<PAGE>   1

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended SEPTEMBER 30, 2000

                                       OR

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

For the transition period from                to

Commission file number              1-8712

                              BOWATER INCORPORATED
             (Exact name of registrant as specified in its charter)

            Delaware                            62-0721803
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)              Identification No.)

           55 East Camperdown Way, P.O. Box 1028, Greenville, SC 29602
               (Address of principal executive offices) (Zip Code)

                                 (864) 271-7733
              (Registrant's telephone number, including area code)

             (Former name, former address and former fiscal year, if
                          changed since last report.)

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

   Indicate the number of shares outstanding (and held by non-affiliates) of
each of the issuer's classes of common stock, as of November 3, 2000.

          Class                                  Outstanding at November 3, 2000
-----------------------------                    -------------------------------
Common Stock, $1.00 Par Value                            50,100,102 Shares


<PAGE>   2

                              BOWATER INCORPORATED

                                    I N D E X


<TABLE>
<CAPTION>
                                                                                        Page
                                                                                       Number
                                                                                       ------
<S>                                                                                    <C>

  PART I   FINANCIAL INFORMATION

         Item 1.  Financial Statements:

                  Consolidated Balance Sheet at September 30, 2000,
                  and December 31, 1999                                                  3

                  Consolidated Statement of Operations for the Three and Nine
                  Months Ended September 30, 2000, and
                  September 30, 1999                                                     4

                  Consolidated Statement of Capital Accounts
                  for the Nine Months Ended September 30, 2000                           5

                  Consolidated Statement of Cash Flows for the
                  Nine Months Ended September 30, 2000, and
                  September 30, 1999                                                     6

                  Notes to Consolidated Financial Statements                          7-12

         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations                      13-20

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk            20


  PART II   OTHER INFORMATION

         Item 1.  Legal Proceedings                                                     21

         Item 6.  Exhibits and Reports on Form 8-K                                      21


SIGNATURES                                                                              22
</TABLE>

                                       2
<PAGE>   3

                      BOWATER INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                     (UNAUDITED, IN MILLIONS OF US DOLLARS)


<TABLE>
<CAPTION>
                                                                 September 30,     December 31,
                                                                      2000             1999
                                                                 -------------     ------------
<S>                                                                <C>              <C>
                            ASSETS
Current assets:
  Cash and cash equivalents                                        $   21.8         $   24.7
  Marketable securities                                                 0.4              2.1
  Accounts receivable, net                                            399.2            314.3
  Inventories                                                         161.5            145.4
  Other current assets                                                 46.8             46.0
                                                                   --------         --------
    Total current assets                                              629.7            532.5
                                                                   --------         --------

Timber and timberlands (Note 2)                                       271.5            283.2
Fixed assets, net (Note 2 and 3)                                    2,939.1          2,581.3
Notes receivable                                                      145.9            146.0
Goodwill                                                              852.4            870.6
Other assets                                                          152.5            138.6
                                                                   --------         --------
                                                                   $4,991.1         $4,552.2
                                                                   ========         ========
                    LIABILITIES AND CAPITAL
Current liabilities:
  Current installments of long-term debt (Note 4)                  $    3.8         $   35.5
  Short-term bank debt                                                488.7             15.0
  Accounts payable and accrued liabilities (Note 5 and 12)            316.4            336.4
  Income taxes payable                                                  8.7               --
  Dividends payable                                                    10.3             10.9
                                                                   --------         --------
    Total current liabilities                                         827.9            397.8
                                                                   --------         --------

Long-term debt, net of current installments                         1,450.3          1,454.6
Other long-term liabilities (Notes 5)                                 345.3            326.1
Deferred income taxes                                                 510.1            481.4
Minority interests in subsidiaries (Note 6)                           116.4            121.5

Commitments and contingencies (Note 7)

Shareholders' equity:
   Common stock                                                        61.7             60.8
   Exchangeable shares (Note 4)                                        67.3            105.4
   Additional paid-in capital                                       1,357.3          1,315.4
   Retained earnings                                                  761.5            691.8
   Accumulated other comprehensive income (loss) (Note 13)            (19.6)           (18.3)
   Loan to ESOT                                                          --             (0.7)
   Treasury stock, at cost (Note 8)                                  (487.1)          (383.6)
                                                                   --------         --------
    Total shareholders' equity                                      1,741.1          1,770.8
                                                                   --------         --------
                                                                   $4,991.1         $4,552.2
                                                                   ========         ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>   4

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
         (UNAUDITED, IN MILLIONS OF US DOLLARS EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                   Three Months Ended                 Nine Months Ended
                                                              -----------------------------   -------------------------------
                                                              September 30,   September 30,   September 30,     September 30,
                                                                   2000            1999            2000              1999
                                                              -------------   -------------   -------------     -------------
<S>                                                             <C>             <C>             <C>               <C>
Sales                                                           $   671.8       $   555.7       $ 1,842.4         $ 1,748.8
Distribution costs                                                   43.8            44.7           127.2             139.1
                                                                ---------       ---------       ---------         ---------
    Net sales                                                       628.0           511.0         1,715.2           1,609.7
Cost of sales                                                       402.3           404.3         1,150.5           1,245.1
Depreciation, amortization and cost of timber harvested              74.7            75.0           217.0             226.8
Impairment of asset (Note 3)                                           --              --              --              92.0
Selling and administrative expense                                   32.5            28.6            86.8              73.7
Net (gain) loss on sale of assets (Note 2)                           (0.1)           55.3            (3.4)           (198.4)
                                                                ---------       ---------       ---------         ---------
    Operating income (loss)                                         118.6           (52.2)          264.3             170.5

Other expense (income):
  Interest income                                                    (4.0)           (1.9)          (11.7)             (3.7)
  Interest expense, net of capitalized interest                      36.1            31.3            98.8              94.3
  Other, net (Note 9)                                                 2.3            (0.4)            8.1             (28.6)
                                                                ---------       ---------       ---------         ---------
                                                                     34.4            29.0            95.2              62.0
                                                                ---------       ---------       ---------         ---------

Income (loss) before income taxes and minority interests             84.2           (81.2)          169.1             108.5

Provision for income taxes                                           31.8           (24.7)           65.9              50.3
Minority interests in net income (loss) of subsidiaries               2.4            (3.1)            2.3              (0.1)
                                                                ---------       ---------       ---------         ---------

Net income (loss)                                                    50.0           (53.4)          100.9              58.3

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustments                           (0.4)           (0.5)           (1.3)              2.2
  Minimum pension liability adjustments, net of taxes                  --             8.7              --               8.7
                                                                ---------       ---------       ---------         ---------

Comprehensive income (loss)                                     $    49.6       $   (45.2)      $    99.6         $    69.2
                                                                =========       =========       =========         =========

Basic earnings (loss) per common share (Note 10):               $    0.97       $   (0.98)      $    1.92         $    1.05
                                                                =========       =========       =========         =========


Diluted earnings (loss) per common share (Note 10):             $    0.96       $   (0.98)      $    1.90         $    1.04
                                                                =========       =========       =========         =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>   5

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
                  For The Nine Months Ended September 30, 2000
         (Unaudited, in millions of US dollars except per share amounts)

<TABLE>
<CAPTION>
                                                                                               Accumulated
                                                                      Additional                  Other
                                               Common   Exchangeable    Paid-in    Retained    Comprehensive  Loan to   Treasury
                                                Stock      Shares       Capital     Earnings   Income (Loss)   ESOT      Stock
                                               ------   ------------  ----------    --------   -------------  -------   --------
<S>                                           <C>        <C>          <C>           <C>          <C>         <C>        <C>
Balance at December 31, 1999                  $   60.8   $  105.4     $1,315.4      $  691.8     $  (18.3)   $   (0.7)  $ (383.6)

Net income                                          --         --           --         100.9           --          --         --

Retractions of exchangeable shares                 0.8      (38.1)        37.3            --           --          --         --

Dividends ($0.60 per share)                         --         --           --         (31.2)          --          --         --

Stock options exercised                            0.1         --          2.4            --           --          --         --

Tax benefit on exercise of stock options            --         --          0.9            --           --          --         --

Reduction in loan to ESOT                           --         --           --            --           --         0.7         --

Stock option compensation                           --         --          1.3            --           --          --         --

Purchase of common stock (Note 8)                   --         --           --            --           --          --     (103.7)

Treasury stock used for dividend
     reinvestment plans                             --         --           --            --           --          --        0.2

Foreign currency translation                        --         --           --            --         (1.3)         --         --
                                              --------   --------     --------      --------     --------    --------   --------

Balance at September 30, 2000                 $   61.7   $   67.3     $1,357.3      $  761.5     $  (19.6)   $     --   $ (487.1)
                                              ========   ========     ========      ========     ========    ========   ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>   6

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                     (Unaudited, in millions of US Dollars)

<TABLE>
<CAPTION>
                                                                               Nine Months Ended
                                                                         ----------------------------
                                                                         September 30,  September 30,
                                                                             2000           1999
                                                                         -------------  -------------
<S>                                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                  $100.9         $ 58.3
Adjustments to reconcile net income to net cash
  provided by operating activities:
Depreciation, amortization and cost of timber harvested                      217.0          226.8
Deferred income taxes                                                         31.4           41.7
Minority interests                                                             2.3           (0.1)
Net gain on sale of assets (Note 2)                                           (3.4)        (198.4)
Writedown of asset due to impairment (Note 3)                                   --           92.0
Change in working capital:
  Accounts receivable, net                                                   (72.3)          36.2
  Inventories                                                                 (7.7)          (1.0)
  Accounts payable and accrued liabilities                                    (8.5)         (91.4)
  Income taxes                                                                11.5          (62.8)
Other, net                                                                     2.3            3.7
                                                                            ------         ------
          Net cash from operating activities                                 273.5          105.0
                                                                            ------         ------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Newsprint South, Inc., net of cash acquired (Note 15)        (379.6)            --
Cash invested in fixed assets, timber and timberlands                       (164.5)        (154.8)
Purchase of assets previously leased                                         (24.2)            --
Disposition of fixed assets, timber and timberlands (Note 2 and 3)             5.9          469.2
Cash paid on maturity of hedging contracts (Note 12)                         (20.2)         (29.3)
Cash invested in marketable securities                                       (50.7)          (8.2)
Cash from maturities of marketable securities                                 52.4            8.7
                                                                            ------         ------
          Net cash from (used for) investing activities                     (580.9)         285.6
                                                                            ------         ------

CASH FLOWS FROM  FINANCING ACTIVITIES:
Proceeds from short-term borrowings                                          749.9          269.1
Payments of short-term borrowings                                           (276.3)        (479.1)
Cash dividends, including minority interests (Note 6)                        (38.0)         (42.4)
Purchase of common stock (Note 8)                                           (103.7)         (75.3)
Redemption of Convertible Subordinated Debentures (Note 4)                      --          (65.9)
Proceeds from long-term borrowings                                             0.4           32.3
Payments of long-term borrowings (Note 4)                                    (30.9)          (4.3)
Redemption of Series C Preferred Stock (Note 4)                                 --          (26.4)
Stock options exercised                                                        2.4           10.2
Other                                                                          0.7            1.5
                                                                            ------         ------
          Net cash from (used for) financing activities                      304.5         (380.3)
                                                                            ------         ------

Net increase (decrease) in cash and cash equivalents                          (2.9)          10.3

Cash and cash equivalents at beginning of year                                24.7           58.3
                                                                            ------         ------
Cash and cash equivalents at end of period                                  $ 21.8         $ 68.6
                                                                            ======         ======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest, net of capitalized interest of $2.0 and $4.1                    $ 90.6         $ 85.0
  Income taxes                                                              $ 21.4         $ 58.7

Noncash investing and financing activity:
  Conversion of 7.50% Convertible Unsecured
  Subordinated Debentures into
  Exchangeable Shares (Note 4)                                              $   --         $ 66.2
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       6
<PAGE>   7

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   The accompanying consolidated financial statements include the accounts of
     Bowater Incorporated and Subsidiaries (Bowater) as of September 30, 2000.
     The consolidated balance sheets, statements of operations, capital accounts
     and cash flows are unaudited. In the opinion of our management, however,
     all adjustments (consisting of normal recurring adjustments) necessary for
     fair presentation of the interim financial statements have been made. The
     results of the interim period ended September 30, 2000, are not necessarily
     indicative of the results to be expected for the full year.

2.   During the first nine months of 2000, Bowater sold fixed assets resulting
     in a pre-tax gain of $3.4 million, or $0.04 per diluted share, after tax.
     In the first nine months of 1999, we sold a sawmill and approximately 1.6
     million acres of timberlands, resulting in a pre-tax gain of $253.7
     million, or $2.80 per diluted share, after tax. In August 1999, we
     completed the sale of Great Northern Paper, Inc. (GNP), resulting in a
     pre-tax loss of $55.3 million, or $0.68 per diluted share, after tax.

     As a part of the 1999 timberland sales, approximately $56.0 million of
     proceeds were received in the form of a long-term note. Bowater monetized
     the note through a qualified special purpose subsidiary during the second
     quarter of 1999. The cash of $51.0 million from the monetization is
     included in "Disposition of fixed assets, timber, and timberlands" in the
     September 30, 1999, Consolidated Statement of Cash Flows.

3.   During the second quarter of 1999, Bowater signed an agreement with Inexcon
     Maine, Inc. for the purchase of GNP. This agreement prompted a
     re-evaluation of the assets at GNP in accordance with Statement of
     Financial Accounting Standards No. 121, "Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a
     result, we recorded a pre-tax impairment charge of $92.0 million, or $1.02
     per diluted share. In August 1999, Bowater completed the sale of its GNP
     subsidiary to Inexcon Maine, Inc. for $250.0 million. The proceeds from the
     sale consisted of cash of $108.0 million (net of expenses), a note
     receivable of $10.0 million, and the assumption of $130.0 million of
     liabilities. In addition to the note receivable, Bowater guaranteed payment
     for certain operating costs to one of GNP's suppliers. At the request of
     the buyer and other creditors, the note payment was deferred from August to
     December 2000. The buyer's ability to fulfill its obligation on the note
     and the guarantee to its supplier will be impacted by the buyer's ability
     to refinance its short-term credit facility.

4.   In January 2000, Bowater repurchased a portion of its 9.25% Debentures due
     2002. The cash price paid was $20.8 million, including premium and accrued
     interest. In February 1999, we redeemed all of our outstanding 7.50%
     Convertible Unsecured Subordinated Debentures due 2004. In connection with
     the redemption, we paid cash of approximately $65.9 million, and Bowater
     Canada Inc. issued 1,359,620 exchangeable shares. Also in February 1999, we
     redeemed all of the remaining shares of our 8.40% Series C Cumulative
     Preferred Stock for $26.6 million, including accrued dividends.

5.   In connection with the acquisition of Avenor during the third quarter of
     1998, Bowater recorded merger-related liabilities. In the third and fourth
     quarter of 1998, we recorded liabilities relating to the closure of our
     Gold River pulp mill and the sale of our Dryden white paper mill, both of
     which were acquired as part of the Avenor acquisition. During the first
     nine months of 2000, we made payments against the reserves of $4.9 million
     and netted $2.8 million of our asset impairment reserve against the related
     assets of the Gold River pulp mill. In addition, we increased the reserves
     by $2.1 million to reflect revised estimates of our environmental
     liability.

     As of September 30, 2000, the remaining accrual for the above items is
     $19.5 million. Of this remaining accrual, $8.6 million is included in
     "Accounts payable and accrued liabilities" and $10.9 million is included in
     "Other long-term liabilities" in the Consolidated Balance Sheet. As of
     September 30, 2000, the cash requirements related to these liabilities are
     expected to be $5.1 million during the balance of 2000 and $14.4 million
     related to environmental and other matters in 2001 and beyond.



                                       7
<PAGE>   8

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The following table summarizes the activity of the liabilities described
above:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
                                           Write-offs
                                               &
                                           Payments
                               Balance      Against      Reclass     Increase      Foreign    Balance
     (In millions)             12/31/99     Reserve    Adjustments    Reserve     Exchange    9/30/00
-----------------------------------------------------------------------------------------------------
<S>                             <C>          <C>          <C>          <C>         <C>          <C>
Employee
    termination costs           $ 3.3        $(1.9)       $ 0.4        $  --       $(0.2)       $ 1.6
Facility closures                 3.9         (0.3)          --           --        (0.1)         3.5
Asset impairments
    /disposals                    3.6         (0.7)        (2.8)          --        (0.1)          --
Environmental                    15.2         (2.0)        (0.4)         2.1        (0.5)        14.4
-----------------------------------------------------------------------------------------------------
Totals                          $26.0        $(4.9)       $(2.8)       $ 2.1       $(0.9)       $19.5
-----------------------------------------------------------------------------------------------------
</TABLE>

6.   During the first nine months of 2000, the Board of Directors of Calhoun
     Newsprint Company (CNC) declared dividends totaling $12.5 million. As a
     result, $6.1 million was paid to the minority shareholder. In the first
     nine months of 1999, the Board of Directors of CNC declared dividends
     totaling $17.5 million, resulting in a payment of $8.6 million to the
     minority shareholder.

7.   Bowater is involved in various legal proceedings relating to contracts,
     commercial disputes, taxes, environmental issues, employment and workers'
     compensation claims, and other matters. We periodically review the status
     of these proceedings with both inside and outside counsel. Our management
     believes that the ultimate disposition of these matters will not have a
     material adverse effect on our operations or our financial condition taken
     as a whole.

8.   During the third quarter of 2000, Bowater purchased 235,000 shares of its
     common stock for $11.5 million under a 5.5 million share stock repurchase
     program authorized in May 1999. On a year-to-date basis, we purchased 2.1
     million shares for $103.7 million. The total for this program is now 3.2
     million shares at a cost of $155.5 million. During the first nine months of
     1999, we purchased 1.8 million shares of common stock for $75.3 million.

9.   "Other, net" in the Consolidated Statement of Operations includes the
     following:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
                                      THREE MONTHS ENDED           NINE MONTHS ENDED
                                 ----------------------------------------------------------
                                 September 30, September 30,  September 30,   September 30,
     (In millions)                   2000          1999           2000            1999
-------------------------------------------------------------------------------------------
<S>                                 <C>           <C>           <C>            <C>
Foreign exchange (gain) loss        $ 2.2         $(3.3)        $ 7.5          $(32.5)
Miscellaneous items                   0.1           2.9           0.6             3.9
-------------------------------------------------------------------------------------------
                                    $ 2.3         $(0.4)        $ 8.1          $(28.6)
-------------------------------------------------------------------------------------------
</TABLE>


                                       8
<PAGE>   9

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.  The calculation of basic and diluted earnings (loss) per share is as
     follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                 THREE MONTHS ENDED             NINE MONTHS ENDED
                                           -------------------------------------------------------------
                                           September 30,  September 30,  September 30,  September 30,
(In millions, except per share amounts)        2000            1999          2000            1999
--------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>            <C>

Basic Computation:

Net income (loss)                             $  50.0       $ (53.4)       $ 100.9        $  58.3
Less:
    Series C Preferred Stock
        dividends                                  --            --             --           (0.1)
    Deferred issuance costs associated
        with Series C Preferred Stock              --            --             --           (1.0)

                                           -------------------------------------------------------------
Basic income (loss) available to
        common shareholders                   $  50.0       $ (53.4)       $ 100.9        $  57.2
                                           -------------------------------------------------------------

Basic weighted average shares
        outstanding                              51.6          54.3           52.6           54.3
                                           -------------------------------------------------------------

Basic earnings (loss) per common share        $  0.97       $ (0.98)       $  1.92        $  1.05
                                           -------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                              THREE MONTHS ENDED             NINE MONTHS ENDED
                                        -----------------------------------------------------------
                                        September 30,  September 30,  September 30,  September 30,
(In millions, except per share amounts)     2000            1999          2000           1999
---------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>            <C>

Diluted Computation:

Diluted income (loss) available to
     common shareholders                  $  50.0       $ (53.4)       $ 100.9        $  57.2
                                        -----------------------------------------------------------

Basic weighted average shares
     outstanding                             51.6          54.3           52.6           54.3

Effect of dilutive securities:
     Options                                  0.5            -- (a)        0.5            0.9
                                        -----------------------------------------------------------

Diluted weighted average shares
     outstanding                             52.1          54.3           53.1           55.2
                                        -----------------------------------------------------------

Diluted earnings (loss) per common
     share                                $  0.96       $ (0.98)       $  1.90        $  1.04
                                        -----------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>


(a)  Due to the loss incurred for this period, the effect of dilutive securities
     was excluded to prevent antidilution.


                                       9
<PAGE>   10

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  Segment Information:

     Bowater is organized into four divisions, three of which are: the Newsprint
     Division, the Coated Paper Division and the Forest Products Division.

     *    The Newsprint Division is responsible for the manufacturing operations
          of eight sites in the United States, Canada and South Korea. It is
          also responsible for the worldwide marketing of newsprint and uncoated
          groundwood specialties.

     *    The Coated Paper Division manufactures coated groundwood paper,
          newsprint, market pulp and uncoated groundwood specialties at one
          manufacturing site and operates a coating facility, both in the United
          States. This Division is responsible for the worldwide marketing and
          sales of coated groundwood paper.

     *    The Forest Products Division operates three sawmills and manages 1.8
          million acres of owned and leased timberlands in the United States and
          Canada, as well as 14.2 million acres of Crown-owned land in Canada on
          which we have cutting rights. This Division sells wood fiber to the
          Newsprint Division and Coated Paper Division, as well as markets and
          sells timber and lumber to third parties in North America.

     The Pulp Division has marketing and sales responsibility for all of our
     market pulp sales; however, the financial results from these sales are
     included in the Newsprint Division and the Coated Paper Division, depending
     upon which site manufactures the product. Accordingly, no results are
     reported for the Pulp Division.

     The following tables summarize information about segment profit and loss
     and segment assets for the three months and the nine months ended September
     30, 2000 and 1999 and at September 30, 2000 and 1999, respectively:

(Unaudited, in millions)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                       Coated       Forest
       THREE MONTHS ENDED               Newsprint       Paper      Products    Special  Corporate &
       SEPTEMBER 30, 2000               Division      Division     Division     Items   Eliminations   Total
-------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>         <C>       <C>          <C>
Net sales-including internal sales      $  456.9      $  149.6    $  107.3    $     --  $     --     $  713.8
Elimination of intersegment sales             --            --          --          --     (85.8)       (85.8)
-------------------------------------------------------------------------------------------------------------
Net sales - external customers             456.9         149.6       107.3          --     (85.8)       628.0
-------------------------------------------------------------------------------------------------------------
Segment income (loss)                       94.4          39.4         0.6         0.1     (15.9)       118.6
-------------------------------------------------------------------------------------------------------------
Total assets at 9/30/00                 $3,565.7      $  518.8    $  514.1    $     --  $  392.5     $4,991.1
-------------------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                                      Coated         Forest
        THREE MONTHS ENDED              Newsprint      Paper        Products     Special   Corporate &
        SEPTEMBER 30, 1999              Division      Division      Division      Items    Eliminations    Total
-----------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>         <C>         <C>         <C>          <C>
Net sales-including internal sales       $  363.9       $  114.4    $  116.4    $     --    $     --     $  594.7
Elimination of intersegment sales              --             --          --          --       (83.7)       (83.7)
-----------------------------------------------------------------------------------------------------------------
Net sales - external customers              363.9          114.4       116.4          --       (83.7)       511.0
-----------------------------------------------------------------------------------------------------------------
Segment income (loss)                        (0.5)          10.3        10.6       (55.3)      (17.3)       (52.2)
-----------------------------------------------------------------------------------------------------------------
Total assets at 9/30/99                  $3,062.4       $  482.8    $  449.6    $     --    $  598.2     $4,593.0
-----------------------------------------------------------------------------------------------------------------
</TABLE>



                                       10
<PAGE>   11

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                      Coated       Forest
        NINE MONTHS ENDED              Newsprint       Paper      Products    Special  Corporate &
       SEPTEMBER 30, 2000              Division      Division     Division     Items   Eliminations    Total
-------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>         <C>       <C>          <C>
Net sales-including internal sales      $1,225.1      $  420.1    $  327.6    $     --  $     --     $1,972.8
Elimination of intersegment sales             --            --          --          --    (257.6)      (257.6)
-------------------------------------------------------------------------------------------------------------
Net sales - external customers           1,225.1         420.1       327.6          --    (257.6)     1,715.2
-------------------------------------------------------------------------------------------------------------
Segment income (loss)                      196.6         101.7        18.4         3.4     (55.8)       264.3
-------------------------------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
                                                      Coated        Forest
        NINE MONTHS ENDED              Newsprint       Paper       Products   Special   Corporate &
       SEPTEMBER 30, 1999               Division      Division     Division    Items    Eliminations    Total
---------------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>         <C>         <C>          <C>
Net sales-including internal sales      $1,163.3      $  336.3    $  378.4    $     --    $    2.3     $1,880.3
Elimination of intersegment sales             --            --          --          --      (270.6)      (270.6)
---------------------------------------------------------------------------------------------------------------
Net sales - external customers           1,163.3         336.3       378.4          --      (268.3)     1,609.7
---------------------------------------------------------------------------------------------------------------
Segment income (loss)                       38.0          42.4        32.4       106.4       (48.7)       170.5
---------------------------------------------------------------------------------------------------------------
</TABLE>

     During the first quarter of 2000, Bowater changed its segment disclosure to
     report special items separately. Our management now reviews reports that
     present these items separately from the normal operations of the divisions.
     For the three months ended September 30, 1999, the special item related to
     a pre-tax loss on the sale of GNP of $55.3 million. For the first nine
     months of 2000, the special item related to a pre-tax gain on the sale of
     fixed assets of $3.4 million. For the first nine months of 1999, the
     special item related to a pre-tax gain on the sale of timberlands and a
     sawmill of $253.7 million, a pre-tax impairment charge of $92.0 million and
     a pre-tax loss on the sale of GNP of $55.3 million.

     In the first quarter of 2000, we changed our presentation of intersegment
     sales, presenting each division's net sales on a gross basis and including
     the elimination of intersegment sales in "Corporate & Eliminations". Also
     in the first quarter of 2000, we changed our asset allocations relating to
     the Avenor acquisition between the Newsprint and Forest Products Divisions
     and Corporate. These changes are also reflected in the tables above.

     The following table shows GNP's net sales and operating loss included in
     the Newsprint and Forest Products Divisions results for the three and nine
     months ended September 30,1999:

<TABLE>
<CAPTION>
               -------------------------------------------------------------
                                  THREE MONTHS ENDED       NINE MONTHS ENDED
               (in millions)      SEPTEMBER 30, 1999      SEPTEMBER 30, 1999
               -------------------------------------------------------------
<S>                                          <C>                   <C>
               Net sales -
                including internal
                sales                        $   46.6              $  234.9
               -------------------------------------------------------------
               Operating loss                $   (4.9)             $  (11.4)
               -------------------------------------------------------------
</TABLE>

     The line entitled "Segment income (loss)" in the preceding tables is equal
     to "Operating income (loss)" as presented in our Consolidated Statement of
     Operations. In addition, none of the income/loss items following "Operating
     income (loss)" in our Consolidated Statement of Operations are allocated to
     our segments, since they are reviewed separately by Bowater's management.
     These items include, but are not limited to, interest revenue and expense,
     income tax expense or benefit, and minority interests in net income (loss)
     of subsidiaries.



                                       11
<PAGE>   12

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  Using Canadian dollar forward and range forward contracts, Bowater hedges
     against the risk of a rising Canadian dollar. At September 30, 2000, we had
     $306.5 million of Canadian dollar contracts. Information regarding the
     carrying value, fair market value, and range of exchange rates of the
     contracts is summarized in the table below:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------
     (In millions)                                         Liability
     -----------------------------    Notional      -------------------------       Range Of
     Foreign Currency Exchange       Amount of      Carrying         Fair        US$/Canadian$
     Agreements                     Derivatives      Amount      Market Value    Exchange Rates
     ---------------------------------------------------------------------------------------------
<S>                                 <C>          <C>            <C>                 <C>
     Buy Currency:
     ---------------------------------------------------------------------------------------------
         Canadian dollar
     ---------------------------------------------------------------------------------------------
               Due in 2000          $     103.5  $     6.0      $      6.0          .7491 - .6877
     ---------------------------------------------------------------------------------------------
               Due in 2001                203.0        5.4             5.4          .7339 - .6630
     ---------------------------------------------------------------------------------------------
                    Total           $     306.5  $    11.4      $     11.4
     ---------------------------------------------------------------------------------------------
</TABLE>


13.  In the Consolidated Balance Sheet as of September 30, 2000, the line
     entitled "Accumulated other comprehensive income (loss)" includes $(19.5)
     million for pension plan additional minimum liabilities, $(7.7) million for
     foreign currency translation, and $7.6 million for taxes.

14.  Certain prior-year amounts in the financial statements and the notes have
     been reclassified to conform to the 2000 presentation.

15.  On August 1, 2000, Bowater completed the acquisition of the Newsprint
     South, Inc. paper mill, located in Grenada, Mississippi (Grenada). The
     purchase price was $384.0 million in cash and the assumption of $8.9
     million in debt. On the day of acquisition, the Grenada operations held
     cash equivalents of $4.4 million, resulting in a net cash outflow of $379.6
     million. The acquisition is being accounted for under the purchase method
     of accounting. The consolidated financial statements include the operations
     and cash flows of the Grenada operation for the period August 1, 2000, to
     September 30, 2000, and the assets and liabilities as of September 30,
     2000. The preliminary allocation of the excess purchase price over
     historical assets of the Grenada operations was made to fixed assets.

     The following unaudited pro forma consolidated financial results assume the
     acquisition had occurred on January 1 of the following years:


                    ------------------------------------------------------------
                                                          NINE MONTH ENDED
                                                           SEPTEMBER 30,
                                                    ----------------------------
                    (In millions)                       2000          1999
                    ------------------------------------------------------------
                    Net sales                       $   1,786.3     $1,697.8
                    ------------------------------------------------------------
                    Net income                            101.0         48.7
                    ------------------------------------------------------------
                    Diluted earnings per share      $      1.90     $   0.86
                    ------------------------------------------------------------


16.  In October 2000, Bowater announced that it signed a preliminary Letter of
     Intent with Sepoong Corporation and its major creditor, Chohung Bank, to
     acquire the Sepoong paper mill located in Kunsan, South Korea, for $201.0
     million. The acquisition is subject to the negotiation of a definitive
     agreement, the approval of creditors of Sepoong, due diligence and
     regulatory approval.


                                       12
<PAGE>   13

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                  ORGANIZATION

Bowater is organized into four divisions: the Newsprint Division, the Coated
Paper Division, the Pulp Division and the Forest Products Division. Each
division, with the exception of the Pulp Division, is responsible for the sales
and marketing of distinct product lines and the operation of certain
manufacturing sites. The Pulp Division is primarily a marketing and distribution
division. Therefore, our financial results are collected, analyzed and reported
through the Newsprint, Coated Paper and Forest Products Divisions.

                         CAUTIONARY STATEMENT REGARDING
                           FORWARD-LOOKING INFORMATION

Statements in this report that are not reported financial results or other
historical information are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. They include, for example,
statements about our business outlook, assessment of market conditions,
strategies, future plans, future sales, prices for our major products, inventory
levels, capital spending and tax rates. These forward-looking statements are not
guarantees of future performance. They are based on management's expectations
that involve a number of business risks and uncertainties, any of which could
cause actual results to differ materially from those expressed in or implied by
the forward-looking statements. The risks and uncertainties relating to the
forward-looking statements in this report include those described under the
caption "Cautionary Statement Regarding Forward-Looking Information" in
Bowater's annual report on Form 10-K for the year ended December 31, 1999, and
from time to time, in Bowater's other filings with the Securities and Exchange
Commission.

                              RESULTS OF OPERATIONS
                  THREE MONTHS ENDED SEPTEMBER 30, 2000, VERSUS
                               SEPTEMBER 30, 1999

For the third quarter of 2000, Bowater had operating income of $118.6 million,
compared to an operating loss of $52.2 million for the third quarter of 1999.
The operating loss for the third quarter of 1999 includes a pre-tax loss of
$55.3 million on the sale of Bowater's Great Northern Paper, Inc. subsidiary
(GNP). Operating income less "Net gain (loss) on sale of assets" increased
$115.4 million. Higher prices for newsprint, market pulp and coated groundwood
paper products account for this increase. Lower operating costs as a result of
less maintenance and market-related downtime were partially offset by higher
prices for recycled paper.

    Net income for the third quarter of 2000 was $50.0 million, or $0.96 per
diluted share, compared with a net loss of $53.4 million, or $0.98 per diluted
share, in the third quarter of 1999. Included in the net loss for the third
quarter of 1999 was a pre-tax loss on the sale of GNP of $55.3 million ($37.0
million after tax), or $0.68 per diluted share. Third quarter 2000 net sales
were $628.0 million, compared with $511.0 million for the third quarter of 1999
and $566.7 million for the second quarter of 2000.

    Presented below is a discussion of each significant product line followed by
a discussion of the results of each of the reported divisions. For the third
quarter of 1999, the net sales of GNP are included in the following product
lines: newsprint, coated groundwood paper, directory paper, uncoated groundwood
specialties, and lumber, timber and other wood products. We completed the sale
of GNP in August 1999.

                            PRODUCT LINE INFORMATION

 NET SALES BY PRODUCT
--------------------------------------------------------------
                                         THREE MONTHS ENDED
                                           SEPTEMBER 30,
                                    --------------------------
(Unaudited, in millions)                 2000           1999
--------------------------------------------------------------

Net sales:
   Newsprint                              $ 377.4      $ 298.0
   Coated groundwood                         89.1         77.0
   Directory paper                            -           21.2
   Market pulp                              150.6        111.9
   Uncoated groundwood specialties           33.0         14.6
   Lumber, timber and other wood
              products                      107.5        116.7
   Elimination of intersegment              (85.8)       (83.7)
   Distribution costs                       (43.8)       (44.7)
                                    --------------------------
              Total net sales            $  628.0      $ 511.0
--------------------------------------------------------------


Newsprint Bowater's average transaction price for newsprint was 19% higher in
the third quarter of 2000 compared to the third quarter of 1999. We implemented
price increases for domestic and overseas markets during the third quarter. We
also announced a newsprint price increase for some overseas markets during
October 2000. Our shipments increased 7% compared to the same period last year.
Newsprint market



                                       13
<PAGE>   14

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


conditions continued to be strong in the third quarter of 2000. Total United
States demand and consumption of newsprint increased compared to the same
quarter last year. Newspaper advertising linage also increased over 1999. Both
North American mill inventories and United States customer inventories of
newsprint decreased at the end of September 2000, compared to the end of
September 1999.

Coated Groundwood Bowater's average transaction price for coated groundwood
paper in the third quarter of 2000 increased 19% compared to the third quarter
of 1999. Our coated groundwood shipments were slightly lower, comparing the same
periods, due primarily to the sale of GNP in August, but partially offset by
increasing shipments from our Benton Harbor coating facility, acquired in July
1999. End use markets continued to show strength, with magazine advertising
pages and catalog mailings (measured by standard A mail weight) increasing over
the third quarter of 1999. Inventories at United States coated groundwood mills
at the end of September 2000 were higher than the year ago period, although
remaining at low to moderate levels.

Market Pulp Bowater's average transaction price for market pulp in the third
quarter of 2000 was 31% higher than in the third quarter of 1999 and 4% higher
than in the second quarter of 2000. We implemented a price increase of $30 per
metric ton, effective July 2000. Our market pulp shipments were 3% higher than
in the year ago period. Our market pulp inventories, at a 15 day supply, were 9%
lower compared to the end of the third quarter of 1999. NORSCAN (United States,
Canada, Finland, Norway and Sweden) shipments were slightly lower than the year
ago period. NORSCAN producer inventories increased during the quarter to 1.37
million metric tons, but were 49,000 metric tons below year ago levels. In
October 2000, Bowater announced plans to reduce its market pulp production by
25,000 metric tons during the fourth quarter of 2000.

Lumber Bowater's average transaction price for lumber products in the third
quarter of 2000 declined 26% compared to the third quarter of 1999. Prices
continued to decline from their peak in the third quarter of 1999. Shipments
increased 9% over the same period in 1999. Housing starts on a seasonally
adjusted rate were down 8% in August 2000 compared with August 1999.

Timber Bowater's average transaction price for timber increased 3% from third
quarter 1999 levels. Our shipments of timber products were down 37% in the third
quarter compared to the same period in 1999. The decline in sales volume is
mainly attributable to the sale of timberlands in the U.S. Southeast and the
sale of timberlands associated with GNP in Maine. Timber markets weakened in the
Southeast during the third quarter as a result of downtime taken by end users.

                             DIVISIONAL PERFORMANCE

For the third quarter of 1999, the net sales and operating income (loss) for the
GNP mill and woodlands operations are included in the Newsprint or Forest
Products Divisions, depending upon the product. Bowater completed the sale of
GNP in August 1999.

NET SALES BY DIVISION
------------------------------------------------------------
                                      THREE MONTHS ENDED
                                        SEPTEMBER 30,
                                   -------------------------
(In millions)                         2000         1999
------------------------------------------------------------
DIVISION: (1)
Newsprint                             $ 456.9       $ 363.9
Coated Paper                            149.6         114.4
Forest Products                         107.3         116.4
Corporate & eliminations                (85.8)        (83.7)
                                   -------------------------
    Total net sales                   $ 628.0       $ 511.0
------------------------------------------------------------

OPERATING INCOME (LOSS) BY DIVISION
------------------------------------------------------------
                                     THREE MONTHS ENDED
                                        SEPTEMBER 30,
                                  --------------------------
(In millions)                        2000         1999
------------------------------------------------------------
DIVISION: (1)
Newsprint                             $  94.4        $(0.5)
Coated Paper                             39.4         10.3
Forest Products                           0.6         10.6
Special items                             0.1        (55.3)
Corporate & eliminations                (15.9)       (17.3)
                                  --------------------------
    Total operating income (loss)     $ 118.6       $(52.2)
------------------------------------------------------------

(1) Financial results for the production and sale of market pulp are included in
    the Newsprint Division or the Coated Paper Division, depending upon the
    product. The Pulp Division is responsible for the marketing and distribution
    of the product and its administrative expenses are included in "Corporate &
    eliminations."

Newsprint Division: Net sales for the Division increased 26%, from $363.9
million for the third quarter of 1999 to $456.9 million for the third quarter



                                       14
<PAGE>   15

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


of 2000. This increase is primarily the result of higher average transaction
prices for newsprint and market pulp and the inclusion of Newsprint South,
Inc.(Grenada operations), purchased in August 2000. This increase was partially
offset by the sale of GNP in August 1999. See the previous discussion of product
line results.

    Operating income for the third quarter of 2000 increased $94.9 million
compared with an operating loss of $0.5 million for the third quarter of 1999.
Higher prices for newsprint and market pulp account for the majority of this
increase. Operating costs for the division decreased due to less maintenance and
market-related downtime, partially offset by higher prices for recycled paper.

Coated Paper Division: Net sales for the Division increased $35.2 million, from
$114.4 million for the third quarter of 1999 to $149.6 million for the third
quarter of 2000, due to higher average transaction prices for newsprint, market
pulp and coated groundwood paper. The inclusion of the Benton Harbor coating
facility, purchased in July 1999, also contributed to this increase. See the
previous discussion of product line results.

    Operating income increased $29.1 million from $10.3 million for the third
quarter of 1999 to $39.4 million for the third quarter of 2000. This increase
was primarily the result of higher prices for market pulp and coated groundwood
paper. Operating costs for the division were slightly lower than the third
quarter of 1999.

    In November 2000, Bowater announced plans to grow its coated paper product
line. This is being accomplished by converting the newsprint machine at our
Catawba facility to lightweight coated paper. This project will remove
approximately 260,000 short tons of newsprint and replace it with 330,000 short
tons of coated paper, which has significantly higher margins than newsprint. The
project is scheduled for completion in mid-2002, and the new coated paper
production will be introduced into the market in stages by the end of 2004,
depending on market conditions. We are also constructing two additional Nuway
converting plants, one in the mid-South region and one in the mid-Atlantic
region, which are expected to be completed by the end of 2002. These plants will
produce approximately 200,000 short tons of coated paper, converting
approximately 160,000 short tons of our newsprint to higher margin products. The
capital spending will be approximately $182 million over the next two years.

Forest Products Division: Net sales for the Division decreased 8%, from $116.4
million for the third quarter of 1999 to $107.3 million for the third quarter of
2000, primarily the result of lower lumber transaction prices and lower timber
shipments resulting from the sale of timberlands in 1999. See the previous
discussion of product line results.

    Operating income for the Division decreased $10.0 million for the third
quarter of 2000 compared to the third quarter of 1999, due to lower lumber
transaction prices and lower timber shipments. Operating costs for the division
were higher due to a casualty loss for pine-beetle damage to woodlands, offset
partially by lower fertilization and site preparation expenses during the third
quarter of 2000.

    Due to the unusually warm and dry weather conditions, the risk of additional
pine-beetle damage continues to exist. However, the Division is unable to
determine if this will have a material impact on its operation.

Special Items: During the third quarter of 2000, Bowater sold fixed assets
resulting in a pre-tax gain of $0.1 million. During the third quarter of 1999,
we completed the sale of GNP, resulting in a pre-tax loss of $55.3 million.

Corporate & Eliminations: The elimination of intersegment sales increased $2.1
million, comparing the third quarter of 2000 to the third quarter of 1999.
Comparing the third quarter of 2000 to the third quarter of 1999, corporate
expenses decreased $1.4 million.

INTEREST AND OTHER INCOME AND EXPENSES

Interest expense for the third quarter 2000 increased $4.8 million over the same
period in 1999. This increase was attributable to higher borrowing on our credit
facility due to the acquisition of the Grenada operations in August 2000.
Comparing the same periods, interest income increased $2.1 million due to
interest on notes received in consideration for timberland sales in the fourth
quarter of 1999.

     In the third quarter of 2000, Bowater recorded a foreign exchange loss of
$2.2 million versus a foreign exchange gain of $3.3 million during the third
quarter of 1999. The majority of our exchange gain(loss) amounts result from the
effect of the change in currency exchange rates during the respective quarters
on our Canadian dollar hedging program.

    Bowater's effective tax rate for the third quarter of 2000 was 37.8% on
pre-tax income and for the same



                                       15
<PAGE>   16

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


period in 1999, 30.4% on a pre-tax loss. These rates reflect the
non-deductibility of the amortization of goodwill.

                  NINE MONTHS ENDED SEPTEMBER 30, 2000, VERSUS
                               SEPTEMBER 30, 1999

For the first nine months of 2000, Bowater had operating income of $264.3
million compared to operating income of $170.5 million for the first nine months
of 1999. During the first nine months of 2000, we recognized a pre-tax gain of
$3.4 million on the sale of fixed assets. In the first nine months of 1999, we
recorded a pre-tax impairment charge of $92.0 million, reducing the book value
of assets at our GNP operations. Also included in the operating income for the
first nine months of 1999 was a pre-tax gain of $253.7 million for the sale of
timberlands and a pre-tax loss on sale of GNP of $55.3 million. Excluding the
impairment charge and the net gain on sale of assets, operating income was
$196.8 million higher than the first nine months of 1999. Higher transaction
prices for all of our major products accounted for the majority of this
increase. This increase was partially offset by higher operating costs due to
higher prices for recycled paper and higher Canadian dollar exchange rates.

                            PRODUCT LINE INFORMATION

NET SALES BY PRODUCT
--------------------------------------------------------------
                                        NINE MONTHS ENDED
                                          SEPTEMBER 30,
                                     -------------------------

(Unaudited, in millions)                2000         1999
--------------------------------------------------------------

Net sales:
   Newsprint                          $ 1,012.1      $ 956.2
   Coated groundwood                      246.7        235.1
   Directory paper                          -           89.4
   Market pulp                            434.0        315.3
   Uncoated groundwood specialties         79.2         44.5
   Lumber, timber and other wood
              products                    328.0        378.9
   Elimination of intersegment sales     (257.6)      (270.6)
   Distribution costs                    (127.2)      (139.1)
                                     -------------------------
              Total net sales          $ 1,715.2    $1,609.7
--------------------------------------------------------------

Newsprint Bowater's average transaction price for newsprint increased 8% for the
first nine months of 2000 compared to the same period last year. We implemented
price increases for our domestic and export markets during the first nine months
of 2000. We also announced a newsprint price increase for some overseas markets
during October 2000. Our shipments declined slightly. Total United States demand
and consumption of newsprint increased in the first nine months of 2000 when
compared to the same period of 1999. Both North American mill inventories and
customer inventories of newsprint declined, comparing the end of September 2000
levels to the levels at the end of September 1999.

Coated Groundwood Bowater's average transaction price for coated groundwood
paper for the first nine months of 2000 increased 15% compared to the first nine
months of 1999. We implemented a price increase for our coated groundwood papers
in April 2000. Our shipments were 9% lower compared to shipments in the same
period a year ago. The lower shipments were due to the sale of GNP in August
1999, partially offset by additional tonnage from the acquisition of the Benton
Harbor coating facility in July 1999. For the industry, United States coated
groundwood paper shipments were higher compared to the first nine months of
1999. Coated groundwood paper inventory held by the United States mills at the
end of September 2000 increased when compared to the end of September 1999.

Market Pulp Bowater's average transaction price for market pulp for the first
nine months of 2000 increased 34% compared to the first nine months of 1999. We
implemented a $30 per metric ton price increase in July, the third price
increase of 2000. Our shipments of market pulp increased 3% over the year ago
period. NORSCAN (United States, Canada, Finland, Norway and Sweden) market pulp
shipments increased compared to the first nine months of 1999. NORSCAN producer
pulp inventories ended the third quarter at 1.37 million metric tons, or a 24
day supply. In October 2000, Bowater announced plans to reduce its market pulp
production by 25,000 metric tons during the fourth quarter of 2000.

Lumber, Bowater's average transaction price for lumber for the first nine months
of 2000 decreased 14% compared to the same period in 1999. Our shipments of
lumber were down 2% compared to the year-ago period as a result of the sale of a
sawmill in March 1999, offset by higher shipments from the three remaining
sawmills.



                                       16
<PAGE>   17

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Timber Bowater's average transaction price for timber decreased 4% from the
year-ago period, primarily the result of a change in mix as a result of
timberland sales in Maine. Our shipments of timber decreased 27% in the first
nine months of 2000 compared to the first nine months of 1999. The decline in
sales volume is attributable to the sale of timberlands in the U.S. Southeast
and the sale of timberlands associated with GNP in Maine. During 1999, we sold
over 2 million acres of timberlands.

                             DIVISIONAL PERFORMANCE

NET SALES BY DIVISION:
----------------------------------------------------------
                                    NINE MONTHS ENDED
                                      SEPTEMBER 30,
                                 -------------------------
(In millions of US dollars)        2000          1999
----------------------------------------------------------
DIVISION: (1)
Newsprint                         $ 1,225.1      $1,163.3
Coated Paper                          420.1         336.3
Forest Products                       327.6         378.4
Corporate & eliminations             (257.6)       (268.3)
                                 -------------------------
    Total net sales               $ 1,715.2      $1,609.7
----------------------------------------------------------

OPERATING INCOME/(LOSS) BY DIVISION:
----------------------------------------------------------
                                    NINE MONTHS ENDED
                                      SEPTEMBER 30,
                                 -------------------------
(In millions of US dollars)         2000         1999
----------------------------------------------------------
DIVISION: (1)
Newsprint                           $ 196.6       $  38.0
Coated Paper                          101.7          42.4
Forest Products                        18.4          32.4
Special items                           3.4         106.4
Corporate & eliminations              (55.8)        (48.7)
                                 -------------------------
    Total operating income          $ 264.3       $ 170.5
----------------------------------------------------------


(1) Financial results for the production and sale of market pulp are included in
    the Newsprint Division or the Coated Paper Division, depending upon the
    product. The Pulp Division is responsible for the marketing and distribution
    of the product and its administrative expense are included in "Corporate &
    eliminations."

Newsprint Division: Net sales for the Division increased $61.8 million, from
$1,163.3 million for the first nine months of 1999 to $1,225.1 million for the
first nine months of 2000. This increase is due to higher average transaction
prices for newsprint, market pulp and uncoated groundwood specialties and the
inclusion of Newsprint South, Inc. The sale of GNP in August 1999 partially
offset this increase. See the previous discussion of product line results.

    Operating income increased $158.6 million, from $38.0 million for the first
nine months of 1999 to $196.6 million for the first nine months of 2000. This
increase was due to higher transaction prices for newsprint, market pulp and
uncoated groundwood specialties. Operating costs for the division increased due
to higher prices for recycle paper and higher Canadian exchange rates, mainly
offset by lower costs resulting from the sale of GNP, a high cost mill.

Coated Paper Division: Net sales for the Division increased $83.8 million, from
$336.3 million for the first nine months of 1999 to $420.1 million for the first
nine months of 2000, due to higher average prices for newsprint, market pulp and
coated groundwood paper, and increased shipments due to the acquisition of the
Benton Harbor coating facility in July 1999. See the previous discussion of
product line results.

    Operating income for the Division increased $59.3 million, from $42.4
million for the first nine months of 1999 to $101.7 million for the first nine
months of 2000. This increase was primarily the result of higher transaction
prices for newsprint, market pulp and coated groundwood paper, partially offset
by higher operating costs due to the increased production of specialty grades.

Forest Products Division: Net sales for the Division decreased 13%, from $378.4
million for the first nine months of 1999 to $327.6 million for first nine
months of 2000, primarily a result of lower lumber transaction prices and lower
timber shipments resulting from the sale of timberlands in 1999. See the
previous discussion of product line results.

    Operating income for the Division decreased $14.0 million for the first nine
months of 2000 compared to the first nine months of 1999, primarily the result
of lower lumber prices and shipments and lower timber shipments. Operating costs
for the division increased due to a casualty loss for pine-beetle damage to
woodlands.

    Due to the unusually warm and dry weather conditions, the risk of additional
pine-beetle damage continues to exist. However, the Division is unable to
determine if this will have a material impact on its operation.


                                       17
<PAGE>   18

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Special Items: During the first nine months of 2000, Bowater sold fixed assets
resulting in a pre-tax gain of $3.4 million. During the first nine months of
1999, we sold approximately 1.6 million acres of timberland in the state of
Maine and the Pinkham Lumber Company for a pre-tax gain of $253.7 million. We
also recognized an impairment charge of $92.0 million in the first nine months
of 1999, reducing the book value of our assets at GNP. In August 1999, we
completed the sale of GNP, resulting in a pre-tax loss of $55.3 million.

Corporate & Eliminations: The elimination of intersegment sales decreased $10.7
million, comparing the first nine months of 2000 to the first nine months of
1999. Decreased sales volume between the divisions account for the majority of
this decrease. Comparing the first nine months of 2000 to the first nine months
of 1999, expenses increased $7.1 million due to higher benefit costs and
professional fees.

                     INTEREST AND OTHER INCOME AND EXPENSES

Interest expense for the first nine months of 2000 increased $4.5 million due to
a higher average debt balance in 2000 compared to the same period last year.
Comparing the same periods, interest income increased $8.0 million due to
interest on notes received in consideration for timberland sales in the fourth
quarter of 1999. Also in the first nine months of 2000, Bowater recorded a $7.5
million foreign exchange loss compared to a $32.5 million gain in the prior year
period. The majority of our exchange gain (loss) amounts result from the effect
of the change in currency exchange rates during the respective periods on our
Canadian dollar hedging program.

     Bowater's effective tax rate for the first nine months of 2000 was 39.0%
versus 46.4% in the prior year period. The lower tax rate in 2000 is due to the
effect of the non-deductibility of the amortization of goodwill on a higher
level of pretax income.

                         LIQUIDITY AND CAPITAL RESOURCES

Bowater's cash and cash equivalents decreased to $21.8 million at September 30,
2000, from $24.7 million at December 31, 1999. We generated cash from operations
of $273.5 million, used $580.9 million of cash for investing activities, and
generated $304.5 million of cash from financing activities. Aside from cash flow
from operations, capital expenditures, and changes in investments and short-term
borrowings, we had other significant cash transactions since December 31, 1999.
These transactions include: net cash of $379.6 million for the purchase of the
Grenada operations; net payments on our long-term borrowings of $30.5 million
and purchases of our common stock requiring cash of $103.7 million.

CASH FROM OPERATING ACTIVITIES:

During the first nine months of 2000, Bowater's operations generated $273.5
million of cash compared to $105.0 million of cash during the first nine months
of 1999, an increase of $168.5 million. Higher operating income (excluding net
gain on sale of assets and impairment of asset charge) and lower working capital
needs accounted for the increase in 2000. The 2000 operating cash flows include
the activity of the newly acquired Grenada operations for the period August 1,
2000, to September 30, 2000.

CASH FROM INVESTING ACTIVITIES:

Cash used for investing activities in the first nine months of 2000 totaled
$580.9 million, compared with proceeds of $285.6 million during the first nine
months of 1999. In August 2000, Bowater acquired the Grenada operations
requiring a net cash outlay of $379.6 million.

    In the first nine months of 2000, capital expenditures were $33.9 million
higher than the previous year due to the construction of a recovery boiler at
our Thunder Bay mill and the purchase of equipment previously leased at our
Gatineau mill. We expect our total capital expenditures for 2000 to approximate
$250 million.

     Bowater anticipates spending approximately $150 to $200 million over the
next five years to comply with the new U.S. air quality standards and effluent
guidelines, with the majority of this capital expected to be spent at our
Catawba facility. In July 2000, the Board of Directors approved the expanded
project at Catawba (described in our Annual Report on Form 10K for the year
ended December 31, 1999) to include additional capital for the modernization of
a major portion of its kraft mill. This expanded project will allow the mill to
comply with the new regulations, as well as improve its overall operating
efficiencies. The cost estimate for the expanded project is $175 million and is
included in the above estimate of approximately $150 to $200 million. Spending
for this will take place during the period 2001 to 2003.

    In November 2000, Bowater announced plans to convert the newsprint
production at its Catawba



                                       18
<PAGE>   19

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


facility to coated groundwood papers and to construct two additional Nuway
sites, which will convert newsprint to coated groundwood grades. Capital
spending for these projects will be approximately $182 million over the next two
years.

     In the first nine months of 2000, Bowater paid $20.2 million on the
maturity of Canadian dollar hedging contracts versus $29.3 million in the first
nine months of last year. We also received net proceeds from the maturity of
marketable securities of $1.7 million in the first nine months of 2000, compared
with net proceeds of $0.5 million in 1999.

      During the first nine months of 1999, Bowater completed the sale of GNP.
We received net cash proceeds of $108.0 million and a note receivable of $10.0
million, and we assumed certain liabilities. In addition to the note receivable,
Bowater guaranteed payment for certain operating costs to one of GNP's
suppliers. At the request of the buyer and other creditors, the note payment was
deferred from August to December 2000. The buyer's ability to fulfill its
obligation on the note and the guarantee to its supplier will be impacted by the
buyer's ability to refinance its short-term credit facility.

   Also during 1999, we completed the sale of 1.6 million acres of Maine
timberlands resulting in net cash proceeds of $356.0 million. Our Forest
Products Division periodically reviews timberland holdings and sells timberlands
considered to be non-strategic.

CASH FROM FINANCING ACTIVITIES:

Cash generated from financing activities was $304.5 million for the first nine
months of 2000 compared with $380.3 million used during the first nine months of
1999. During the first nine months of 2000, Bowater borrowed $473.6 million (net
of repayments of $276.3 million) from its short-term credit facilities. In July
2000, we increased the amount of our 364-day credit facility from $150 million
to $750 million, while retaining our $350 million, five-year facility. In the
first nine months of 1999, we made net payments on our short-term credit
facilities of $210.0 million. Also in the first nine months of 2000, we
repurchased a portion of our 9.25% Debentures due 2002 for $20.8 million. Other
payments on our long-term borrowings were $10.1 million for a total of $30.9
million.

   In the first nine months of 1999, we made payments of $4.3 million on our
long-term borrowings, paid $65.9 million for the redemption of our 7.50%
Convertible Unsecured Subordinated Debentures, and paid $26.4 million for the
redemption of our remaining 8.40% Series C Preferred Stock. In addition to the
cash payment for the redemption of the convertible debentures, Bowater Canada
Inc. issued 1.4 million exchangeable shares. Also during the third quarter of
1999, we received cash proceeds of $32.3 million (before fees and expenses) from
revenue bonds issued by the Industrial Development Board of the County of
McMinn, Tennessee, in conjunction with the modernization of its Calhoun,
Tennessee, newsprint facility.

     Cash dividends paid in the first nine months of 2000 decreased $4.4 million
from the prior year period primarily due to lower dividend payments to the
minority shareholder of Calhoun Newsprint Company.

    During 1999, the Board of Directors authorized a new stock repurchase
program allowing us to buy back up to 5.5 million shares of our outstanding
common stock. During the first nine months of 2000, we purchased 2.1 million
shares at a cost of $103.7 million. Since the beginning of the program, we
purchased 3.2 million shares at a total cost of $155.5 million. In the first
nine months of 1999, we purchased 1.8 million shares at a cost of $75.3 million.

    We continually consider various options for the use of our cash, including
internal capital investments, share repurchases, investments to grow our
businesses and additional debt reductions.

                                  ACQUISITIONS

In August 2000, Bowater completed the acquisition of the Newsprint South, Inc.
paper mill, located in Grenada, Mississippi, for a cash purchase price of $384.0
million and the assumption of $8.9 million in debt. The mill has an annual
production capacity of approximately 250,000 metric tons of newsprint. Built in
1989, the mill has one of the lowest operating costs of any newsprint mill in
the United States. We accounted for the acquisition under the purchase method of
accounting.

    In October 2000, Bowater announced that it signed a preliminary Letter of
Intent with Sepoong Corporation and its major creditor, Chohung Bank, to acquire
the Sepoong paper mill located in Kunsan, South Korea, for $201.0 million. The
mill has approximately 265,000 metric tons of recycled newsprint capacity. The
acquisition is subject to the negotiation of a definitive agreement, the
approval of creditors and shareholders of Sepoong, due diligence and regulatory
approval.


                                       19
<PAGE>   20

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


                              ACCOUNTING STANDARDS

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended (the "Standard"). This Standard requires a
public company to recognize all derivatives as either assets or liabilities in
the Statement of Financial Position and measure those instruments at fair value.
Bowater is required to adopt this Standard on January 1, 2001. Our preliminary
assessment is that the adoption of the Standard will allow us to utilize hedge
accounting treatment on our Canadian dollar forward contracts. This will reduce
the amount of exchange rate volatility in our Statement of Operations. During
the fourth quarter of 2000, we will be finalizing our analysis and documentation
related to the adoption of the Standard.
    In addition, Bowater adopted the Securities and Exchange Commission's Staff
Accounting Bulletin No. 101 (the SAB) regarding revenue recognition on October
1, 2000. Upon adoption of the SAB, there was no impact to our results of
operations and financial condition.

ITEM 3. MARKET RISK

Bowater's market risk disclosure included in its 1999 Form 10-K, Part II, Item
7A, is still applicable as of September 30, 2000. We have updated the disclosure
concerning our Canadian dollar forward and range forward contracts, which is
included in Footnote 12 in this Form 10-Q.



                                       20
<PAGE>   21

                      BOWATER INCORPORATED AND SUBSIDIARIES

                                     PART II

                                OTHER INFORMATION

Item 1.  Legal Proceedings

         Bowater is involved in various legal proceedings relating to contracts,
commercial disputes, taxes, environmental issues, employment and workers'
compensation claims and other matters. Bowater believes that the ultimate
disposition of these matters will not have a material adverse effect on its
operations or financial condition taken as a whole.

         The Antitrust Division of the United States Department of Justice has
informed Bowater that it is conducting a review of possible anti-competitive
practices in the North American newsprint industry. Bowater is aware that the
Division has served grand jury subpoenas on employees of various newsprint
manufacturers. Certain present and former employees of Bowater and certain
former employees of Avenor Inc., which was acquired by Bowater in 1998, have
appeared before the grand jury. Bowater is not aware of the identity of any
targets of the review, nor has Bowater been advised that it or any of its
present or former employees are a target of the review.

         Item 6.  Exhibits and Reports on Form 8-K.

          (a)  Exhibits (numbered in accordance with Item 601 of Regulation
               S-K):

         Exhibit No.    Description
         -----------    -----------
               10.1     Amendment No. 2 dated as of April 10, 2000, to the
                        Five-Year Credit Agreement dated as of June 24, 1998,
                        between Bowater Incorporated, The Chase Manhattan Bank,
                        as Administrative Agent, and the lenders signatory
                        thereto.

               10.2     Amendment No. 1 dated as of April 10, 2000, to the
                        Amended and Restated 364-Day Credit Agreement dated as
                        of June 23, 1999, between Bowater Incorporated, The
                        Chase Manhattan Bank, as Administrative Agent, and the
                        lenders signatory thereto.

               10.3     Second Amended and Restated 364-Day Credit Agreement
                        dated as of June 21, 2000, to the Amended and Restated
                        364-Day Credit Agreement dated as of June 23, 1999,
                        between Bowater Incorporated, The Chase Manhattan Bank,
                        as Administrative Agent, and the lenders signatory
                        thereto.

               10.4     Amendment No. 1 dated as of July 31, 2000, to the Second
                        Amended and Restated 364-Day Credit Agreement dated as
                        of June 21, 2000, between Bowater Incorporated, The
                        Chase Manhattan Bank, as Administrative Agent, and the
                        lenders signatory thereto.

               10.5     Amended and Restated Change in Control Agreement
                        executed as of June 9, 2000, by and between Bowater
                        Incorporated and each of Anthony H. Barash, James H.
                        Dorton, E. Patrick Duffy, Arthur D. Fuller, Jerry R.
                        Gilmore, Richard K. Hamilton, William G. Harvey, Steven
                        G. Lanzl, David G. Maffucci, Robert A. Moran, Arnold M.
                        Nemirow, R. Donald Newman, Michael F. Nocito, Wendy C.
                        Shiba, David J. Steuart and James T. Wright.

               10.6     First Amendment to the Bowater Incorporated Retirement
                        Plan for Outside Directors, executed on September 13,
                        2000.

               27.1     Financial Data Schedule (electronic filing only).

         (b)      Reports on Form 8-K:

                  None.

                                       21
<PAGE>   22

                      BOWATER INCORPORATED AND SUBSIDIARIES

                                   SIGNATURES


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.



                                               BOWATER INCORPORATED

                                               By  /s/  David G. Maffucci
                                                   ----------------------
                                                   David G. Maffucci
                                                   Senior Vice President and
                                                   Chief Financial Officer



                                               By  /s/  Michael F. Nocito
                                                   ----------------------
                                                   Michael F. Nocito
                                                   Vice President and Controller





Dated:   November 14, 2000



                                       22
<PAGE>   23

                                INDEX TO EXHIBITS



         Exhibit No.    Description
         -----------    -----------

             10.1       Amendment No. 2 dated as of April 10, 2000, to the
                        Five-Year Credit Agreement dated as of June 24, 1998,
                        between Bowater Incorporated, The Chase Manhattan Bank,
                        as Administrative Agent, and the lenders signatory
                        thereto.

             10.2       Amendment No. 1 dated as of April 10, 2000, to the
                        Amended and Restated 364-Day Credit Agreement dated as
                        of June 23, 1999, between Bowater Incorporated, The
                        Chase Manhattan Bank, as Administrative Agent, and the
                        lenders signatory thereto.

             10.3       Second Amended and Restated 364-Day Credit Agreement
                        dated as of June 21, 2000, to the Amended and Restated
                        364-Day Credit Agreement dated as of June 23, 1999,
                        between Bowater Incorporated, The Chase Manhattan Bank,
                        as Administrative Agent, and the lenders signatory
                        thereto.

             10.4       Amendment No. 1 dated as of July 31, 2000, to the Second
                        Amended and Restated 364-Day Credit Agreement dated as
                        of June 21, 2000, between Bowater Incorporated, The
                        Chase Manhattan Bank, as Administrative Agent, and the
                        lenders signatory thereto.

             10.5       Amended and Restated Change in Control Agreement
                        executed as of June 9, 2000, by and between Bowater
                        Incorporated and each of Anthony H. Barash, James H.
                        Dorton, E. Patrick Duffy, Arthur D. Fuller, Jerry R.
                        Gilmore, Richard K. Hamilton, William G. Harvey, Steven
                        G. Lanzl, David G. Maffucci, Robert A. Moran, Arnold M.
                        Nemirow, R. Donald Newman, Michael F. Nocito, Wendy C.
                        Shiba, David J. Steuart and James T. Wright.

             10.6       First Amendment to the Bowater Incorporated Retirement
                        Plan for Outside Directors, executed on September 13,
                        2000.

             27.1       Financial Data Schedule (electronic filing only).