affect our cash flows and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>The current decline in the global economy and credit crisis may significantly inhibit our ability
to reduce and refinance our current indebtedness</I></B><B>.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of September&nbsp;30, 2008, short-term bank debt and current installments of long-term debt
totaled $644&nbsp;million. Based on our current and expected cash flows and existing credit facilities,
we expect that we will need to refinance a significant portion of this indebtedness. During the
third quarter of 2008, the global credit markets suffered a significant contraction, including the
failure of some large financial institutions. This has resulted in a significant decline in the
credit markets and the overall availability of credit. Although many governments, including the
United States, have recently taken actions to ease the current credit crisis and make more credit
available, no assurance can be provided that such efforts will be successful. Market disruptions,
such as those currently being experienced, as well as our high debt levels and the overall weakness
in demand for our products may increase our cost of borrowing or adversely affect our ability to
refinance our obligations as they become due. If we are unable to refinance our indebtedness or
access additional credit, or if our short-term or long-term borrowing costs dramatically increase,
our ability to finance our current operations and meet our short-term and long-term obligations
could be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, AbitibiBowater has targeted approximately $750&nbsp;million in asset sales by the end of
2009, including our Mokpo, South Korea paper mill, as well as additional forest lands, sawmills and
other assets in order to reduce our outstanding indebtedness and provide us with additional working
capital. However, as a result of the current global economy and credit crisis, it may be difficult
for potential purchasers to obtain the financing necessary to buy such assets. As a result,
AbitibiBowater may be forced to sell the assets for significantly lower amounts than planned or may
not be able to sell them at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Our operations require substantial capital and we may not have adequate capital resources to
provide for all of our capital requirements.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our businesses are capital intensive and require that we regularly incur capital expenditures in
order to maintain our
equipment, increase our operating efficiency and comply with environmental laws. In addition,
significant amounts of capital may be required to modify our equipment to produce alternative
grades with better demand characteristics or
</DIV>

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</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to make significant improvements in the
characteristics of our current products. If our available cash resources and cash generated from
operations are not sufficient to fund our operating needs and capital expenditures, we would have
to obtain additional funds from borrowings or other available sources or reduce or delay our
capital expenditures. As discussed above, the recent credit crisis and downturn in the global
economy has resulted in a significant decline in the credit markets and the overall availability of
credit. We may not be able to obtain additional funds on favorable terms or at all. In addition,
our debt service obligations will reduce our available cash flows. If we cannot maintain or upgrade
our equipment as we require, we may become unable to manufacture products that compete effectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>If AbitibiBowater does not meet the continued listing requirements of the New York Stock Exchange,
its common stock may be delisted.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">AbitibiBowater&#146;s common stock is listed on both the New York Stock Exchange (&#147;NYSE&#148;) and the
Toronto Stock Exchange. The NYSE requires AbitibiBowater to continue to meet certain listing
standards, including standards related to the trading price of AbitibiBowater&#146;s common stock (e.g.,
maintaining an average share price of at least $1.00), as well as AbitibiBowater&#146;s global market
capitalization (e.g., maintaining an average global market capitalization of at least $75&nbsp;million).
If AbitibiBowater does not meet the NYSE&#146;s continued listing standards, AbitibiBowater will be
notified by the NYSE and will be required to take corrective action to meet the continued listing
standards; otherwise AbitibiBowater&#146;s common stock will be delisted from the NYSE. While
AbitibiBowater expects that it would have a reasonable time (e.g., between 6 and 18&nbsp;months) to take
corrective action, AbitibiBowater cannot provide any assurances that it will have a reasonable
time, if any, or that its corrective action would be successful. A delisting of AbitibiBowater&#146;s
common stock from the NYSE could hurt its investors by reducing the liquidity and market price of
its common stock. Additionally, a delisting could negatively impact AbitibiBowater by reducing the
number of investors willing to hold or acquire its common stock, which could negatively impact its
ability to access the public capital markets, which in turn, could have a negative impact on us. A
delisting could also reduce the value of AbitibiBowater&#146;s equity compensation plans, including the
Bowater plans, which could negatively impact our ability to retain key employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Developments in alternative media could continue to adversely affect the demand for our products,
especially in North America, and our responses to these developments may not be successful.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Trends in advertising, electronic data transmission and storage and the Internet could have further
adverse effects on traditional print media, including our products and those of our customers, but
neither the timing nor the extent of those trends can be predicted with certainty. Our newspaper,
magazine and catalog publishing customers may increasingly use, and compete with businesses that
use, other forms of media and advertising and electronic data transmission and storage, including
television and the Internet, instead of newsprint, coated paper, uncoated specialty papers or other
products made by us. The demand for certain of our products weakened significantly over the last
several years. For example, industry statistics indicate that North American newsprint consumption
has been in decline for several years and has experienced annual declines of 5.1% in 2005, 6% in
2006, 9.8% in 2007 and 9.4% for the first nine months of 2008. We believe, and certain third party
forecasters indicate, that these declines in newsprint demand could continue or accelerate for the
remainder of 2008 and for 2009 and beyond due to conservation measures taken by publishers, reduced
North American newspaper circulation, less space devoted to advertising and substitution to other
uncoated mechanical grades.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">One of AbitibiBowater&#146;s responses to the declining demand for its products has been to curtail its
production capacity. For example, during the first quarter of 2008, AbitibiBowater completed the
implementation of the first phase of a strategic review, which, among other things, reduced its
newsprint and specialty papers production capacity by almost 1&nbsp;million metric tons per year. During
the third quarter of 2008, AbitibiBowater announced that it would take approximately 30,000 to
35,000 metric tons per month of market-related downtime in newsprint during the fourth quarter of
2008. Additionally, AbitibiBowater recently announced that it would take approximately 35,000
metric tons of market-related downtime in pulp during the fourth quarter of 2008. AbitibiBowater
has also disclosed that it plans to reduce capacity in 2009
</DIV>

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</DIV>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">by taking 50,000 metric tons of
market-related downtime monthly. It may
also become necessary to curtail even more production or permanently shut down even more machines
or facilities. Such further curtailments and shut downs would become increasingly likely as North
American newsprint demand continues to decline or if market conditions otherwise worsen.
Curtailments or shutdowns could result in goodwill or asset write-downs and additional costs at the
affected facilities, and could negatively impact our cash flows and materially affect our results
of operations and financial condition.
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;5. Other Information.</B>
</div>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As of November&nbsp;12, 2008, we and the other parties to our U.S. and Canadian credit facilities entered
into amendments to those facilities that, among other things: (1)&nbsp;waive the requirement that we are
required to comply immediately with the more restrictive borrowing base requirements by November
15, 2008 and provide instead for phased-in implementation through March&nbsp;31, 2009 (extending to
April&nbsp;29, 2009 under certain circumstances) and waive compliance with certain financial covenant
requirements for the third quarter of 2008 (absent such waiver, we would have been in violation of the senior secured leverage ratio and the interest coverage ratio covenants under the credit facilities for the third quarter);
(2)&nbsp;amend certain covenants, including the leverage
ratio, for the fourth quarter of 2008; (3)&nbsp;increase the interest rate under each facility by 125
basis points; (4)&nbsp;provide a lien on substantially all Canadian fixed assets and the shares of our
South Korean subsidiary (which operates our Mokpo mill) to Canadian lenders, as security for
indebtedness in a principal amount not to exceed 10% of the shareholders&#146; equity of BCFPI as of
September&nbsp;30, 2008; (5)&nbsp;add a provision requiring that 75% of the proceeds of asset sales by us or
our subsidiaries be used to reduce amounts outstanding under both facilities on a pro rata basis;
(6)&nbsp;reduce, pro rata, the aggregate amount of the commitment under both facilities by
$10&nbsp;million;
and (7)&nbsp;require that we maintain no more than $70&nbsp;million of cash on hand, with any
excess to be
used to reduce amounts outstanding under the facilities. See &#147;Liquidity &#151; Amendments to Bank Credit Facilities&#148; in Part I, Item 2. &#147;Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations&#148; of this Form 10-Q.
</div>

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6. Exhibits.</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="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <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 President Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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 Vice President and Treasurer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley
Act of 2002.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>

</DIV>


<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SIGNATURES
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<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" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">BOWATER INCORPORATED<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ William G. Harvey
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">William G. Harvey&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Director, Vice President and Treasurer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD valign="top">By&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Joseph B. Johnson
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Joseph B. Johnson&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">Vice President and Controller&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Dated:
November 14, 2008
</DIV>



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

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

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

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BOWATER INCORPORATED</B>

</DIV>


<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><U>INDEX TO EXHIBITS</U>
</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="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="92%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exhibit No.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Description</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <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 President Pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <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 Vice President and Treasurer Pursuant to Section&nbsp;302 of the Sarbanes-Oxley
Act of 2002.</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



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



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>g16609qexv31w1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.1</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, David J. Paterson, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September
30, 2008 of BOWATER INCORPORATED;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</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>
</DIV>

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer 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>
</DIV>

<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">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>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Date: November&nbsp;14, 2008
</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="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">/s/ David J. Paterson
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
David J. Paterson
</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">President</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"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>g16609qexv31w2.htm
<DESCRIPTION>EX-31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->

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

<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;31.2</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Certification</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, William G. Harvey, certify that:
</DIV>


<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September
30, 2008 of BOWATER INCORPORATED;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer 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)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</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>
</DIV>

<DIV style="margin-top: 6pt">
<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="3%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The registrant&#146;s other certifying officer 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>
</DIV>

<DIV style="margin-top: 6pt">
<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%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">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 style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">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>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Date: November&nbsp;14, 2008
</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="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">/s/ William G. Harvey
<DIV style="font-size: 1pt; border-top: 1px solid #000000">&nbsp;</DIV>
William G. Harvey
</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">Vice President and Treasurer</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"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>




</BODY>
</HTML>
</TEXT>
</DOCUMENT>
</SUBMISSION>
