<PAGE>
                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, 2002
                               ------------------

                                       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 of each of the issuer's classes of
common stock, as of November 1, 2002.

                    Class                    Outstanding at November 1, 2002
                    ------                   -------------------------------

         Common Stock, $1.00 Par Value             55,277,622 Shares


<PAGE>

                              BOWATER INCORPORATED

                                    I N D E X


                                                                           Page
                                                                          Number
                                                                          ------

PART I    FINANCIAL INFORMATION

          1.  Financial Statements:

                  Consolidated Balance Sheet at September 30, 2002,
                  and December 31, 2001                                       3

                  Consolidated Statement of Operations for the Three and
                  Nine Months Ended September 30, 2002, and
                  September 30, 2001                                          4

                  Consolidated Statement of Capital Accounts
                  for the Nine Months Ended September 30, 2002                5

                  Consolidated Statement of Cash Flows for the
                  Nine Months Ended September 30, 2002, and
                  September 30, 2001                                          6

                  Notes to Consolidated Financial Statements                7-14

          2.  Management's Discussion and Analysis of
              Financial Condition and Results of Operations                15-26

          3.  Quantitative and Qualitative Disclosures About Market Risk     26

          4.  Controls and Procedures                                        26

PART II   OTHER INFORMATION

          Item 1. Legal Proceedings                                          27

          Item 6. Exhibits and Reports on Form 8-K                           27


SIGNATURES                                                                   28






                                        2

<PAGE>

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


                                                     September 30,  December 31,
                                                         2002           2001
                                                     -------------  ------------

                         ASSETS
Current assets:
   Cash and cash equivalents                          $     26.7     $     28.3
   Accounts receivable, net                                342.2          367.0
   Inventories                                             255.5          250.5
   Other current assets                                     54.1           43.8
                                                     -------------  ------------
      Total current assets                                 678.5          689.6
                                                     -------------  ------------

   Timber and timberlands                                  197.7          227.7
   Fixed assets, net                                     3,677.0        3,818.4
   Goodwill                                                843.0          843.0
   Other assets                                            187.0          182.3
                                                     -------------  ------------
      Total assets                                    $  5,583.2     $  5,761.0
                                                     =============  ============

          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current installments of long-term debt             $     80.4     $     73.0
   Short-term bank debt                                    181.0          341.7
   Accounts payable and accrued liabilities                340.6          437.9
   Dividends payable                                        11.2           10.9
                                                     -------------  ------------
      Total current liabilities                            613.2          863.5
                                                     -------------  ------------

   Long-term debt, net of current installments           2,043.2        1,828.0
   Other long-term liabilities                             359.7          362.3
   Deferred income taxes                                   561.9          600.0
   Minority interests in subsidiaries                       76.0           85.2
   Commitments and contingencies                            --             --

Shareholders' equity:

   Common stock, $1 par value. Authorized
      100,000,000 shares; issued 66,869,388 and
      66,323,992 shares at September 30, 2002 and
      December 31, 2001, respectively                       66.9           66.3
   Exchangeable shares, no par value. Unlimited
      shares authorized; 1,667,542 and 2,008,588
      outstanding at September 30, 2002 and
      December 31, 2001, respectively                       79.5           96.0
   Additional paid-in capital                            1,594.5        1,569.9
   Retained earnings                                       727.8          837.8
   Accumulated other comprehensive income (loss)           (53.2)         (61.6)
   Treasury stock, at cost. 11,618,331 and
      11,619,812 shares at September 30, 2002 and
      December 31, 2001, respectively                     (486.3)        (486.4)
                                                     -------------  ------------
      Total shareholders' equity                         1,929.2        2,022.0
                                                     -------------  ------------
      Total liabilities and shareholders' equity      $  5,583.2     $  5,761.0
                                                     =============  ============



          See accompanying notes to consolidated financial statements


                                        3

<PAGE>

                      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,
                                                                  2002             2001            2002             2001
                                                              -------------    -------------   -------------   -------------

<S>                                                            <C>              <C>            <C>             <C>
Sales                                                            $643.8           $558.8         $1,914.8        $1,748.9
Cost of sales, excluding depreciation, amortization
   and cost of timber harvested                                   516.4            393.9          1,495.5         1,155.1
Depreciation, amortization and cost of timber harvested            84.4             77.0            256.8           228.6
Distribution costs                                                 61.2             38.9            168.4           120.1
Selling and administrative expense                                 23.3             31.1             99.2            77.1
Net gain on sale of assets                                          4.8              4.3             79.8            83.5
                                                              -------------    -------------   -------------   -------------
    Operating income (loss)                                       (36.7)            22.2            (25.3)          251.5

Other expense (income):
  Interest income                                                  (1.0)            (1.0)            (3.2)           (7.6)
  Interest expense, net of capitalized interest                    39.7             33.7            122.8           102.7
  Other, net                                                       (8.5)           (11.6)            (3.4)           (5.7)
                                                              -------------    -------------   -------------   -------------
                                                                   30.2             21.1            116.2            89.4
                                                              -------------    -------------   -------------   -------------

Income (loss) before income taxes and minority interests          (66.9)             1.1           (141.5)          162.1

Provision for income tax expense (benefit)                        (34.8)            (1.2)           (60.1)           69.2
Minority interests in net income (loss) of subsidiaries             0.2              4.1             (5.6)           38.4
                                                              -------------    -------------   -------------   -------------

Net income (loss)                                                 (32.3)            (1.8)           (75.8)           54.5

Other comprehensive income (loss), net of tax:
  Foreign currency translation adjustments                         (1.7)            (2.3)             1.2            (2.6)
  Unrealized gain (loss) on hedged transactions                   (17.7)           (14.0)             7.2           (15.0)
  Minimum pension liability adjustments                              --               --               --            (0.2)
                                                              -------------    -------------   -------------   -------------


Comprehensive income (loss)                                      $(51.7)          $(18.1)        $  (67.4)       $   36.7
                                                              =============    =============   =============   =============

Basic earnings (loss) per common share*                          $(0.57)          $(0.04)        $  (1.33)       $   1.05
                                                              =============    =============   =============   =============

Diluted earnings (loss) per common share*                        $(0.57)          $(0.04)        $  (1.33)       $   1.05
                                                              =============    =============   =============   =============
</TABLE>


* Basic and diluted earnings per share are based on net income and do not
include any impact from "Other comprehensive income (loss)." See Note 8.


          See accompanying notes to consolidated financial statements


                                        4

<PAGE>

                      BOWATER INCORPORATED AND SUBSIDIARIES
                   CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
         (UNAUDITED, IN MILLIONS OF US DOLLARS EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                                                 Additional                  Other
                                                           Common  Exchangeable   Paid-in     Retained   Comprehensive  Treasury
                                                           Stock      Shares      Capital     Earnings   Income (Loss)    Stock
                                                          -------  ------------  ----------  ----------  -------------  --------
<S>                                                       <C>      <C>           <C>         <C>         <C>            <C>
Balance at December 31, 2001                              $  66.3    $  96.0     $  1,569.9   $  837.8     $ (61.6)     $ (486.4)

Net loss                                                       --         --             --      (75.8)         --           --

Retraction of exchangeable shares (341,046 common
  shares issued and exchangeable shares retracted)            0.4      (16.5)          16.1         --          --           --

Dividends on common stock ($0.60 per share)                    --         --             --      (34.2)         --           --

Foreign currency translation                                   --         --             --         --         1.2           --

Stock options exercised (204,350 shares)                      0.2         --            6.6         --          --           --

Tax benefit on exercise of stock options                       --         --            1.4         --          --           --

Unrealized gain on hedged transactions, net of tax
   expense of $4.4 million                                     --         --             --         --         7.2           --

Stock option compensation                                      --         --            0.5         --          --           --

Treasury stock used for dividend reinvestment plans
  and to pay employee and director benefits
  (1,481 shares)                                               --         --             --         --          --          0.1
                                                          -------  ------------  ----------  ----------  -------------  --------

Balance at September 30, 2002                             $  66.9    $  79.5     $  1,594.5   $  727.8     $ (53.2)     $ (486.3)
                                                          =======  ============  ==========  ==========  =============  ========
</TABLE>

          See accompanying notes to consolidated financial statements


                                        5

<PAGE>

                      BOWATER INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                     (UNAUDITED, IN MILLIONS OF US DOLLARS)

                                                         Nine Months Ended
                                                   ----------------------------
                                                   September 30,  September 30,
                                                      2002            2001
                                                   -------------  -------------
CASH FLOWS FROM  OPERATING ACTIVITIES:
Net income (loss)                                    $  (75.8)      $    54.5
Adjustments to reconcile net income (loss) to
  net cash provided by operating activities:
  Depreciation, amortization and cost of
    timber harvested                                    256.8           228.6
  Deferred income taxes (benefit)                       (60.2)           34.4
  Minority interests in net income (loss) of
    subsidiaries                                         (5.6)           38.4
  Net gain on sale of assets                            (79.8)          (83.5)
  Payments on maturity of hedging contracts             (10.0)          (11.2)
Changes in working capital:
  Accounts receivable, net                               23.7            28.4
  Inventories                                            (5.0)            1.6
  Accounts payable and accrued liabilities              (42.9)          (58.1)
  Income taxes payable                                   40.0             1.6
Other, net                                                0.5            (8.8)
                                                   -------------  -------------
          Net cash from operating activities             41.7           225.9
                                                   -------------  -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions, net of cash acquired                --          (251.0)
Cash invested in fixed assets, timber and
  timberlands                                          (190.2)         (173.0)
Disposition of assets, including timber and
  timberlands                                            24.7             5.6
Proceeds from the monetization of notes receivable       88.1           122.6
Cash invested in marketable securities                   (1.5)           (0.4)
Cash from maturity of marketable securities               3.2             0.4
                                                   -------------  -------------
          Net cash used for investing activities        (75.7)         (295.8)
                                                   -------------  -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends, including minority interests            (38.4)         (104.2)
Short-term financing                                    765.4         1,151.0
Short-term financing repayments                        (929.7)         (635.1)
Proceeds from (payments of) long-term debt              228.3          (346.9)
Stock options exercised                                   6.8             0.9
                                                   -------------  -------------
          Net cash from financing activities             32.4            65.7
                                                   -------------  -------------

Net decrease in cash and cash equivalents                (1.6)           (4.2)
Cash and cash equivalents at beginning of year           28.3            20.0
                                                   -------------  -------------
Cash and cash equivalents at end of period           $   26.7       $    15.8
                                                   =============  =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
  Interest, including capitalized interest of
    $5.8 and $7.1                                    $  109.0       $   114.5
  Income taxes                                       $   23.0       $    14.7



          See accompanying notes to consolidated financial statements


                                        6



<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED


1.   BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts of
     Bowater Incorporated and Subsidiaries as of September 30, 2002. The
     consolidated statement of operations for the three-month and nine-month
     periods ended September 30, 2001, includes the impact of the acquisition of
     Alliance Forest Products Inc. (Alliance) since September 24, 2001. The
     consolidated balance sheet as of September 30, 2002, and the related
     statements of operations, capital accounts and cash flows for the
     three-month and nine-month periods ended September 30, 2002 and 2001 are
     unaudited. In our opinion, all adjustments (consisting of normal recurring
     adjustments) necessary for fair presentation of the interim financial
     statements have been made. The results of the interim period ended
     September 30, 2002, are not necessarily indicative of the results to be
     expected for the full year. These financial statements should be read in
     conjunction with the consolidated financial statements, critical accounting
     policies, significant accounting policies and the notes to the consolidated
     financial statements included in our most recent Annual Report on Form
     10-K/A. Certain prior year amounts in the financial statements and the
     notes have been reclassified to conform to the 2002 presentation.

2.   BUSINESS ACQUISITIONS

     Bowater's acquisition of Alliance was completed on September 24, 2001. The
     acquisition was accounted for using the purchase method of accounting in
     accordance with Statement of Financial Accounting Standard No. 141,
     "Business Combinations," whereby the total cost of the acquisition has been
     allocated to the tangible and intangible assets acquired and liabilities
     assumed based upon their respective fair values at the effective date of
     the acquisition, September 24, 2001. The excess of the estimated fair value
     of the net assets purchased over the purchase price was approximately $118
     million and was allocated to reduce the fair value of long lived assets.
     Independent appraisals and actuarial valuations were performed in
     connection with the acquisition. The following table summarizes the
     purchase price allocation based on fair values of the assets acquired and
     liabilities assumed.


-------------------------------------------------------------------------------
(Unaudited, in millions)                                    September 24, 2001
-------------------------------------------------------------------------------

Purchase price to shareholders                                    $   485.9
Transaction costs                                                      13.4
Payments to Alliance for settlement of stock options                    8.1
-------------------------------------------------------------------------------
     Total purchase price                                         $   507.4
===============================================================================

Current assets                                                    $   241.0
Fixed assets, net                                                     850.6
Other assets                                                           11.5
-------------------------------------------------------------------------------
     Total assets acquired                                        $ 1,103.1

Current liabilities                                               $   238.2
Long-term debt                                                        198.4
Other long-term liabilities                                           159.1
-------------------------------------------------------------------------------
     Total liabilities assumed                                    $   595.7

-------------------------------------------------------------------------------
Net assets acquired                                               $   507.4
===============================================================================

     In connection with the Alliance acquisition, Bowater recorded employee
     termination costs of approximately $20.6 million, which included
     approximately $16.9 million in connection with the permanent closing of a
     newsprint machine and other assets at the Coosa Pines, Alabama, facility.
     Of the $20.6 million, approximately $1.4 million was paid during the fourth
     quarter of 2001 and $15.6 million paid during the first nine months of
     2002. The remaining accrual at September 30, 2002, of $3.6 million is
     expected to be paid during the remainder of 2002 and the first half of
     2003, and is included in "Accounts payable and accrued liabilities" in the
     Consolidated Balance Sheet.

                                        7
<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED


3.   NET GAIN ON SALE OF ASSETS

     In January 2002, we completed the sale of approximately 116,000 acres of
     timberland for aggregate consideration of $104.2 million. We received $5.1
     million in cash after expenses and $99.1 million in notes receivable. In
     March 2002, we monetized the notes receivable of $99.1 million for net cash
     proceeds of $88.1 million. These transactions resulted in a net pre-tax
     gain of $70.4 million.

     o    The notes receivable were monetized through a bankruptcy-remote
          limited liability company. The bankruptcy-remote subsidiary is a
          qualified special purpose entity (QSPE) under Statement of Financial
          Accounting Standards (SFAS) No. 140 and is not consolidated in our
          financial statements.

     o    This QSPE has issued fixed rate senior secured notes totaling $89.2
          million, which are secured by the notes receivable held by the QSPE.
          The value of these senior secured notes is equal to approximately 90%
          of the value of the notes receivable. The full principal amount of the
          notes receivable is backed by a letter of credit issued by a third
          party financial institution.

     o    We retain an interest in the excess future cash flows of the QSPE
          (cash received from notes receivable versus cash paid out on the
          senior secured notes). Bowater retained an interest in the QSPE of
          $7.1 million. The principal variable in determining the fair value of
          future expected excess cash flows of the retained interest is the
          discount rate, as it consists of a note with a low level of credit
          risk, contractually due in 15 years and not subject to prepayment. The
          discount rate used for the note is 6.91%.

     o    We recorded a $3.9 million loss on the monetization of the notes
          receivable, which was based on the difference in the original carrying
          amount of the notes (allocated between the asset monetized and the
          retained interest) and the fair value at the date of the monetization.

     Also in the first nine months of 2002, we sold approximately 8,000 acres of
     other timberlands and recorded a net pre-tax gain of $9.4 million, which
     includes the third quarter of 2002 net pre-tax gain on the sale of assets
     of $4.8 million, or $0.05 per diluted share after tax.

     In the second quarter of 2001, we monetized the notes receivable in
     connection with a 1999 land sale and recognized a net pre-tax gain of $84.5
     million. In 1999, Calhoun Newsprint Company (CNC), a majority-owned
     subsidiary of Bowater, sold approximately 140,000 acres of timberlands in
     North Carolina and South Carolina for proceeds of $173.2 million (before
     expenses of $1.1 million). CNC received $26.2 million in cash and $145.9
     million consisting of two notes receivable. We recorded the transaction as
     an installment sale, and as of December 31, 1999, recorded a net pre-tax
     gain of $17.4 million and had remaining deferred pre-tax gains of
     approximately $95.0 million. CNC monetized the $145.9 million notes
     receivable through a bankruptcy-remote limited liability company, which is
     a QSPE under SFAS No. 140, for net cash proceeds of $122.6 million, met the
     requirements for full accrual and recorded a net pre-tax gain of $84.5
     million. The $84.5 million net pre-tax gain consisted of the deferred
     pre-tax gain on the 1999 timberland sale of $95.0 million offset by a loss
     on the 2001 monetization of the notes receivable of $10.5 million. CNC
     retained an interest in the QSPE of $12.5 million. As a result of the
     monetization, a dividend of $60.1 million was paid to the minority
     shareholder of CNC during the second quarter of 2001.

     Also in the first nine months of 2001, Bowater sold approximately 7,200
     acres of other timberlands and recorded a net pre-tax gain of $4.8 million,
     which includes the third quarter of 2001 net pre-tax gain on the sale of
     assets of $4.3 million, or $0.05 per diluted share after tax. In April
     2001, Bowater reached a final settlement of certain matters regarding the
     sale of Great Northern Paper Inc. (GNP) to Inexcon Maine, Inc. (Inexcon).
     As a result, we recognized a $5.8 million pre-tax charge, or $0.07 per
     diluted share after tax.

4.   DIVIDENDS TO MINORITY INTEREST SHAREHOLDER

     During the first nine months of 2002, the Board of Directors of CNC
     declared dividends of $8.9 million. As a result, $4.4 million was paid to
     the minority shareholder of CNC. During the first nine months of 2001, the
     Board of Directors of CNC declared dividends of $149.2 million. As a
     result, $73.1 million was paid to the minority shareholder.

                                        8

<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED


5.   COMMITMENTS AND CONTINGENCIES

     a)   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.

     b)   Bowater, several other paper companies, and 120 other companies have
          been named as defendants in asbestos personal injury actions based on
          product liability claims. These actions generally allege occupational
          exposure to numerous products. Bowater has denied the allegations and
          no specific product of Bowater 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 710 claimants who sought
          monetary damages in civil actions pending in state courts in Illinois,
          Mississippi, Missouri, New York and Texas. Approximately 140 of these
          actions have been dismissed already, either voluntarily or by summary
          judgment. 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, based upon the advice of special counsel, at this time
          we do not expect these claims to have a material adverse impact on
          Bowater's business, financial position or results of operations.

     c)   On December 28, 2001, we filed a lawsuit against the Tennessee Valley
          Authority (TVA) alleging that TVA overcharged us for electricity it
          supplied to our Calhoun, Tennessee and Grenada, Mississippi
          facilities. We are seeking approximately $35 million in damages and
          TVA has not filed any counterclaims. The case is still in the
          discovery stage and trial is scheduled for July 2003 in federal court
          in Knoxville, Tennessee.

6.   OTHER (INCOME) EXPENSE

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

--------------------------------------------------------------------------------
                                    THREE MONTHS ENDED         NINE MONTHS ENDED
                                       SEPTEMBER 30,             SEPTEMBER 30,
(Unaudited, in millions)             2002         2001         2002         2001
================================================================================
Foreign exchange (gain) loss      $ (8.9)      $ (9.2)      $ (5.4)      $ (2.6)
(Income) loss from joint venture     1.0         (1.4)         2.9         (2.4)
Miscellaneous (income) expense      (0.6)        (1.0)        (0.9)        (0.7)
--------------------------------------------------------------------------------
                                  $ (8.5)     $ (11.6)      $ (3.4)      $ (5.7)
================================================================================


7.   GOODWILL

     Bowater adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on
     January 1, 2002. Under SFAS No. 142, goodwill and intangible assets with
     indefinite useful lives will no longer be amortized but will be tested for
     impairment at least on an annual basis in accordance with the provisions of
     SFAS No. 142. As of September 30, 2002, we had unamortized goodwill in the
     amount of $843.0 million and no intangible assets with indefinite useful
     lives. For segment reporting purposes, goodwill of $540.0 million and
     $303.0 million is included in the Newsprint Division and the Canadian
     Forest Products Division reportable segments, respectively and includes
     five pulp and paper mills.

     During the second quarter of 2002, Bowater completed the transitional
     goodwill impairment test prescribed in SFAS No. 142 with respect to
     existing goodwill. The transitional goodwill impairment test involved a
     comparison of the fair value of each of our reporting units, as defined
     under SFAS No. 142, with its carrying amount. Fair value was determined
     based on a valuation study performed by an independent third party. In
     making its recommendation of fair value, the independent valuation firm
     relied primarily on the discounted cash flow method. This method uses
     future projections of cash flows from each of the reporting units and
     includes, among other


                                        9
<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED



     estimates, projection of future product pricing, product costs, capital
     spending and an assumption of our weighted average cost of capital. Changes
     in any of these estimates could have a material effect on the fair value of
     these assets in future measurement periods. On an ongoing basis, we expect
     to perform our impairment tests during the fourth quarter of each year.

     As a result of the transitional impairment tests performed as of January 1,
     2002, there was no indicator of goodwill impairment; however, the amount by
     which fair value exceeded book value for certain of the reporting units was
     not significant. Therefore, in future measurements of fair value, adverse
     changes in discounted cash flow assumptions could result in an impairment
     of goodwill that would require a non-cash charge to the statement of
     operations and may have a material effect on the financial condition and
     operating results of the company.

     The reconciliation of net income (loss) and earnings (loss) per share,
     adjusted to exclude goodwill amortization expense, net of tax, is as
     follows:
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------
                                                        THREE MONTHS ENDED         NINE MONTHS ENDED
                                                           SEPTEMBER 30,             SEPTEMBER 30,
(Unaudited, in millions, except per-share amounts)       2002         2001         2002         2001
=========================================================================================================
<S>                                                       <C>           <C>         <C>           <C>
Net income (loss):
       Reported net income (loss)                         $ (32.3)      $ (1.8)     $ (75.8)      $ 54.5
       Goodwill amortization, net of tax                        -          5.9            -         17.9
---------------------------------------------------------------------------------------------------------
Adjusted net income (loss)                                $ (32.3)      $  4.1      $ (75.8)      $ 72.4
=========================================================================================================
Basic earnings (loss) per common share:
       Reported basic earnings (loss) per common share    $ (0.57)      $(0.04)     $ (1.33)      $ 1.05
       Goodwill amortization, net of tax                        -         0.11            -         0.34
---------------------------------------------------------------------------------------------------------
Adjusted basic earnings (loss) per common share           $ (0.57)      $ 0.07      $ (1.33)      $ 1.39
=========================================================================================================
Diluted earnings (loss) per common share:
       Reported diluted earnings (loss) per common share  $ (0.57)      $(0.04)     $ (1.33)      $ 1.05
       Goodwill amortization, net of tax                        -         0.11            -         0.34
---------------------------------------------------------------------------------------------------------
Adjusted diluted earnings (loss) per common share         $ (0.57)      $ 0.07      $ (1.33)      $ 1.39
=========================================================================================================
</TABLE>


8.   EARNINGS PER SHARE

     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,
(Unaudited, in millions, except per-share amounts)        2002         2001      2002         2001
====================================================================================================
<S>                                                     <C>           <C>      <C>           <C>
Basic Computation:
Basic income (loss) available to common shareholders    $ (32.3)      $ (1.8)  $ (75.8)      $ 54.5
----------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding                  56.9         52.0      56.9         51.7
----------------------------------------------------------------------------------------------------
Basic earnings (loss) per common share                  $ (0.57)      $(0.04)  $ (1.33)      $ 1.05
====================================================================================================
Diluted Computation:
Diluted income (loss) available to common shareholders  $ (32.3)      $ (1.8)  $ (75.8)      $ 54.5
----------------------------------------------------------------------------------------------------
Basic weighted average shares outstanding                  56.9         52.0      56.9         51.7
Effect of dilutive securities:
     Options                                                  -            -         -          0.4
----------------------------------------------------------------------------------------------------
Diluted weighted average shares outstanding                56.9         52.0      56.9         52.1
----------------------------------------------------------------------------------------------------
Diluted earnings (loss) per common share                $ (0.57)      $(0.04)  $ (1.33)      $ 1.05
====================================================================================================
</TABLE>


     The dilutive effect of options outstanding is computed using the treasury
     stock method. Options for approximately 0.2 and 0.3 million shares were
     outstanding for the three months and nine months ended September 30, 2002,
     respectively, but were excluded from the calculation of diluted earnings
     per share as the impact would have been antidilutive.



                                       10
<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED



9.   FINANCIAL INSTRUMENTS

     Bowater utilizes certain derivative instruments to enhance its ability to
     manage risk relating to cash flow exposure. Derivative instruments are
     entered into for periods consistent with related underlying cash flow
     exposures and do not constitute positions independent of those positions.

     We do not enter into contracts for speculative purposes; however, we do
     have currency option contracts that are not accounted for as accounting
     hedges.

     A significant portion of our operating expenses is paid in Canadian dollars
     at our Canadian sites. To reduce our exposure to differences in the United
     States and Canadian dollar exchange rate fluctuations, we enter into and
     designate Canadian dollar forward contracts to hedge our forecasted
     Canadian dollar cash outflows at the majority of our Canadian operations.
     On the date into which the derivative contract is entered, we designate the
     derivative as a cash flow hedge.

     During the first nine months of 2002, we recorded a net change in fair
     value related to cash flow hedges amounting to a gain of $2.6 million ($1.6
     million, after tax) in "Accumulated other comprehensive income (loss)." We
     also reclassified a loss of $9.0 million ($5.6 million, after tax) from
     "Accumulated other comprehensive income (loss)" to earnings, which was
     offset by net gains on the items being hedged. We expect to reclassify a
     $9.9 million loss ($6.1 million, after-tax) from "Accumulated other
     comprehensive income (loss)" to earnings during the next 12 months as the
     hedged items affect earnings.

     We formally document all relationships between hedging instruments and
     hedged items, as well as our risk-management objectives and strategies for
     undertaking various hedge transactions. We link all hedges that are
     designated as cash flow hedges to forecasted transactions. The maximum time
     period we have hedged transactions is two years. We also assess, both at
     the inception of the hedge and on an ongoing basis, whether the derivatives
     that are used in hedging transactions are highly effective in offsetting
     changes in cash flows of hedged items. When it is determined that a
     derivative is not highly effective as a hedge, we discontinue hedge
     accounting prospectively.

     Information regarding our Canadian dollar contracts' notional amount,
     carrying value, fair market value and range of exchange rates of the
     contracts is summarized in the table below. The notional amount of these
     contracts represents the amount of foreign currencies to be purchased or
     sold at maturity and does not represent our exposure on these contracts.

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------
                                                        NET (ASSET) LIABILITY
                                                        ---------------------   RANGE OF
                                             NOTIONAL                FAIR      U.S.$/CDN$
                                             AMOUNT OF   CARRYING   MARKET      EXCHANGE
SEPTEMBER 30, 2002 (Unaudited, in millions) DERIVATIVES   AMOUNT    VALUE        RATES
==========================================================================================
<S>                                        <C>            <C>      <C>        <C>
Foreign Currency Exchange Agreements
Buy Currency:
    Canadian dollar
          Due in 2002                      $  98.3        $  2.9   $  2.9     .6645-.6266
          Due in 2003                        365.6           6.2      6.2     .6560-.6200
          Due in 2004                        260.5           3.5      3.5     .6448-.6163
------------------------------------------------------------------------------------------
                                           $ 724.4        $ 12.6   $ 12.6
==========================================================================================
</TABLE>


     Approximately $79.2 million of our long-term debt is denominated in
     Canadian dollars. In order to reduce our exposure to exchange rate
     fluctuations, we enter into Canadian dollar forward contracts with notional
     amounts of approximately $100 million. These economic hedge contracts are
     marked to market through earnings. The contracts are settled quarterly, and
     gains or losses are included in "Other, net" in our Consolidated Statement
     of Operations. During the first nine months of 2002, we recorded gains of
     approximately $1.6 million in our Consolidated Statement of Operations as a
     result of these economic hedges. At September 30, 2002, our outstanding
     Canadian dollar forward contracts had notional amounts of $100 million and
     are due December 30, 2002. The fair value (liability) of these Canadian
     dollar forward contracts was $0.1 million at September 30, 2002.


                                       11
<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED



     Additionally, Alliance had Canadian dollar range forward contracts in place
     to reduce the exposure to differences in the United States and Canadian
     dollar exchange rate, as the majority of Alliance's sales were sold into
     the United States and denominated in United States dollars. These Canadian
     dollar range forward contracts are not accounted for as accounting hedges
     under SFAS No. 133. Changes in the derivatives fair values are immediately
     recognized in earnings and included in "Other, net" in our Consolidated
     Statement of Operations. At September 30, 2002, these Canadian dollar range
     forward contracts had notional amounts due in 2002 and 2003 of $34.0
     million and $124.0 million, respectively. We recorded a gain of
     approximately $0.2 million for the nine months ended September 30, 2002, as
     a result of these Canadian dollar range forward contracts. As these
     contracts expire, we are not replacing them. The fair market value
     (liability) of the Canadian dollar range forward contracts was $0.6 million
     at September 30, 2002.

     The counterparties to our derivative financial instruments are substantial
     and creditworthy multi-national financial institutions. Therefore, the risk
     of counterparty nonperformance is considered to be remote.

10.  CREDIT ARRANGEMENTS

     In May 2002, Bowater closed on its new credit facilities, a $300 million
     three-year term loan and a $500 million three-year revolving credit
     facility. The new three-year term loan and revolving credit facility were
     used to refinance the previous $350 million five-year facility and the $450
     million, 364-day credit facility. The $300 million three-year term loan
     requires repayments of $60 million each in May 2003 and 2004 and $180
     million in May 2005. The $500 million revolving credit facility is due May
     2005. Borrowings under these credit facilities incur interest based on
     specified market interest rates (at our option) plus a margin tied to the
     credit rating of our long-term debt. At September 30, 2002, $111 million
     was outstanding under the $500 million revolving credit facility and $300
     million outstanding under the three-year term loan.

     Bowater also has a $100 million, 364-day credit facility of a wholly-owned
     subsidiary, Bowater Canadian Forest Products Inc. In October 2002, this
     credit facility was extended to October 2003 and includes the ability at
     our option to extend the maturity of the outstanding amounts to October
     2004. At September 30, 2002, $70 million was outstanding under the $100
     million 364-day credit facility.

     These credit facilities contain various covenants including requirements to
     maintain a minimum consolidated net worth of $1.6 billion (generally
     defined in the credit facilities as common shareholders' equity plus any
     outstanding preferred stock and increases at 50% of net income each quarter
     provided net income is positive) and imposes a maximum 60% ratio of total
     debt (defined in the credit facilities as total debt less revaluation of
     debt assumed through acquisitions) to total capital (defined in the credit
     facilities as total debt plus net worth and minority interest). At
     September 30, 2002 our net worth was $1.9 billion and our ratio of total
     debt ($2.2 billion) to total capital ($4.2 billion) was 52.4%. We expect
     to record a required additional minimum pension liability, which could
     result in a charge to equity of approximately $100 million in the fourth
     quarter of 2002 (see Pension and Other Nonpension Retirement Benefits
     discussion on page 16).

11.  SEGMENT INFORMATION

     On September 24, 2001, Bowater completed the purchase of Alliance. As a
     result of the acquisition, we have four reportable segments: the Newsprint
     Division, the Coated and Specialty Papers Division, the Forest Products
     Division and the Canadian Forest Products Division. Segment information for
     the three and nine months ended September 30, 2001, has been reclassified
     to reflect the change to four reportable segments. Alliance's operating
     results for the seven days ended September 30, 2001, are included in
     "Corporate / Other Eliminations" in the following tables.

     The Newsprint Division operates seven manufacturing sites, including
     Ponderay Newsprint Company, an unconsolidated partnership, in the United
     States, Canada and South Korea. The principal product at these
     manufacturing sites is newsprint, but several of the sites also produce
     market pulp and uncoated specialty papers. This division is responsible for
     the marketing and sales of newsprint and selected uncoated specialty
     papers.

     The Coated and Specialty Papers Division operates a manufacturing site that
     produces coated groundwood paper, newsprint, market pulp and uncoated
     specialty papers and two coating facilities, all located in the United
     States. This division is responsible for the marketing and sales of the
     full spectrum of coated and uncoated specialty papers manufactured by us.


                                       12
<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED


     The Forest Products Division manages 1.1 million acres of timberland owned
     or leased in the United States and the Canadian provinces of Ontario and
     Nova Scotia and over 8.3 million acres of Crown-owned land in the province
     of Ontario on which we have cutting rights. This division also operates
     three softwood sawmills and supplies wood fiber to our pulp and paper
     production sites and markets and sells lumber and timber in North America.

     The Canadian Forest Products Division operates four paper manufacturing
     sites in Canada. This division manages 0.4 million acres of owned or leased
     timberlands and over 24.4 million acres of Crown-owned land in the Canadian
     provinces of Quebec and New Brunswick on which we have cutting rights. This
     division also operates 10 sawmills and one wood treatment plant, supplies
     wood to four paper mills and 10 sawmills and is responsible for the
     marketing and sales of its timber and lumber production.

     The Pulp Division markets and distributes market pulp produced at the
     Calhoun, Tennessee; Catawba, South Carolina; Thunder Bay, Ontario; and
     Coosa Pines, Alabama sites. Financial results for the production and sale
     of market pulp are included in either the Newsprint Division or the Coated
     and Specialty Papers Division, depending upon which site manufactures the
     product. The Pulp Division's administrative expenses are included in
     "Corporate & other eliminations." Accordingly, no separate results are
     reported for this division.

     The following tables summarize information about segment profit and loss
     and segment assets for the three and nine months ended September 30, 2002
     and 2001:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------
                                               COATED AND            CANADIAN
THREE MONTHS ENDED                             SPECIALTY   FOREST     FOREST              CORPORATE/
SEPTEMBER 30, 2002                  NEWSPRINT   PAPERS    PRODUCTS   PRODUCTS   SPECIAL     OTHER
(Unaudited, in millions)            DIVISION   DIVISION   DIVISION   DIVISION    ITEMS   ELIMINATIONS  TOTAL
==============================================================================================================
<S>                                <C>          <C>        <C>       <C>        <C>      <C>          <C>
Sales - including internal sales   $   328.4    $ 118.7    $ 25.9   $  184.1    $  -     $    -      $  657.1
Elimination of intersegment sales          -          -         -          -       -      (13.3)        (13.3)
--------------------------------------------------------------------------------------------------------------
Sales - external customers             328.4      118.7      25.9      184.1       -      (13.3)        643.8
--------------------------------------------------------------------------------------------------------------
Segment income (loss)                  (23.4)     (10.1)     (2.4)       3.7     4.8       (9.3)        (36.7)
--------------------------------------------------------------------------------------------------------------
Total assets at 9/30/02            $ 3,147.1    $ 671.9    $249.8   $1,468.9    $  -     $ 45.5      $5,583.2
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------
                                               COATED AND            CANADIAN
THREE MONTHS ENDED                             SPECIALTY   FOREST     FOREST              CORPORATE/
SEPTEMBER 30, 2001                  NEWSPRINT   PAPERS    PRODUCTS   PRODUCTS   SPECIAL     OTHER
(Unaudited, in millions)            DIVISION   DIVISION   DIVISION   DIVISION    ITEMS   ELIMINATIONS  TOTAL
===============================================================================================================
<S>                                <C>         <C>        <C>        <C>        <C>      <C>          <C>
Sales - including internal sales   $   306.2    $ 131.4   $  21.2    $  101.9    $  -     $     -    $   560.7
Elimination of intersegment sales          -          -         -           -       -        (1.9)        (1.9)
---------------------------------------------------------------------------------------------------------------
Sales - external customers             306.2      131.4      21.2       101.9       -        (1.9)       558.8
---------------------------------------------------------------------------------------------------------------
Segment income (loss)                   14.0        3.0       1.9        18.8     4.3       (19.8)        22.2
---------------------------------------------------------------------------------------------------------------
Total assets at 9/30/01            $ 3,125.0    $ 634.1   $ 252.9    $1,474.1    $  -     $ 369.3    $ 5,855.4
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------
                                               COATED AND            CANADIAN
NINE MONTHS ENDED                              SPECIALTY   FOREST     FOREST              CORPORATE/
SEPTEMBER 30, 2002                  NEWSPRINT   PAPERS    PRODUCTS   PRODUCTS   SPECIAL     OTHER
(Unaudited, in millions)            DIVISION   DIVISION   DIVISION   DIVISION    ITEMS   ELIMINATIONS  TOTAL
===============================================================================================================
<S>                                <C>         <C>        <C>        <C>        <C>      <C>          <C>
Sales - including internal sales   $ 974.1     $ 355.0    $ 72.5      $555.6    $    -   $     -      $1,957.2
Elimination of intersegment sales        -           -         -           -         -     (42.4)        (42.4)
---------------------------------------------------------------------------------------------------------------
Sales - external customers           974.1       355.0      72.5       555.6         -     (42.4)      1,914.8
---------------------------------------------------------------------------------------------------------------
Segment income (loss)              $ (56.9)    $ (21.2)   $ (0.3)     $ 31.9    $ 79.8   $ (58.6)     $  (25.3)
===============================================================================================================
</TABLE>


                                       13
<PAGE>

                              BOWATER INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED



<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------
                                               COATED AND            CANADIAN
NINE MONTHS ENDED                              SPECIALTY   FOREST     FOREST              CORPORATE/
SEPTEMBER 30, 2001                  NEWSPRINT   PAPERS    PRODUCTS   PRODUCTS   SPECIAL     OTHER
(Unaudited, in millions)            DIVISION   DIVISION   DIVISION   DIVISION    ITEMS   ELIMINATIONS  TOTAL
===============================================================================================================
<S>                                <C>         <C>        <C>        <C>        <C>      <C>          <C>
Sales - including internal sales   $1,039.8     $386.5    $ 54.1      $302.2    $    -   $     -     $ 1,782.6
Elimination of intersegment sales         -          -         -           -         -     (33.7)        (33.7)
---------------------------------------------------------------------------------------------------------------
Sales - external customers          1,039.8      386.5      54.1       302.2         -     (33.7)      1,748.9
---------------------------------------------------------------------------------------------------------------
Segment income (loss)              $  124.1     $ 25.8    $ (2.0)     $ 61.9    $ 83.5   $ (41.8)    $   251.5
===============================================================================================================
</TABLE>


     "Special Items" in the preceding tables represents net gain on sale of
     assets on our consolidated statement of operations. See Note 3, "Net Gain
     on Sale of Assets" for a discussion of these amounts.

     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 we review them separately. These items include, but are
     not limited to, interest income and expense, provision for income tax
     expense and minority interests in net income (loss) of subsidiaries.

12.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

     The components of "Accumulated Other Comprehensive Income (Loss)" in the
     Consolidated Balance Sheet at September 30, 2002, and December 31, 2001,
     are as follows:


--------------------------------------------------------------------------------
                                                    September 30,   December 31,
(Unaudited, in millions)                                2002           2001
================================================================================
Pension plan additional minimum liabilities          $ (57.4)        $ (57.4)
Foreign currency translation                            (9.9)          (11.1)
Unrealized gain/(loss) on hedging transactions         (11.6)          (23.2)
Taxes                                                   25.7            30.1
--------------------------------------------------------------------------------
                                                     $ (53.2)        $ (61.6)
================================================================================


                                       14
<PAGE>

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



                                  ORGANIZATION
                                  ------------

Bowater is organized into five divisions: the Newsprint Division, the Coated and
Specialty Papers Division, the Pulp Division, the Forest Products Division and
the Canadian Forest Products Division. Except for the Pulp Division, each
division is responsible for the sales and marketing of distinct product lines
and the operation of certain manufacturing sites. The Pulp Division is primarily
a marketing and distribution division. Therefore, Bowater's financial results
are collected, analyzed and reported through the other four 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 of our major products, inventory
levels, capital spending and tax rates. These forward-looking statements are not
guarantees of future performance. They are based on our 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/A for the year ended December 31, 2001, and
from time to time, in Bowater's other filings with the Securities and Exchange
Commission.

                        ACCOUNTING POLICIES AND ESTIMATES
                        ---------------------------------

The following discussion and analysis of financial condition and results of
operations is based on our unaudited Consolidated Financial Statements included
herein. Our significant accounting policies are described in Note 1 to the
Consolidated Financial Statements in Bowater's annual report on Form 10-K/A for
the year ended December 31, 2001. Bowater's critical accounting policies are
described under the caption "Critical Accounting Policies and Estimates" in Item
7 of Bowater's annual report on Form 10-K/A for the year ended December 31,
2001, and in the sections below for goodwill and pension and other nonpension
postretirement benefits.

The preparation of financial statements in conformity with generally accepted
accounting principles requires us to make estimates, assumptions and judgments,
and requires reliance on future projections of results of operations and cash
flow. Our estimates and assumptions are based on historical data and other
assumptions that we believe are reasonable under the circumstances. These
estimates and assumptions affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the
financial statements. In addition, they affect the reported amounts of revenues
and expenses during the reporting period.

Our judgments are based on our assessment as to the effect certain estimates,
assumptions of future trends or events may have on the financial condition and
results of operations reported in our unaudited Consolidated Financial
Statements. Our projections of future results of operations and cash flows are
utilized by an independent valuation firm to determine fair value for selected
assets. It is important that the reader of our unaudited financial statements
understands that actual results could differ materially from these estimates,
assumptions, projections and judgments.

                                    GOODWILL

Bowater adopted Statement of Financial Accounting Standard (SFAS) No. 142,
"Goodwill and Other Intangible Assets," on January 1, 2002. Under SFAS No. 142,
goodwill and intangible assets with indefinite useful lives will no longer be
amortized, but will be tested for impairment at least on an annual basis in
accordance with the provisions of SFAS No. 142. In connection with SFAS No.
142's transitional goodwill impairment evaluation, we are required to perform an
assessment as to whether or not there is an indication that goodwill is impaired
as of the date of adoption.

During the second quarter of 2002, we completed the transitional goodwill
impairment test prescribed in SFAS No. 142 with respect to existing goodwill.
The transitional goodwill impairment test involved a comparison of the fair
value of each of our reporting units, as defined under SFAS No. 142, with its
carrying amount. Fair value was determined based on a valuation study performed
by an independent third party. In making its recommendation of fair value, the
independent valuation firm relied primarily on the discounted cash flow method.
This method uses future projections of cash flows from each of the reporting
units and includes, among other estimates, projection of future product pricing,
product costs, capital spending and an assumption of our weighted average cost
of


                                       15
<PAGE>
                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


capital. Changes in any of these estimates by us could have a material effect on
the fair value of these assets in future measurement periods. On an ongoing
basis, we expect to perform our impairment tests during the fourth quarter of
each year.

As a result of the transitional impairment tests performed as of January 1,
2002, there was no indicator of goodwill impairment; however, the amount by
which fair value exceeded book value for certain of the reporting units was not
significant. Therefore, in future measurements of fair value, adverse changes in
discounted cash flow assumptions could result in an impairment of goodwill that
would require a non-cash charge to the income statement and may have a material
effect on our financial condition or operating results.

                          PENSION AND OTHER NONPENSION
                             POSTRETIREMENT BENEFITS

Bowater has multiple defined benefit pension plans and other nonpension
postretirement plans (the "Plans") covering substantially all employees. We
engage an independent actuarial firm to perform an actuarial valuation of the
fair values of our postretirement plans' assets and benefit obligations.
Inherent in these valuations are assumptions including discount rates, expected
return on assets, salary increases and medical cost inflation. These assumptions
are updated annually and were disclosed in Note 14 to our annual report on Form
10-K/A for the year ended December 31, 2001. We have been reviewing our return
on assets and discount rate assumptions for the defined benefit plans in
connection with our September 30, 2002 measurement date and in light of current
conditions in the financial markets. Due to the sharp decline in the value of
the equity holdings of our various pension trusts as of September 30, 2002 (our
annual measurement date), we expect that in accordance with SFAS 87, "Employer's
Accounting for Pensions," we will record an additional minimum liability. Based
upon preliminary estimates of current values and updated assumptions, we expect
to record a required additional minimum pension liability, which could result in
a charge to equity of approximately $100 million. Based upon the revised
actuarial assumptions at the September 30, 2002 measurement date, we expect
pension expense and cash contributions to increase approximately $10 to $15
million in 2003. Medical costs are also expected to increase in 2003 and,
primarily as a result of this increase, we expect our other nonpension
postretirement expense to increase approximately $3 million in 2003.

                              RESULTS OF OPERATIONS
                              ---------------------

                 THREE MONTHS ENDED SEPTEMBER 30, 2002, VERSUS
                 ---------------------------------------------
                               SEPTEMBER 30, 2001
                               ------------------

The results of operations for the three-month period ended September 30, 2001,
include the impact of the acquisition of Alliance since September 24, 2001, the
date the acquisition closed.

For the third quarter of 2002, Bowater had an operating loss of $36.7 million
compared to operating income of $22.2 million for the third quarter of 2001. The
operating loss for the third quarter of 2002 includes a net gain on the sale of
assets of $4.8 million compared to a net gain on the sale of assets of $4.3
million for the third quarter of 2001. Excluding these asset sales, operating
income decreased $59.4 million, primarily due to lower transaction prices for
newsprint ($63.6 million), coated and specialty papers ($22.8 million) and
lumber ($2.7 million). These decreases in operating income were partially offset
by higher transaction prices for market pulp ($8.7 million), higher shipments
($3.8 million), lower operating costs ($12.1 million) and lower selling, general
and administrative expenses. Operating costs were lower for the third quarter of
2002 due to lower wood, fiber, chemical, fuel and maintenance costs and the
absence of goodwill amortization in 2002. Selling, general and administrative
expenses were lower primarily due to stock-based compensation credits recognized
of $12.3 million during the third quarter of 2002 compared to credits of $0.8
million recognized for stock-based compensation during the third quarter of
2001.

Net loss for the third quarter of 2002 was $32.3 million, or $0.57 per diluted
share, compared with a net loss of $1.8 million, or $0.04 per diluted share, in
the third quarter of 2001. Sales for the third quarter of 2002 were $643.8
million compared with $558.8 million for the third quarter of 2001.



                                       16
<PAGE>
                      BOWATER INCORPORATED AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



                            PRODUCT LINE INFORMATION

Presented below is a discussion of each significant product line followed by a
discussion of the results of each of the reported divisions.

SALES BY PRODUCT

---------------------------------------------------------------
                                           THREE MONTHS ENDED
                                             SEPTEMBER 30,
(Unaudited, in millions)                   2002         2001
---------------------------------------------------------------
Sales:
   Newsprint                              $ 289.8      $ 322.9
   Market pulp                              135.8         88.0
   Coated and specialty papers              159.6        112.2
   Lumber                                    59.7         23.1
   Other                                     12.2         14.5
   Elimination of intersegment sales        (13.3)        (1.9)
---------------------------------------------------------------
        Total sales                       $ 643.8      $ 558.8
---------------------------------------------------------------

Newsprint: Bowater's average transaction price for newsprint was 20% lower in
the third quarter of 2002 compared to the third quarter of 2001 and 1% higher
compared to the second quarter of 2002. Our shipments increased 11% compared to
the third quarter of 2001, primarily due to the acquisition of Alliance. During
the third quarter of 2002, we took approximately 123,000 metric tons of
downtime, of which 21,000 metric tons related to maintenance and 21,000 metric
tons related to a strike at our Mokpo, South Korea, mill that began May 27,
2002. Production at the mill resumed on July 29, 2002, following settlement of
the strike. We plan to take approximately 100,000 metric tons of downtime in the
fourth quarter of this year, and we will continue to match production to orders.
Our newsprint inventory increased approximately 26,600 metric tons compared to
the end of the third quarter of 2001. The inventory increase is mainly due to
reduced shipments at our Mokpo mill. We implemented a $50 per metric ton price
increase in the domestic market effective August 1, 2002. Our overall third
quarter average newsprint price increased $6 per metric ton as the domestic
price increase was effective for only part of the third quarter. Also, the
effect of reduced shipments in Korea as a result of the work stoppage at our
Korean mill, and price weakness in other offshore markets, offset the impact of
the increase. It is typical in our industry that prices are not fully realized
in the first month following the effective date.

Newsprint Third Party Data: Total United States demand was up 4% in the third
quarter of 2002 while total United States consumption of newsprint declined when
compared to the same period a year ago. North American net exports for the third
quarter increased 4% from the third quarter 2001 levels. Aggregate North
American mill and customer inventories increased 5% during the third quarter of
2002, but remain 10% lower than levels at September 30, 2001. September 2002 was
the fifth consecutive month of advertising growth with newspaper advertising
linage improving 6% over September 2001.

Market Pulp: Bowater's average transaction price for market pulp increased by
13% in the third quarter of 2002 compared to the third quarter 2001 and by 6%
compared to the second quarter of 2002, primarily due to improvements in demand
for those end-use products which use our pulp grades. Our shipments increased
33% compared to the same period of 2001, primarily due to improvements in demand
for end-use products, less downtime taken in the third quarter of 2002 compared
to the third quarter of 2001 and most significantly, due to the impact of the
Alliance acquisition. Our shipments were flat compared to the second quarter of
2002. Market pulp production was curtailed by 19,000 metric tons due to
scheduled maintenance compared to 35,000 metric tons in the third quarter of
2001, of which 28,000 metric tons was market-related. Consequently our
inventories decreased during the third quarter ending at 12 days supply. No
downtime is planned in the fourth quarter. However, North American and Nordic
(United States, Canada, Finland and Sweden) inventories increased during the
quarter by 258,000 metric tons ending at 1.6 million metric tons or 27 days
supply.

Coated and Specialty Papers: Bowater's average transaction price for coated and
specialty papers decreased 20% in the third quarter of 2002 compared to the
third quarter of 2001, primarily related to the additional product grades
acquired with Alliance and to pricing pressure. Third quarter 2002 prices
stabilized at June 2002 levels; however, on average, the transaction prices for
the third quarter were 3% lower than the second quarter of 2002 prices due to
the second quarter's higher opening prices. Our coated and specialty papers
shipments increased approximately 125,000 short tons compared to the same period
last year, due primarily to the acquisition of Alliance and the addition of our
two Nuway coating lines at Covington and Benton Harbor. The demands of
optimizing the production, quality and costs associated with these new coating
lines necessitated that the older, less productive, higher cost number one line
at Benton Harbor be temporarily shut. We expect to restart the number one line
when certain of these operating issues are resolved and market conditions
improve.


                                       17
<PAGE>

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



Coated and Specialty Papers Third Party Data: Compared to the third quarter of
2001, catalog mailings (measured by Standard A mail pieces) decreased an
estimated 2%, magazine advertisement pages increased 1%, and overall market
demand increased 10% for coated groundwood, 3% for supercalendered papers, and
12% for other uncoated groundwood grades.

Lumber: Bowater's average transaction price for lumber products decreased 8% in
the third quarter of 2002 compared to the third quarter of 2001 and decreased 8%
compared to the second quarter of 2002. Our lumber shipments increased
significantly in the third quarter of 2002 compared to the third quarter of 2001
due to the acquisition of Alliance. Privately-owned housing starts in the third
quarter of 2002 were strong, averaging approximately 1.7 million units on a
seasonally-adjusted annualized basis, compared to an average of 1.6 million
units in the same period of 2001. Actual housing starts increased an estimated
8% in the third quarter of 2002 compared to the same period last year.

                             DIVISIONAL PERFORMANCE
                             ----------------------

On September 24, 2001, Bowater completed the purchase of Alliance. As a result
of the acquisition, we have four reportable segments: the Newsprint Division,
the Coated and Specialty Papers Division, the Forest Products Division and the
Canadian Forest Products Division. Segment information for the three-month
period ending September 30, 2001, has been reclassified to reflect the change to
four reportable segments.

SALES BY DIVISION (1)

----------------------------------------------------------------
                                           THREE MONTHS ENDED
                                              SEPTEMBER 30,
(Unaudited, in millions)                    2002         2001
----------------------------------------------------------------
Newsprint Division                         $ 328.4      $ 306.2
Coated and Specialty Papers
     Division                                118.7        131.4
Forest Products Division                      25.9         21.2
Canadian Forest Products Division            184.1        101.9
Corporate & eliminations                     (13.3)        (1.9)
----------------------------------------------------------------
    Total sales                            $ 643.8      $ 558.8
----------------------------------------------------------------



OPERATING INCOME (LOSS) BY DIVISION (1)

----------------------------------------------------------------
                                           THREE MONTHS ENDED
                                              SEPTEMBER 30,
(Unaudited, in millions)                    2002         2001
----------------------------------------------------------------
Newsprint Division                         $ (23.4)     $ 14.0
Coated and Specialty Papers
     Division                                (10.1)        3.0
Forest Products Division                      (2.4)        1.9
Canadian Forest Products Division              3.7        18.8
Special items                                  4.8         4.3
Corporate & eliminations                      (9.3)      (19.8)
---------------------------------------------------------------
    Total operating income (loss)          $ (36.7)     $ 22.2
---------------------------------------------------------------


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

Newsprint Division: The results for this Division include the Coosa Pines,
Alabama, facility, acquired as a part of the acquisition of Alliance on
September 24, 2001. Sales for the Division increased $22.2 million, from $306.2
million for the third quarter of 2001 to $328.4 million for the third quarter of
2002. This increase is primarily the result of the addition of the Coosa Pines,
Alabama, facility, higher transaction prices for market pulp ($5.2 million) and
higher shipments of market pulp ($7.6 million). This increase was partially
offset by lower transaction prices for newsprint ($43.2 million) and uncoated
specialty paper ($4.3 million), as well as lower newsprint shipments ($3.7
million). See the previous discussion of product line results.

Operating income for the third quarter of 2002 decreased $37.4 million, from
$14.0 million for the third quarter of 2001 to an operating loss of $23.4
million for the third quarter of 2002. Lower transaction prices for newsprint
($43.2 million) and uncoated specialty paper ($4.3 million) and the operating
losses, related to downtime at our Coosa Pines, Alabama, facility account for
the majority of this decrease. This decrease was partially offset by higher
transaction prices for market pulp ($5.2 million) and lower operating costs
during the third quarter of 2002 ($12.7 million), primarily due to lower
maintenance, fiber and chemical expenses.

                                       18
<PAGE>

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



A new six year collective bargaining agreement covering production and
maintenance employees of the Calhoun mill was ratified on November 5, 2002.

Coated and Specialty Papers Division: Sales for this Division decreased $12.7
million, from $131.4 million for the third quarter of 2001 to $118.7 million for
the third quarter of 2002. This decrease was primarily the result of lower
transaction prices for coated and specialty papers ($18.5 million) and newsprint
($4.7 million). Higher transaction prices for market pulp ($3.6 million) and
increased shipments ($6.8 million) partially offset this decrease. See the
previous discussion of product line results.

Operating income decreased $13.1 million, from $3.0 million for the third
quarter of 2001 to an operating loss of $10.1 million for the third quarter of
2002. This decrease was primarily the result of lower transaction prices for
coated and specialty papers ($18.5 million) and newsprint ($4.7 million). These
decreases were partially offset by lower operating costs ($4.2 million) and
higher transaction prices for market pulp ($3.6 million).

Forest Products Division: Sales for the Division increased $4.7 million, from
$21.2 million for the third quarter of 2001 to $25.9 million for the third
quarter of 2002. This increase was primarily the result of higher lumber
shipments ($4.5 million) and higher timber shipments ($0.7 million). This
increase was partially offset by lower transaction prices for lumber ($0.2
million) and timber ($0.3 million). See the previous discussion of product line
results.

Operating income for the Division decreased $4.3 million, from operating income
of $1.9 million for the third quarter of 2001 to an operating loss of $2.4
million for the third quarter of 2002. This decrease was due primarily to higher
operating costs ($3.0 million) and higher lumber distribution costs ($1.3
million). Operating costs for the Division were higher in the third quarter of
2002 compared to the same period last year primarily due to higher depletion
costs and one-time charges in the sawmill operations.

Canadian Forest Products Division: This Division was formed as a result of the
Alliance acquisition. In addition to the Alliance facilities in Canada, several
existing facilities owned by Bowater were transferred to this Division. Sales
for the Division increased $82.2 million, from $101.9 million for the third
quarter of 2001 to $184.1 million for the third quarter of 2002. This increase
is primarily the result of the acquisition of Alliance in September 2001
partially offset by lower transaction prices for newsprint ($15.7 million) and
lumber ($1.4 million).

Operating income decreased $15.1 million, from $18.8 million for the third
quarter of 2001 to $3.7 million for the third quarter of 2002. This decrease was
primarily the result of lower transaction prices for newsprint ($15.7 million)
and lumber ($1.4 million), higher manufacturing costs ($1.8 million), and the
acquisition of Alliance. Higher shipments ($2.7 million) partially offset this
decrease.

Special Items: In the third quarter of 2002, Bowater sold fixed assets and land
resulting in a net pre-tax gain of $4.8 million, or $0.05 per diluted share
after tax. In the third quarter of 2001, Bowater sold fixed assets and land
resulting in a net pre-tax gain of $4.3 million, or $0.05 per diluted share
after tax.

Corporate & Eliminations: The elimination of intersegment sales increased $11.4
million, comparing the third quarter of 2002 to the third quarter of 2001.
Corporate operating loss decreased $10.5 million due primarily to stock-based
compensation credits ($12.3 million) recognized in the third quarter of 2002
compared to credits recognized for stock-based compensation ($0.8 million)
during the third quarter of 2001.

                     INTEREST AND OTHER INCOME AND EXPENSES
                     --------------------------------------

Interest expense increased $6.0 million from $33.7 million for the third quarter
of 2001 to $39.7 million for the third quarter of 2002. This increase was
attributable to an increase in debt associated with the acquisition of Alliance.
Interest income remained flat at $1.0 million for the third quarters of both
2001 and 2002.

Also in the third quarter of 2002, Bowater recorded a foreign exchange gain of
$8.9 million compared to a gain of $9.2 million in the third quarter of 2001.
The majority of our exchange gain amounts are attributable to the revaluation of
unhedged foreign denominated liabilities into United States dollars.

Bowater's effective tax rate for the third quarter of 2002 was 52.0% compared to
(109.1)% for the prior year's third quarter. The third quarter 2002 tax rate was
primarily impacted by non-taxable foreign currency gains and an ongoing tax
benefit ($3.8 million) related to our $600 million notes financing transaction
completed in the fourth quarter of 2001. The tax benefit in 2001 was the result
of benefits related to foreign currency exchange.


                                       19
<PAGE>

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



                              RESULTS OF OPERATIONS
                              ---------------------
                  NINE MONTHS ENDED SEPTEMBER 30, 2002, VERSUS
                  --------------------------------------------
                               SEPTEMBER 30, 2001
                               ------------------

The results of operations for the nine-month period ended September 30, 2001,
include the impact of the acquisition of Alliance since September 24, 2001, the
date the acquisition closed.

For the first nine months of 2002, Bowater had an operating loss of $25.3
million compared to income of $251.5 million for the first nine months of 2001.
The operating loss for the first nine months of 2002 includes a net gain on the
sale of assets of $79.8 million compared to a net gain on the sale of assets of
$83.5 million for the first nine months of 2001. Excluding these asset sales,
operating income decreased $273.1 million. This decrease is primarily due to
lower transaction prices for newsprint ($238.9 million), coated and specialty
papers ($70.0 million), market pulp ($27.7 million), and lumber ($2.8 million),
lower shipments ($11.0 million) and higher selling, general and administrative
expenses. Selling, general and administrative expenses were higher for the first
nine months of 2002 due to stock-based compensation credits of $4.5 million
recognized during the first nine months of 2002 compared to stock-based
compensation credits of $15.4 million recognized during the first nine months of
2001. These decreases were offset partially by lower operating costs ($68.9
million). Operating costs were lower for the nine months of 2002 due to lower
wood, fiber, chemical, fuel and maintenance costs and the absence of goodwill
amortization in 2002 ($17.9 million goodwill amortization for the nine months of
2001).

Net loss for the first nine months of 2002 was $75.8 million, or $1.33 per
diluted share, compared with net income of $54.5 million, or $1.05 per diluted
share, for the first nine months of 2001. Sales for the first nine months of
2002 were $1.9 billion compared to sales of $1.7 billion for the first nine
months of 2001.


                            PRODUCT LINE INFORMATION
                            ------------------------

Presented below is a discussion of each significant product line followed by a
discussion of the results of each of the reported divisions.

SALES BY PRODUCT

------------------------------------------------------------------
                                             NINE MONTHS ENDED
                                               SEPTEMBER 30,
(Unaudited, in millions)                     2002          2001
------------------------------------------------------------------
Sales:
   Newsprint                             $  871.4       $ 1,069.1
   Market pulp                              381.0           294.4
   Coated and specialty papers              484.8           326.6
   Lumber                                   189.0            45.7
   Other                                     31.0            46.8
   Elimination of intersegment sales        (42.4)          (33.7)
------------------------------------------------------------------
        Total sales                      $1,914.8       $ 1,748.9
------------------------------------------------------------------


Newsprint: Bowater's average transaction price for newsprint was 24% lower
compared to the first nine months of 2001. Our shipments increased 6% compared
to the first nine months of 2001, due to the acquisition of Alliance. During the
first nine months of 2002, production was curtailed by a total of 311,000 metric
tons, including 48,000 metric tons related to the strike at our Mokpo, South
Korea, mill. The Mokpo mill halted production effective May 27, 2002, and
resumed production on July 29, 2002, following settlement of the strike. Our
newsprint inventory increased approximately 26,600 metric tons compared to the
end of the third quarter of 2001. The inventory increase is mainly a result of
reduced shipments at our Mokpo mill. We implemented a $50 per metric ton price
increase in the domestic market effective August 1, 2002. It is typical in our
industry that prices are not fully realized in the first month following the
effective date.

Newsprint Third Party Data: Total United States demand and consumption of
newsprint declined approximately 3% in the first nine months of 2002 compared to
the same period a year ago. Aggregate North American mill and customer
inventories were 10% lower at September 30, 2002, compared to September 30,
2001, and remain below ten-year average levels. North American net exports
decreased for the first nine months of 2002 compared to the first nine months of
2001. September 2002 was the fifth consecutive month of advertising growth with
linage improving 6% over September 2001. The recent advertising growth offset
declines in the earlier part of the year, bringing year-to-date linage in line
with prior year levels.

                                       20
<PAGE>

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



Market Pulp: The average transaction price for Bowater's market pulp decreased
4% in the first nine months of 2002 compared to the first nine months of 2001.
Our shipments increased 34% in the first nine months of 2002 compared to the
first nine months of 2001. The increase in shipments is due to the impact of the
Alliance acquisition and decreased downtime taken in the first nine months of
2002 compared to the same period in 2001 as a result of improvements in demand
for those end-use products that use our pulp grades.

Market Pulp Third Party Data: North American and Nordic producers' (United
States, Canada, Finland and Sweden) shipments of market pulp for the first nine
months of 2002 were up 7%, or 1.1 million metric tons, compared to the first
nine months of 2001. Related shipments improved as a percentage of capacity,
from 85% on September 30, 2001 to 90% on September 30, 2002. North American and
Nordic producers' pulp inventories ended the third quarter of 2002 at 1.6
million metric tons, or 27 days supply. This is up 51,000 metric tons, or 3%,
higher than at the end of the third quarter 2001.

Coated and Specialty Papers: Bowater's average transaction price for coated and
specialty papers decreased 20% in the first nine months of 2002 compared to the
first nine months of 2001 due primarily to the additional product grades
acquired with Alliance and pricing pressure. Bowater's coated and specialty
paper pricing stabilized in the third quarter at June 2002 levels, following
earlier quarter declines. Our coated and specialty papers shipments increased
approximately 364,000 short tons compared to the same period last year, due
primarily to the acquisition of Alliance and the addition of our two Nuway
coating lines at Covington and Benton Harbor.

Coated and Specialty Papers Third Party Data: Compared to the same period last
year, catalog mailings (measured by Standard A mail pieces) decreased an
estimated 4%, magazine advertisement pages decreased 5%, overall demand
increased 2% for coated groundwood, 5% for supercalendered papers, and 5% for
uncoated groundwood papers. Coated groundwood mill inventories are at 14 days
supply, which is the same level as September 30, 2001. Uncoated groundwood
inventories are at 18 days supply compared to 15 days supply on September 30,
2001.

Lumber: Bowater's average transaction price for lumber products remained
relatively unchanged in the first nine months of 2002 compared to the first nine
months of 2001. Our lumber shipments increased significantly in the first nine
months of 2002 compared to the first nine months of 2001 due to the acquisition
of Alliance. Privately-owned housing starts for the first nine months of 2002
were strong, averaging approximately 1.7 million units on a seasonally-adjusted
annualized basis, compared to an average of just over 1.6 million units in the
same period of 2001. Actual housing starts increased an estimated 5% in the
first nine months of 2002 compared to the same period last year.

The Commerce Department has imposed antidumping duties of 8.43% on all of
Bowater's Canadian softwood lumber imports and countervailing duties of 18.79%
on softwood lumber imported from all provinces except New Brunswick and Nova
Scotia. The duties, which became effective for lumber shipments beginning
May 22, 2002, are payable in cash. During the second quarter of 2002, Bowater
reversed approximately $7.3 million for previously recorded lumber duties for
periods prior to the effective date of May 22, 2002. Bowater accrued lumber
duties based upon the Commerce Department's preliminarily imposed effective
dates of August 16, 2001, for countervailing duties and November 6, 2001, for
antidumping duties. Bowater was required to post bonds to cover the preliminary
duties. Lumber duties are included as a component of distribution costs on our
consolidated statement of operations. See previous discussion of product line
results for the three months ended September 30, 2002.

The duties have been appealed to the World Trade Organization (WTO) and under
the terms of the North American Free Trade Agreement (NAFTA). The final amount
of countervailing and antidumping duties that may be assessed on Canadian
softwood lumber imports into the U.S. will depend upon negotiations among the
governments involved in the dispute or upon determinations made by the NAFTA,
WTO or other adjudicatory panels to which the duties may be appealed. Until the
dispute about the duties is resolved, we will continue to pay the duties as
assessed by the Commerce Department.

                             DIVISIONAL PERFORMANCE
                             ----------------------

On September 24, 2001, Bowater completed the purchase of Alliance. As a result
of the acquisition, we have four reportable segments: the Newsprint Division,
the Coated and Specialty Papers Division, the Forest Products Division and the
Canadian Forest Products Division. Segment information for the nine-month period
ending September 30, 2001, has been reclassified to reflect the change to four
reportable segments.

                                       21
<PAGE>

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



SALES BY DIVISION (1)

----------------------------------------------------------------
                                             NINE MONTHS ENDED
                                               SEPTEMBER 30,
(Unaudited, in millions)                     2002         2001
----------------------------------------------------------------
Newsprint Division                        $  974.1     $1,039.8
Coated and Specialty Papers
     Division                                355.0        386.5
Forest Products Division                      72.5         54.1
Canadian Forest Products Division            555.6        302.2
Corporate & eliminations                     (42.4)       (33.7)
----------------------------------------------------------------
    Total sales                           $1,914.8     $1,748.9
----------------------------------------------------------------


OPERATING INCOME (LOSS) BY DIVISION (1)

----------------------------------------------------------------
                                             NINE MONTHS ENDED
                                               SEPTEMBER 30,
(Unaudited, in millions)                     2002         2001
----------------------------------------------------------------
Newsprint Division                         $ (56.9)     $ 124.1
Coated and Specialty Papers
    Division                                 (21.2)        25.8
Forest Products Division                      (0.3)        (2.0)
Canadian Forest Products Division             31.9         61.9
Special items                                 79.8         83.5
Corporate & eliminations                     (58.6)       (41.8)
----------------------------------------------------------------
    Total operating income (loss)          $ (25.3)     $ 251.5
----------------------------------------------------------------

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

Newsprint Division: The results for this Division include the Coosa Pines,
Alabama, facility, acquired as part of the acquisition of Alliance on September
24, 2001. Sales for the Division decreased $65.7 million, from $1,039.8 million
for the first nine months of 2001 to $974.1 million for the first nine months of
2002. This decrease is primarily the result of lower shipments of newsprint
($81.0 million) and lower transaction prices for newsprint ($157.1 million),
market pulp ($23.2 million) and uncoated specialty paper ($14.3 million). These
decreases were offset by the addition of the Coosa Pines, Alabama, facility, and
to a lesser extent higher shipments of market pulp ($10.3 million) and uncoated
specialty paper ($9.9 million). See the previous discussion of product line
results.

Operating income for the first nine months of 2002 decreased $181.0 million,
from $124.1 million for the first nine months of 2001 to an operating loss of
$56.9 million for the first nine months of 2002. Lower shipments ($13.2 million,
primarily newsprint) and lower transaction prices for newsprint ($157.1
million), market pulp ($23.2 million) and uncoated specialty paper ($14.3
million) account for the majority of this decrease. These decreases were
partially offset by lower operating costs ($28.9 million) due to lower
maintenance, fiber, chemicals and fuel costs as well as a favorable Canadian
dollar exchange rate compared to the same period of 2001.

A new six year collective bargaining agreement covering production and
maintenance employees of the Calhoun mill was ratified on November 5, 2002.

Coated and Specialty Papers Division: Sales for the Division decreased $31.5
million, from $386.5 million for the first nine months of 2001 to $355.0 million
for the first nine months of 2002. This decrease was primarily due to lower
transaction prices for coated and specialty papers ($55.7 million), market pulp
($4.5 million) and newsprint ($17.6 million). Increased shipments ($46.2
million) partially offset this decrease. See the previous discussion of product
line results.

Operating income decreased $47.0 million, from $25.8 million for the first nine
months of 2001 to an operating loss of $21.2 million for the first nine months
of 2002. This decrease was primarily the result of lower transaction prices for
coated and specialty papers ($55.7 million), market pulp ($4.5 million) and
newsprint ($17.6 million). Lower operating costs ($30.9 million) as a result of
a 2001 biannual maintenance shut and lower fiber, wood, chemical and fuel costs
partially offset this decrease.

Forest Products Division: Sales for the Division increased $18.4 million, from
$54.1 million for the first nine months of 2001 to $72.5 million for the first
nine months of 2002. This increase is primarily the result of higher lumber
shipments ($20.6 million) and higher transaction prices for lumber ($1.7
million) and timber ($1.1 million). This increase was partially offset by lower
timber shipments ($5.0 million). See the previous discussion of product line
results.

Operating income for the Division increased $1.7 million, from an operating loss
of $2.0 million for the first nine months of 2001 to an operating loss of $0.3
million for the first nine months of 2002. This increase was due primarily to
lower operating costs ($4.9 million) and higher transaction prices for lumber
($1.7 million) and timber ($1.1 million). This increase was partially offset by
lower timber shipments ($3.9 million) and higher lumber distribution costs ($2.0


                                       22
<PAGE>

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



million). Operating costs for the Division were lower in the first nine months
of 2002 compared to the same period last year primarily due to lower
silviculture expenses and lower charges incurred associated with southern pine
beetle damage.

Drought in the U.S. Southeast contributes to conditions that allow the southern
pine beetle to flourish and expand the range of its infestation. In 2002, the
southern pine beetle infestation slowed in its rate of expansion. However, the
pine beetle is still active, and we may incur additional charges related to
beetle damage if the rate of expansion increases. For the first nine months of
2002, Bowater incurred charges of $1.3 million related to pine beetle damage
compared to charges of $6.3 million for the first nine months of 2001.

Canadian Forest Products Division: This Division was formed as a result of the
Alliance acquisition. In addition to the Alliance facilities in Canada, several
existing facilities owned by Bowater were transferred to this Division. Sales
for the Division increased $253.4 million, from $302.2 million for the first
nine months of 2001 to $555.6 million for the first nine months of 2002. This
increase is primarily the result of the acquisition of Alliance in September
2001, partially offset by lower transaction prices for newsprint ($64.2 million)
and lumber ($2.7 million).

Operating income decreased $30.0 million, from $61.9 million for the first nine
months of 2001 to $31.9 million for the first nine months of 2002. This decrease
was primarily the result of lower transaction prices for newsprint ($64.2
million) and lumber ($2.7 million), offset by the acquisition of Alliance and to
a lesser extent lower manufacturing costs ($4.2 million) and higher shipments
($6.4 million).

Special Items: During the first nine months of 2002, Bowater sold fixed assets
and land resulting in a pre-tax gain of $79.8 million, or $0.84 per diluted
share, after tax. During the first nine months of 2001, Bowater sold fixed
assets and land resulting in a pre-tax gain of $83.5 million, or $0.36 per
diluted share, after tax.

 In January 2002, Bowater completed the sale of approximately 116,000 acres of
timberlands for aggregate consideration of $104.2 million, comprised of
approximately $5.1 million in cash and $99.1 million in notes receivable. In
March 2002, we monetized the $99.1 million notes receivable for net cash
proceeds of $88.1 million. These transactions resulted in a net pre-tax gain of
$70.4 million. In April 2001, Bowater reached a final settlement in connection
with the sale of GNP to Inexcon. As a result, we recognized a pre-tax charge of
$5.8 million in the first quarter of 2001. In the second quarter of 2001,
Bowater recognized a net pre-tax gain on the sale of assets of $85.0 million.
This gain is primarily the result of the monetization of a note receivable and
recognition of deferred income (previously in Other long-term liabilities)
related to a 1999 sale of timberlands. The pre-tax gain was $84.5 million ($19.2
million after tax and minority interest). A portion of the proceeds was
dividended to the minority shareholder ($60.1 million).

Corporate & Eliminations: The elimination of intersegment sales increased $8.7
million, comparing the first nine months of 2002 to the first nine months of
2001. Corporate operating loss increased $16.8 million due primarily to
stock-based compensation credits ($10.9 million), employee-related expenses
($3.2 million) and hedging losses ($2.7 million).

                     INTEREST AND OTHER INCOME AND EXPENSES
                     --------------------------------------

Interest expense increased $20.1 million from $102.7 million for the first nine
months of 2001 to $122.8 million for the first nine months of 2002. This
increase was attributable to an increase in debt associated with the acquisition
of Alliance. Interest income decreased $4.4 million from $7.6 million for the
first nine months of 2001 to $3.2 million for the first nine months of 2002.
This decrease is due primarily to the sale of a note receivable in the second
quarter of 2001.

Also during the first nine months of 2002, Bowater recorded a foreign exchange
gain of $5.4 million compared to a gain of $2.6 million during the first nine
months of 2001. The majority of our exchange gain amounts are attributable to
the revaluation of unhedged foreign denominated liabilities into United States
dollars.

Bowater's effective tax rate for the first nine months of 2002 was 42.5%
compared to 42.7% for the same period last year. The tax rate in 2002 was
primarily impacted by a one-time tax benefit arising from an IRS settlement
($2.8 million) and an ongoing tax benefit ($11.4 million) related to our $600
million notes financing transaction completed in the fourth quarter of 2001. The
tax rate in 2001 was impacted by a partially taxable dividend received as a
result of the sale of a note receivable.


                                       23
<PAGE>

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



                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

Bowater's cash and cash equivalents decreased to $26.7 million at September 30,
2002, from $28.3 million at December 31, 2001. Cash flow from operations was
$41.7 million, cash used for investing activities was $75.7 million, and we
generated cash from financing activities of $32.4 million.

CASH FROM OPERATING ACTIVITIES:
During the first nine months of 2002, Bowater's operations generated $41.7
million of cash compared to $225.9 million of cash generated during the first
nine months of 2001, a decrease of $184.2 million. Lower operating income
($273.1 million, excluding gain on asset sales) partially offset by lower
working capital needs ($42.3 million) accounted for the majority of the decrease
in 2002. During the third quarter of 2002, the Company received tax refunds of
$46.7 million, which are included in cash generated from operating activities
for the nine months ended September 30, 2002. Operating cash flows for the nine
months of 2001 include the results of the Alliance operations since September
24, 2001.

CASH FROM INVESTING ACTIVITIES:
Cash used for investing activities during the first nine months of 2002 totaled
$75.7 million, compared with cash used of $295.8 million during the first nine
months of 2001. The first nine months of 2002 includes $24.7 million from the
sale of assets and net cash proceeds of $88.1 million from the monetization of a
note receivable. The first nine months of 2001 includes $5.6 million from the
sale of assets and net cash proceeds of $122.6 million from the monetization of
a note receivable. A portion of the 2001 proceeds from the note monetization
($60.1 million) was dividended to the minority shareholder. Capital expenditures
increased $17.2 million for the first nine months of 2002 compared to the first
nine months of 2001. We acquired Alliance on September 24, 2001, requiring cash
of $251.0 million.

CASH FROM FINANCING ACTIVITIES:
Cash generated from financing activities was $32.4 million for the first nine
months of 2002 compared to $65.7 million of cash used during the first nine
months of 2001. During the first nine months of 2002, Bowater made net payments
of $164.3 million on its short-term credit facilities. In the first nine months
of 2001, we received $515.9 million (net of payments of $635.1 million) under
our short-term credit facilities. Also in the first nine months of 2002, we
received net proceeds on long-term borrowings amounting to $228.3 million
(payments of $71.7 million and proceeds of $300.0 million) compared with
payments of $346.9 million during the first nine months of 2001.

Cash dividends paid in the first nine months of 2002 decreased $65.8 million
from the prior year period. This was primarily due to dividends paid to the
minority shareholder of our Calhoun Newsprint Company subsidiary related to a
2001 timberland transaction.

CREDIT ARRANGEMENTS:
Bowater has available credit facilities with various banks that provide for
borrowings up to $900 million. In May 2002, Bowater closed on its new credit
facilities, a $300 million three-year term loan and a $500 million three-year
revolving credit facility. The new three-year term loan and revolving credit
facility were used to refinance the previous $350 million five-year facility and
the $450 million, 364-day credit facility. Bowater also has a $100 million,
364-day credit facility of a wholly-owned subsidiary, Bowater Canadian Forest
Products Inc. In October 2002, this credit facility was extended to October 2003
and includes the ability at our option to extend the maturity of the outstanding
amounts to October 2004. At September 30, 2002, $481 million was outstanding
under these facilities. In addition to the amount outstanding, there are letter
of credit commitments totaling $27 million. These commitments are not drawn, but
do reduce the available capacity of these facilities.

The $300 million three-year term loan requires annual repayments of $60 million
each in May 2003 and 2004 and $180 million in May 2005. The $500 million
revolving credit facility is due May 2005.

These credit facilities contain various covenants including requirements to
maintain a minimum consolidated net worth of $1.6 billion (generally defined in
the credit facilities as common shareholders' equity plus any outstanding
preferred stock and grows at 50% of net income each quarter provided net income
is positive) and imposes a maximum 60% ratio of total debt (defined in the
credit facilities as total debt less revaluation of debt assumed through
acquisitions) to total capital (defined in the credit facilities as total debt
plus net worth and minority interest). At September 30, 2002 our net worth was
$1.9 billion and our ratio of total debt ($2.2 billion) to total capital
($4.2 billion) was 52.4%. We expect to record a required additional minimum
pension liability, which could result in a charge to equity of approximately
$100 million in the fourth quarter of 2002 (see Pension and Other Nonpension
Retirement Benefits discussion on page 16).

At September 30, 2002 there was $392 million available for use under our credit
facilities. We believe that this will be sufficient to provide for our
anticipated requirements for operations, working capital,

                                       24
<PAGE>

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



contractual obligations and capital expenditures for the next 12 months.

On July 8, 2002, Moody's Investor's Service placed the debt ratings of Bowater
and its subsidiaries under review for possible downgrade. The current debt
rating of Bowater Incorporated with Moody's is Baa3, and a downgrade would
classify the debt as non-investment grade by Moody's. Although a downgrade will
have no material impact on our present debt and credit agreements, it could
impact our access to and cost of capital and financial flexibility in the
future.

On September 23, 2002, Standard and Poor's downgraded the debt rating of Bowater
from BBB to BBB- based on expectations of a slow recovery in the paper and pulp
grades that we produce. The interest pricing of our credit facilities is based
upon a grid using the higher ratings by S&P or Moody's. The downgrade by S&P
increased our borrowing rate by an immaterial increment.

                         OFF-BALANCE SHEET ARRANGEMENTS
                         ------------------------------

A detailed discussion of our off-balance sheet arrangements is included under
the caption "Off-Balance Sheet Arrangements," in Item 7 of our annual report on
Form 10-K/A for the year ended December 31, 2001.

In January 2002, Bowater sold approximately 116,000 acres of timberlands for
aggregate consideration of $104.2 million, comprised of approximately $5.1
million in cash and $99.1 million in notes receivable. In March 2002, we
monetized the notes receivable using a qualified special purpose entity (QSPE)
set up in accordance with Financial Accounting Standards Board (FASB) SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," and received net cash proceeds of $88.1
million. These transactions resulted in a net pre-tax gain of $70.4 million. The
QSPE is not consolidated in our financial statements. The business purpose of
the QSPE is to hold the notes receivable and issue debt securities to third
parties. The value of these debt securities is equal to approximately 90% of the
value of the notes receivable. The full principal amount of the notes receivable
is backed by a letter of credit issued by a third party financial institution.
We retained an interest in the QSPE of approximately $7.1 million. As of
September 30, 2002, the QSPE had total assets of $101.4 million and total
obligations of $90.0 million.

In July 2002, Bowater terminated the lease arrangement related to the planned
construction of a Nuway coating facility in the mid-Atlantic region.
Construction of the mid-Atlantic facility was being financed through a special
purpose entity. The construction of the mid-Atlantic facility has been
indefinitely postponed. As a result of the lease termination, we purchased the
leased equipment for approximately $14 million, which is included in cash
invested in fixed assets, timber and timberlands on the consolidated statement
of cash flows. We utilized our existing credit facilities to purchase the leased
equipment from the special purpose entity.

               OCTOBER 2002 ANNOUNCEMENT OF COST REDUCTION PROGRAM
               ---------------------------------------------------

In October 2002, Bowater announced that it will begin a new cost reduction
program that will consist of workforce reductions, lowering of manufacturing
costs and rationalization of production. The workforce reductions are expected
to affect approximately 250 - 300 positions, or approximately 3% of our total
workforce. We expect to announce the details and implement the program in the
fourth quarter of 2002. Estimated annual cost savings related to the cost
reduction program are expected to be approximately $75 million, pre-tax,
beginning in 2003.

                              ACCOUNTING STANDARDS
                              --------------------

Bowater adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on January
1, 2002. Under SFAS No. 142, goodwill and intangible assets with indefinite
useful lives will no longer be amortized, but will be tested for impairment at
least on an annual basis in accordance with the provisions of SFAS No. 142. In
connection with SFAS No. 142's transitional goodwill impairment evaluation,
Bowater is required to perform an assessment of whether there is an indication
that goodwill is impaired as of the date of adoption. As of September 30, 2002,
we had unamortized goodwill in the amount of $843.0 million and no intangible
assets with indefinite useful lives.

During the second quarter of 2002, Bowater completed the transitional goodwill
impairment test prescribed in SFAS No. 142 with respect to existing goodwill.
The transitional goodwill impairment test involved a comparison of the fair
value of each of the Company's reporting units, as defined under SFAS No. 142,
with its carrying amount. As a result of the transitional impairment tests
performed as of January 1, 2002, there was no indicator of goodwill impairment,
however, the amount by which fair value exceeded book value for certain of the
reporting units was not significant. On an ongoing basis Bowater expects to
perform its


                                       25
<PAGE>

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



impairment tests during the fourth quarter of each year. See discussion of
critical accounting policy for goodwill under the caption "Accounting Policies
and Estimates" on page 15.

In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligation." This Statement requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. SFAS No. 143 is effective for fiscal years beginning after September
15, 2002. Bowater will adopt the Statement effective January 1, 2003, and is
currently assessing the impact on its financial statements.

On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," that is applicable to financial statements
issued for fiscal years beginning after December 15, 2001 (January 2002 for
Bowater). The FASB's new rules on asset impairment supersede SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and provide a single accounting model for long-lived assets to
be disposed of. Bowater adopted the provisions of the Statement effective
January 1, 2002.

On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds Statement No. 4, which required all gains
and losses from extinguishments of debt to be aggregated and, if material,
classified as an extraordinary item, net of related income tax effect. Upon
adoption of SFAS No. 145, companies will be required to apply the criteria in
Accounting Principle Board Opinion No. 30, "Reporting the Results of Operations
- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in
determining the classification of gains and losses resulting from the
extinguishments of debt. SFAS No. 145 is effective for fiscal years beginning
after May 15, 2002. Bowater is currently assessing the impact on its financial
statements.

On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The provisions of
SFAS No. 146 are effective for exit or disposal activities that are initiated
after December 31, 2002, and will impact the timing of exit or disposal
activities reported by Bowater after adoption.

ITEM 3.   MARKET RISK
-------   -----------

Bowater's market risk disclosure included in its 2001 Form 10-K/A, Part II, Item
7A, is still applicable as of September 30, 2002, except for the updated
disclosures concerning our Canadian dollar forward and range forward contracts,
which are included in Note 9 to the unaudited consolidated financial statements
in this Form 10-Q.

ITEM 4.   CONTROLS AND PROCEDURES.
-------   ------------------------

(a)      Evaluation of Disclosure Controls and Procedures:

An evaluation of the effectiveness of the design and operation of Bowater's
disclosure controls and procedures was completed within the 90 days prior to the
date of this report. Based on that evaluation, the Chairman, President and Chief
Executive Officer and the Chief Financial Officer concluded that Bowater's
disclosure controls and procedures are effective in recording, processing,
summarizing, and timely reporting information required to be disclosed in
Bowater's reports to the Securities and Exchange Commission.

(b)      Changes in Internal Controls:

There were no significant changes in Bowater's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their evaluation.



                                       26
<PAGE>


                              BOWATER INCORPORATED
                           PART II - OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS.

     (a)  Bowater, several other paper companies, and 120 other companies have
          been named as defendants in asbestos personal injury actions based on
          product liability claims. These actions generally allege occupational
          exposure to numerous products. Bowater has denied the allegations and
          no specific product of Bowater 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 710 claimants who sought
          monetary damages in civil actions pending in state courts in Missouri,
          Illinois, New York, Mississippi and Texas. Approximately 140 of these
          actions have been dismissed already, either voluntarily or by summary
          judgment. 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, based upon the advice of special counsel, at this time
          we do not expect these claims to have a material adverse impact on
          Bowater's business, financial position or results of operations.

     (b)  On December 28, 2001, we filed a lawsuit against the Tennessee Valley
          Authority (TVA) alleging that TVA overcharged us for electricity it
          supplied to our Calhoun, Tennessee and Grenada, Mississippi
          facilities. We are seeking approximately $35 million in damages and
          TVA has not filed any counterclaims. The case is still in the
          discovery stage and trial is scheduled for July 2003 in federal court
          in Knoxville, Tennessee.


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         First Amendment to the Bowater Incorporated 2002 Stock
                         Option Plan dated September 16, 2002.

            12.1         Statement regarding Computation of Ratio of Earnings to
                         Fixed Charges.


     (b) Reports on Form 8-K:

         On August 14, 2002, the Company filed a report on Form 8-K disclosing
         compliance with the required certifications by the Company's Chief
         Executive and Chief Financial Officers under Section 4-460 under the
         Securities Exchange Act of 1934 and Section 906 under the
         Sarbanes-Oxley Act of 2002.



                                       27
<PAGE>


                              BOWATER INCORPORATED
                                   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
                                                   Executive Vice President and
                                                   Chief Financial Officer



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



Dated:   November 14, 2002


                                       28
<PAGE>




                                  CERTIFICATION

I, Arnold M. Nemirow, Chairman, President and Chief Executive Officer of Bowater
Incorporated, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Bowater Incorporated;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: November 14, 2002



 /s/ Arnold M. Nemirow
-----------------------------------------------
Arnold M. Nemirow
Chairman, President and Chief Executive Officer


* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.



<PAGE>


                                  CERTIFICATION

I, David G. Maffucci, Executive Vice President and Chief Financial Officer of
Bowater Incorporated, certify that:

1.   I have reviewed this quarterly report on Form 10-Q of Bowater Incorporated;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this quarterly
          report is being prepared;

     b)   evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented in this quarterly report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)   all significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: November 14, 2002



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


* Provide a separate certification for each principal executive officer and
principal financial officer of the registrant. See Rules 13a-14 and 15d-14. The
required certification must be in the exact form set forth above.



<PAGE>



                              BOWATER INCORPORATED
                                INDEX TO EXHIBITS


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

   10.1            First Amendment to the Bowater Incorporated 2002 Stock Option
                   Plan dated September 16, 2002.

   12.1            Statement regarding Computation of Ratio of Earnings to Fixed
                   Charges.