##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2008.o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM            TO
  BOWATER INCORPORATED
 
  Delaware
    
    62-0721803(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
  
   
  þ o
 o o þ o
 o þ
  Bowater Incorporated meets the conditions set forth in, and is filing this form with the reduced
disclosure format prescribed by, General Instructions H (1)(a) and (b) of Form 10-Q .




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##### 



BOWATER INCORPORATED
TABLE OF CONTENTS
 Page NumberPART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2008 and 2007
    
    
    1Condensed
Consolidated Balance Sheets at March 31, 2008 and
December 31, 2007
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2008 and 2007
    
    
    3Notes to Condensed
Consolidated Financial Statements
    
    
    4  9Forward-Looking
Statements
    
    
    10Item 2.
    
    Managements
Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    10  13Item 4T.
    
    Controls and Procedures
    
    
    13PART
II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    14Item 1A.
    
    Risk Factors
    
    
    14Item 6.
    
    Exhibits
    
    
    15SIGNATURES
    
    
    16Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2




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BOWATER INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in millions)
 Three Months EndedMarch 31,2008
    
    
    2007Sales
    
    $
    826
    
    
    $
    772Costs and expenses:Cost of sales, excluding depreciation, amortization
and cost of timber harvested
    
    
    636
    
    
    
    601Depreciation, amortization and cost of timber harvested
    
    
    78
    
    
    
    80Distribution costs
    
    
    83
    
    
    
    75Selling and administrative expenses
    
    
    47
    
    
    
    49Closure costs and related charges
    
    
    8
    
    
    
    Net gain on disposition of assets
    
    
    (23
    )
    
    
    (58
    )Operating (loss) income
    
    
    (3
    )
    
    
    25Equity in loss of Abitibi-Consolidated Inc.
    
    
    (35
    )
    
    
    Interest expense
    
    
    (51
    )
    
    
    (47
    )Other income (expense), net
    
    
    9
    
    
    
    (5
    )Loss before income taxes and minority interests
    
    
    (80
    )
    
    
    (27
    )Income tax provision
    
    
    (4
    )
    
    
    (1
    )Minority interests, net of tax
    
    
    2
    
    
    
    (7
    )Net loss
    
    $
    (82
    )
    
    $
    (35
    )
  1




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BOWATER INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in millions)
 March 31,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    130
    
    
    $
    63Accounts receivable, net
    
    
    447
    
    
    
    462Inventories, net
    
    
    393
    
    
    
    377Other current assets
    
    
    45
    
    
    
    59Total current assets
    
    
    1,015
    
    
    
    961Fixed assets, net
    
    
    2,520
    
    
    
    2,584Goodwill
    
    
    591
    
    
    
    591Investment in Abitibi-Consolidated Inc.
    
    
    198
    
    
    
    237Other assets
    
    
    238
    
    
    
    246Total assets
    
    $
    4,562
    
    
    $
    4,619Liabilities and shareholders equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    455
    
    
    $
    467Short-term bank debt
    
    
    279
    
    
    
    205Current installments of long-term debt
    
    
    21
    
    
    
    21Total current liabilities
    
    
    755
    
    
    
    693Long-term debt, net of current installments
    
    
    2,236
    
    
    
    2,242Other long-term liabilities
    
    
    412
    
    
    
    421Deferred income taxes
    
    
    365
    
    
    
    365Minority interests in subsidiaries
    
    
    76
    
    
    
    80Commitments and contingenciesShareholders equity:Common stock, $1 par value. 56.3 shares at March 31, 2008 and December
31, 2007
    
    
    56
    
    
    
    56Exchangeable shares, no par value. 4.9 shares at March 31, 2008 and 5.1
shares at December 31, 2007
    
    
    267
    
    
    
    276Additional paid-in capital
    
    
    1,213
    
    
    
    1,204Retained deficit
    
    
    (688
    )
    
    
    (600
    )Accumulated other comprehensive loss
    
    
    (130
    )
    
    
    (118
    )Total shareholders equity
    
    
    718
    
    
    
    818Total liabilities and shareholders equity
    
    $
    4,562
    
    
    $
    4,619
  2




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BOWATER INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
 Three Months EndedMarch 31,2008
    
    
    2007Net cash used for operating activities
    
    $
    (19
    )
    
    $
    (16
    )Cash flows from investing activities:Cash invested in fixed assets, timber and timberlands
    
    
    (14
    )
    
    
    (26
    )Dispositions of assets, including timber and timberlands
    
    
    29
    
    
    
    64Direct acquisition costs related to the merger with
Abitibi-Consolidated Inc.
    
    
    
    
    
    
    (9
    )Net cash provided by investing activities
    
    
    15
    
    
    
    29Cash flows from financing activities:Cash dividends
    
    
    
    
    
    
    (11
    )Short-term financing
    
    
    74
    
    
    
    Payments of long-term debt
    
    
    (3
    )
    
    
    (3
    )Net cash provided by (used for) financing activities
    
    
    71
    
    
    
    (14
    )Net increase (decrease) in cash and cash equivalents
    
    
    67
    
    
    
    (1
    )Cash and cash equivalents:Beginning of year
    
    
    63
    
    
    
    99End of period
    
    $
    130
    
    
    $
    98
  3




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BOWATER INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
 1.
    
    Organization and Basis of PresentationBasis of PresentationThe accompanying condensed consolidated financial statements include the accounts of Bowater
Incorporated and subsidiaries (Bowater, also referred to as we or our). We have prepared
the accompanying condensed consolidated financial statements, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the SEC). Certain
information and disclosures normally included in financial statements prepared in accordance
with U.S. generally accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In our opinion, these condensed consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments) necessary to present
fairly the results of our operations for the periods presented. These unaudited condensed
consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and related notes included in our Annual Report on Form 10-K for the year
ended December 31, 2007.Impact of Recently Adopted Accounting PronouncementsIn September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (SFAS 158). SFAS 158s measurement date provisions
are effective for fiscal years ending after December 15, 2008. A measurement date of September
30, 2007 was used for all of our plans. SFAS 158 requires us to use a December 31 measurement
date. We have elected to use the 15-month transition method to determine the amount of the
adjustment to our opening retained deficit balance and opening accumulated other comprehensive
loss balance on January 1, 2008, and the adjustment increased our retained deficit by $6
million, net of taxes of $2 million, and increased our accumulated other comprehensive loss by
$11 million, net of taxes of $1 million. The increase to our accumulated other comprehensive
loss primarily represents the additional net actuarial loss that arose from our fourth quarter
of 2007 settlement and curtailment events.New Accounting PronouncementsIn March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). This Statement changes the disclosure requirements for
derivative instruments and hedging activities, requiring us to provide enhanced disclosures
about (a) how and why we use derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, and (c) how derivative instruments and related hedged items affect our
financial position, financial performance, and cash flows. SFAS 161 is effective for fiscal
years beginning after November 15, 2008. Early application is encouraged.In April 2008, the FASB issued Staff Position No. FAS 142-3, Determination of the Useful Life
of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. This new guidance also provides additional disclosure requirements related to
recognized intangible assets. This FSP is effective for fiscal years beginning after December
15, 2008. Early adoption is prohibited.
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BOWATER INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
 2.
    
    Inventories, Net
 March 31,
    
    
    December 31,(Unaudited, in millions)
    
    2008
    
    
    2007At lower of cost or market:Raw materials and work in process
    
    $
    80
    
    
    $
    77Finished goods
    
    
    148
    
    
    
    143Mill stores and other supplies
    
    
    179
    
    
    
    171407
    
    
    
    391Excess of current cost over LIFO inventory value
    
    
    (14
    )
    
    
    (14
    )$
    393
    
    
    $
    377
 3.
    
    Short-Term DebtAs of March 31, 2008, our available borrowings under bank credit facilities were as follows:
 WeightedAverageAmount
    
    
    Commitment
    
    
    Termination
    
    
    Interest(Unaudited, in millions)
    
    Commitment
    
    
    Outstanding
    
    

Available(1)
    
    
    Date
    
    

Rate(2)U.S. credit facility
    
    $
    415
    
    
    $
    240
    
    
    $
    84
    
    
    
    05/11
    
    
    
    6.8
    %Canadian credit facility
    
    
    165
    
    
    
    39
    
    
    
    94
    
    
    
    05/08
    
    
    
    7.0
    %$
    580
    
    
    $
    279
    
    
    $
    178
 (1)
    
    The commitment available under each of the revolving bank credit facilities is
subject to collateral requirements and covenant restrictions as described below or in
our Annual Report on Form 10-K for the year ended December 31, 2007, filed on April 14,
2008, and is reduced by outstanding letters of credit of $69 million for the U.S.
credit facility and $32 million for the Canadian credit facility, while commitment fees
for unused portions are 50 and 25 basis points, respectively.(2)
    
    Borrowings under the bank credit facilities incur interest based, at our option, on
specified market interest rates plus a margin.
 Bowaters U.S. credit agreement is guaranteed by certain of our wholly-owned subsidiaries in the
United States, and is secured by (i) liens on the inventory, accounts receivable and deposit
accounts of Bowater and the guarantors (ii) pledges of 65% of the stock of certain of our
foreign subsidiaries, and (iii) pledges of the stock of our U.S. subsidiaries that do not own
mills or converting facilities. Availability under the U.S. credit facility is limited to 75%
of the net consolidated book value of our accounts receivable and inventory, excluding Bowater
Canadian Forest Products Inc. (BCFPI) and its subsidiaries.Bowaters Canadian credit agreement is secured by liens on the inventory, accounts receivable
and deposit accounts of BCFPI. Availability under the Canadian credit facility is limited to
60% of the net book value of the accounts receivable and inventory of BCFPI and its
subsidiaries. We believe that this credit agreement will be extended or a similar agreement
entered into given the fact that the agreement is secured by liens on the inventory, accounts
receivable and deposit accounts of BCFPI.Amendments to Bank Credit FacilitiesFor a discussion of our U.S. credit facility, our Canadian credit facility, as well as certain
amendments to our bank credit facilities entered into on November 2, 2007, February 25, 2008 and
March 31, 2008, reference is made to our Annual Report on Form 10-K for the year ended December
31, 2007, filed on April 14, 2008.
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BOWATER INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
 On April 30, 2008, we entered into further amendments to our U.S. credit facility and Canadian
credit facility which principally extend the dates for (1) granting the lenders first-ranking
mortgages on the Coosa Pines and Grenada mill assets from April 30, 2008 to May 15, 2008, and
(2) delivering other related documentation to the lenders from April 30, 2008 to various dates
between May 22, 2008 and June 30, 2008. We fully anticipate meeting these commitments.Our U.S. credit facility permits us to send distributions to
AbitibiBowater Inc. (AbitibiBowater) to service interest
on its convertible debt provided that no default exists under this facility at the time of such
payment and we are in pro forma compliance with this facilitys financial covenants at the time
of such payment. The lenders under our credit facilities have implemented a more traditional,
more restrictive borrowing base, using more extensive eligibility criteria and imposing
additional reporting obligations on us. We are not obligated to comply with the additional
reporting requirements or the more restrictive borrowing base requirements until November 15,
2008.In addition to the limitations discussed above, we may make dividends and distributions to
AbitibiBowater sufficient to pay (1) taxes attributable to us and our subsidiaries, (2) up to
$75 million in aggregate annual dividends to the holders of common stock and exchangeable
shares, and (3) up to $10 million more than 50% of certain AbitibiBowaters annual overhead
expenses, such as accounting and auditing costs, director fees, director and officer insurance
premiums, franchise taxes, transfer agent fees, and legal and other expenses connected to
AbitibiBowaters status as a public company. Overhead expenses do not include management fees,
salaries, bonuses, or debt service.We may also, from time to time, subject to any applicable restrictions contained in any
indebtedness documents, enter into transactions with related parties, including AbitibiBowater
for management and other services (such as IT, environmental, human resources and legal
services) and inter-company advances, loans and investments, intercompany product sales and
purchases.Considering the amendments to our U.S. credit facility and Canadian credit facility, we expect
to be in compliance through March 31, 2009.4.
    
    Accumulated Other Comprehensive LossThe components of Accumulated other comprehensive loss in the Condensed Consolidated Balance
Sheets are as follows:
 March 31,
    
    December 31,(Unaudited, in millions)
    
    2008
    
    2007Unamortized prior service costs (1)
    
    $
    1
    
    
    $
    Unamortized actuarial losses (2)
    
    
    (148
    )
    
    
    (135
    )Foreign currency translation (3)
    
    
    19
    
    
    
    19Unrecognized loss on hedging transactions (4)
    
    
    (2
    )
    
    
    (2
    )$
    (130
    )
    
    $
    (118
    )
 (1)
    
    Net of deferred tax provision of $14 million at March 31, 2008 and $13 million at
December 31, 2007. Net of minority interest of $2 million as of March 31, 2008 and
December 31, 2007.(2)
    
    Net of deferred tax benefit of $69 million and $67 million at March 31, 2008 and
December 31, 2007, respectively.(3)
    
    No tax effect is recorded for foreign currency translation since the foreign net assets
translated are deemed indefinitely invested.(4)
    
    Net of deferred tax benefit of $1 million as of March 31, 2008 and December 31, 2007.
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BOWATER INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
 Our comprehensive loss, which includes our net loss and the changes in our accumulated other
comprehensive loss, is $84 million for the three months ended March 31, 2008 and $31 million for
the three months ended March 31, 2007.5.
    
    Pension and Other Postretirement ExpenseThe components of net periodic benefit costs relating to our pension and other postretirement
benefit plans (OPEB plans) are as follows for the three months ended March 31, 2008 and 2007:
 Pension Plans
    
    
    Other Postretirement PlansThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,(Unaudited, in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Components of net periodic benefit cost:Service cost
    
    $
    6
    
    
    $
    9
    
    
    $
    
    
    
    $
    Interest cost
    
    
    35
    
    
    
    30
    
    
    
    3
    
    
    
    3Expected return on plan assets
    
    
    (40
    )
    
    
    (32
    )
    
    
    
    
    
    
    Amortization of prior service cost (credit)
    
    
    1
    
    
    
    1
    
    
    
    (3
    )
    
    
    (3
    )Recognized net actuarial loss
    
    
    2
    
    
    
    7
    
    
    
    2
    
    
    
    2Curtailments and settlements
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (3
    )Net periodic benefit cost (credit)
    
    $
    4
    
    
    $
    20
    
    
    $
    2
    
    
    $
    (1
    )
 Events Impacting Net Periodic Benefit Cost for the Three Months Ended March 31, 2007In December 2006, certain employees received lump-sum payouts from two of our retirement
pension plans. Accordingly, we recorded settlement losses of $5 million in the first
quarter of 2007.In October 2006, we approved changes to our OPEB plan for our U.S. salaried employees.
Benefits for employees were either eliminated or reduced depending on whether the employee
met certain age and years of service criteria. As a result, we recorded a curtailment gain
of $3 million in the first quarter of 2007.6.
    
    Commitments and ContingenciesWe are 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.
Although the final outcome of any of these matters is subject to many variables and cannot be
predicted with any degree of certainty, we establish reserves for a matter when we believe an
adverse outcome is probable and the amount can be reasonably estimated. We believe that the
ultimate disposition of these matters will not have a material adverse effect on our financial
condition, but it could have a material adverse effect on the results of operations in a given
quarter or the year.On June 18, 2007, The Levin Group, L.P. filed a complaint against Bowater in the Supreme Court
of New York, New York County, asserting claims for breach of contract and related claims
relating to certain advisory services purported to have been provided by the plaintiff in
connection with the combination of Bowater and Abitibi-Consolidated Inc. to form AbitibiBowater
Inc. This complaint was dismissed and the matter is now before the Court of Common Pleas in
Greenville County, South Carolina, where the parties are currently involved in the initial
stages of the litigation, including discovery and the maintaining of various procedural motions.
The Levin Group seeks damages of no less than $70 million, related costs and such other relief
as the court deems just and proper. We believe this claim is entirely without merit and intend
to continue to contest this matter vigorously.
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BOWATER INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
 Since late 2001, Bowater, several other paper companies, and numerous other companies have been
named as defendants in asbestos personal injury actions. These actions generally allege
occupational exposure to numerous products. We have denied the allegations and no specific
product of ours has been identified by the plaintiffs in any of the actions as having caused or
contributed to any individual plaintiffs alleged asbestos-related injury. These suits have been
filed by approximately 1,800 claimants who sought monetary damages in civil actions pending in
state courts in Delaware, Georgia, Illinois, Mississippi, Missouri, New York, Tennessee, and
Texas. Approximately 1,000 of these claims have been dismissed, either voluntarily or by summary
judgment, and approximately 800 claims remain. Insurers are defending these claims and we
believe that all of these asbestos-related claims are covered by insurance, subject to any
applicable deductibles and our insurers rights to dispute coverage. While it is not possible
to predict with certainty the outcome of these matters, we do not expect these claims to have a
material adverse impact on our business, financial position or results of operations.There have been no other material developments to the legal proceedings described in our Annual
Report on Form 10-K for the year ended December 31, 2007, filed on April 14, 2008.7.
    
    Off-Balance Sheet Debt GuaranteesIn connection with Bowaters 1999 land sale and note monetization, we guarantee 25% of the
outstanding investor notes principal balance of Timber Note Holdings LLC, one of our Qualified
Special Purpose Entities (QSPEs). Bowater guarantees approximately $6 million of the investor
notes principal balance at March 31, 2008. This guarantee is proportionately reduced by annual
principal repayments on the investor notes (annual minimum repayments of $2.0 million) through
2008. The remaining investor notes principal amount is to be repaid in 2009. Timber Note
Holdings LLC has assets of approximately $29 million and obligations of approximately $25
million, which include the investor notes. Bowater would be required to perform on the guarantee
if the QSPE were to default on the investor notes or if there were a default on the notes
receivable, neither of which has ever occurred.On April 1, 2008, AbitibiBowater consummated the sale of a private placement of $350 million of
8% convertible notes due 2013 (Convertible Notes) to Fairfax Financial Holdings Limited
(Fairfax) and certain of its designated subsidiaries. The Convertible Notes bear interest at
a rate of 8% per annum (10% per annum if payment of interest is made through the issuance of
additional convertible notes as pay in kind). We provided a full and unconditional guarantee
of the payment of principal and interest, and premium, if any, on the debentures. Our guarantee
ranks equally in right of payment with all of our existing and future senior indebtedness. On
April 15, 2008, Fairfax exercised its right to appoint two directors to the Board of
AbitibiBowater, pursuant to the terms of the purchase agreement.8.
    
    Segment InformationWe manage our business based on the products that we manufacture and sell to external customers.
Our reportable segments are newsprint, coated papers, specialty papers, market pulp and lumber.None of the income or loss items following Operating
(loss) income in our Condensed Consolidated
Statements of Operations are allocated to our segments, since those items are reviewed
separately by management. For the same reason, impairments, employee termination costs, gains
on dispositions of assets and other discretionary charges or credits are not allocated to the
segments. Share-based compensation expense is, however, allocated to our segments. We also
allocate depreciation expense to our segments, although the related fixed assets are not
allocated to segment assets.
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BOWATER INCORPORATED
Notes to Condensed Consolidated Financial Statements (Unaudited)
 The following tables summarize information about segment profit and loss for the three months
ended March 31, 2008 and 2007:
 Coated
    
    
    Specialty
    
    
    Market
    
    
    
    
    
    
    Corporate
    
    
    Consolidated(Unaudited, in millions)
    
    Newsprint
    
    
    Papers
    
    
    Papers
    
    
    Pulp
    
    
    Lumber
    
    

and
Other(1)
    
    
    TotalSalesFirst Quarter      2008
    
    $
    303
    
    
    $
    169
    
    
    $
    154
    
    
    $
    151
    
    
    $
    49
    
    
    $
    
    
    
    $
    826First Quarter      2007
    
    
    303
    
    
    
    129
    
    
    
    141
    
    
    
    133
    
    
    
    63
    
    
    
    3
    
    
    
    772Operating (loss) incomeFirst Quarter      2008
    
    $
    (24
    )
    
    $
    34
    
    
    $
    
    
    
    $
    30
    
    
    $
    (18
    )
    
    $
    (25
    )
    
    $
    (3
    )First Quarter      2007
    
    
    (4
    )
    
    
    9
    
    
    
    (9
    )
    
    
    19
    
    
    
    (14
    )
    
    
    24
    
    
    
    25
 (1)
    
    Corporate and Other operating (loss) income includes a net gain from
disposition of assets of $23 million and $58 million for the three months ended
March 31, 2008 and 2007, respectively, and employee termination, closure and other
related costs of $13 million for the three months ended March 31, 2008
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BOWATER INCORPORATED
 
 FORWARD-LOOKING STATEMENTS
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Business Strategy and Outlook
  10




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BOWATER INCORPORATED



    
    North American newsprint consumption continues to decline, however, business
fundamentals have improved. Given the context and AbitibiBowaters continued dialogue with
stakeholders at several manufacturing sites, additional production closure decisions have
not been taken. AbitibiBowater will continue to evaluate further action as the year
progresses.
    
    AbitibiBowater will focus on the largest components of its combined business: newsprint,
coated papers and specialty papers.
    
    AbitibiBowater will grow its international presence in newsprint, increasing its export
shipments in 2008 by about 10%.
    
    AbitibiBowater restarted a specialty machine at our Dolbeau, Quebec facility in
February, to significantly improve the sites cost structure.
    
    Nearly 50% of AbitibiBowaters lumber production will be idled and certain lumber
operations in Eastern Canada will be consolidated.
    
    An increase in AbitibiBowaters targeted asset sales to $750 million, including the sale
of our Mokpo, South Korea paper mill, as well as additional sales including forest lands,
sawmills, hydroelectric sites and other assets.
    11




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BOWATER INCORPORATED
 Business and Financial Review
 Three Months EndedMarch 31,(Unaudited, in millions)
    
    2008
    
    
    2007
    
    
    ChangeSales
    
    $
    826
    
    
    $
    772
    
    
    $
    54Operating (loss) income
    
    
    (3
    )
    
    
    25
    
    
    
    (28
    )Net loss
    
    
    (82
    )
    
    
    (35
    )
    
    
    (47
    )
 Significant items that improved (lowered) operating (loss) income:Product pricing
    
    
    51Shipment volume
    
    
    3Change in sales
    
    
    54Change in
total manufacturing costs and depreciation, amortization, and cost of
timber harvested
    
    
    (33
    )Change in distribution costs
    
    
    (8
    )Change in selling and administrative expenses
    
    
    2Closure costs and related charges
    
    
    (8
    )Change in net gain on disposition of assets
    
    
    (35
    )Change in operating (loss) income
    
    
    (28
    )Other significant items that improved (lowered) net loss:Change in interest expense
    
    
    (4
    )Change in equity in loss of Abitibi
    
    
    (35
    )Change in other income (expense)
    
    
    14Change in income tax provision
    
    
    (3
    )Change in minority interests, net of tax
    
    
    9Change in net loss
    
    $
    (47
    )
 Three months ended March 31, 2008 versus March 31, 2007
 
 Sales
  Operating (loss) income
  Manufacturing Costs
  12




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##### Table of Contents



BOWATER INCORPORATED
 Distribution costs
  Net gain on disposition of assets
  Net loss
       
 Item 4T. Controls and Procedures.
 (a)
    
    Evaluation of Disclosure Controls and Procedures:
  (b)
    
    Changes in Internal Control over Financial Reporting:
  13




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##### Table of Contents



BOWATER INCORPORATED
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
     
 Item 1A. Risk Factors.
  14




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##### Table of Contents



BOWATER INCORPORATED
 
 Item 6. Exhibits.
  Exhibit No.
    
    Description10.1
    
    Fifth Amendment, dated as of April 30, 2008, to the Credit Agreement dated as of May 31, 2006
by and among Bowater Incorporated, certain subsidiaries of Bowater party thereto,
AbitibiBowater Inc., the Lenders and the Canadian Lenders party thereto and Wachovia Bank,
National Association, as administrative agent for the Lenders party thereto.10.2
    
    Fifth Amendment, dated as of April 30, 2008, to the Credit Agreement dated as of May 31, 2006
by and among Bowater Canadian Forest Products Inc., Bowater Incorporated, certain subsidiaries
and affiliates of Bowater party thereto, AbitibiBowater Inc., the Lenders and the U.S. Lenders
party thereto and The Bank of Nova Scotia, as administrative agent for the Lenders party
thereto.31.1
    
    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 15




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##### Table of Contents



BOWATER INCORPORATED
 
   BOWATER INCORPORATEDBy
    
    /s/ William G. HarveyWilliam G. Harvey
Director, Vice President and TreasurerBy
    
    /s/ Joseph B. JohnsonJoseph B. Johnson
Vice President and ControllerDated: May 15, 2008
 16




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##### Table of Contents



BOWATER
INCORPORATED AND SUBSIDIARIES
 INDEX TO EXHIBITS
 Exhibit No.
    
    Description10.1
    
    Fifth Amendment, dated as of April 30, 2008, to the Credit Agreement dated as of May 31, 2006
by and among Bowater Incorporated, certain subsidiaries of Bowater party thereto,
AbitibiBowater Inc., the Lenders and the Canadian Lenders party thereto and Wachovia Bank,
National Association, as administrative agent for the Lenders party thereto.10.2
    
    Fifth Amendment, dated as of April 30, 2008, to the Credit Agreement dated as of May 31, 2006
by and among Bowater Canadian Forest Products Inc., Bowater Incorporated, certain subsidiaries
and affiliates of Bowater party thereto, AbitibiBowater Inc., the Lenders and the U.S. Lenders
party thereto and The Bank of Nova Scotia, as administrative agent for the Lenders party
thereto.31.1
    
    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 17