##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
 o
    
    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: 001-08712
 BOWATER INCORPORATED
  Delaware
    
    62-0721803(State or other jurisdiction of incorporation or organization )
    
    (I.R.S. employer identification number)
  
   
  
  o þ
  Large accelerated filer
o
    
    Accelerated filer o
    
    Non-accelerated filer  
þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Bowater Incorporated meets the conditions set forth in, and is filing this form with the reduced
disclosure format prescribed by, General Instructions H (1)(a) and (b) of Form 10-Q .




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##### 



BOWATER INCORPORATED
TABLE OF CONTENTS
 Page NumberPART I FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2008 and 2007
    
    
    1Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
  2Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2008 and 2007
    
    
3Notes to Unaudited Condensed Consolidated Financial Statements
    
    
4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
15Item 4T. Controls and Procedures
    
    
25PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
26Item 5. Other Information
    
    
29Item 6. Exhibits
    
    
29SIGNATURES
    
    
30EX-31.1EX-31.2




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BOWATER INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited, in millions)
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Sales
    
    $
    854
    
    
    $
    815
    
    
    $
    2,524
    
    
    $
    2,385Costs and expenses:Cost of sales, excluding depreciation, amortization
and cost of timber harvested
    
    
    662
    
    
    
    672
    
    
    
    1,954
    
    
    
    1,912Depreciation, amortization and cost of timber harvested
    
    
    59
    
    
    
    80
    
    
    
    202
    
    
    
    240Distribution costs
    
    
    85
    
    
    
    84
    
    
    
    245
    
    
    
    242Selling and administrative expenses
    
    
    40
    
    
    
    50
    
    
    
    118
    
    
    
    145Arbitration award
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Closure costs, impairment and other related charges
    
    
    127
    
    
    
    
    
    
    
    140
    
    
    
    Net gain on disposition of assets
    
    
    (4
    )
    
    
    (17
    )
    
    
    (44
    )
    
    
    (140
    )Operating loss
    
    
    (115
    )
    
    
    (82
    )
    
    
    (91
    )
    
    
    (42
    )Equity in loss of Abitibi-Consolidated Inc.
    
    
    (24
    )
    
    
    
    
    
    
    (92
    )
    
    
    Interest income
    
    
    21
    
    
    
    2
    
    
    
    35
    
    
    
    6Interest expense
    
    
    (51
    )
    
    
    (47
    )
    
    
    (154
    )
    
    
    (142
    )Other income
(expense), net
    
    
    3
    
    
    
    (19
    )
    
    
    7
    
    
    
    (41
    )Loss before income taxes and minority interests
    
    
    (166
    )
    
    
    (146
    )
    
    
    (295
    )
    
    
    (219
    )Income tax benefit (provision)
    
    
    18
    
    
    
    1
    
    
    
    1
    
    
    
    (19
    )Minority interests, net of tax
    
    
    (1
    )
    
    
    3
    
    
    
    
    
    
    
    (2
    )Net loss
    
    $
    (149
    )
    
    $
    (142
    )
    
    $
    (294
    )
    
    $
    (240
    )
  1




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BOWATER INCORPORATED
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in millions, except share data)
 September 30,
    
    December 31,2008
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    100
    
    
    $
    63Accounts receivable, net
    
    
    473
    
    
    
    462Accounts receivable from affiliates
    
    
    10
    
    
    
    Inventories, net
    
    
    344
    
    
    
    377Assets held for sale
    
    
    181
    
    
    
    6Other current assets
    
    
    38
    
    
    
    53Total current assets
    
    
    1,146
    
    
    
    961Fixed assets, net
    
    
    1,690
    
    
    
    2,584Goodwill
    
    
    407
    
    
    
    591Investment in Abitibi-Consolidated Inc.
    
    
    148
    
    
    
    237Other assets
    
    
    258
    
    
    
    246Total assets
    
    $
    3,649
    
    
    $
    4,619Liabilities and shareholders (deficit) equityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    417
    
    
    $
    464Short-term bank debt
    
    
    382
    
    
    
    205Current installments of long-term debt
    
    
    262
    
    
    
    21Liabilities associated with assets held for sale
    
    
    13
    
    
    
    Total current liabilities
    
    
    1,074
    
    
    
    690Long-term debt, net of current installments
    
    
    1,964
    
    
    
    2,242Other long-term liabilities
    
    
    402
    
    
    
    421Deferred income taxes
    
    
    225
    
    
    
    365Minority interests in subsidiaries
    
    
    75
    
    
    
    80Commitments and contingenciesShareholders (deficit) equity:Common
stock, $.01 par value and 100 shares at September 30, 2008 and
$1 par value and 56.3 million shares at December 31, 2007
    
    
    
    
    
    
    56Exchangeable
shares, no par value. 4.4 million shares at
September 30, 2008; 
5.1 million shares at December 31, 2007
    
    
    242
    
    
    
    276Additional paid-in capital
    
    
    1,388
    
    
    
    1,207Note
receivable from AbitibiBowater Inc.
    
    
    (681
    )
    
    
    Deficit
    
    
    (910
    )
    
    
    (600
    )Accumulated other comprehensive loss
    
    
    (130
    )
    
    
    (118
    )Total shareholders (deficit) equity
    
    
    (91
    )
    
    
    821Total liabilities and shareholders (deficit) equity
    
    $
    3,649
    
    
    $
    4,619
  2




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BOWATER INCORPORATED
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited, in millions)
 Nine Months EndedSeptember 30,2008
    
    2007Net cash used in operating activities
    
    $
    (125
    )
    
    $
    (114
    )Cash flows from investing activities:Cash invested in fixed assets, timber and timberlands
    
    
    (39
    )
    
    
    (73
    )Dispositions of assets, including timber and timberlands
    
    
    55
    
    
    
    167Direct acquisition costs related to the merger with
Abitibi-Consolidated Inc.
    
    
    
    
    
    
    (17
    )Net cash provided by investing activities
    
    
    16
    
    
    
    77Cash flows from financing activities:Cash dividends
    
    
    
    
    
    
    (35
    )Short-term financing, net
    
    
    177
    
    
    
    72Payments of long-term debt
    
    
    (20
    )
    
    
    (15
    )Payments of credit facility fees
    
    
    (11
    )
    
    
    Net cash provided by financing activities
    
    
    146
    
    
    
    22Net increase (decrease) in cash and cash equivalents
    
    
    37
    
    
    
    (15
    )Cash and cash equivalents:Beginning of period
    
    
    63
    
    
    
    99End of period
    
    $
    100
    
    
    $
    84
  3




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BOWATER INCORPORATED
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. Organization and Basis of Presentation
 Basis of Presentation
  Reduction
in Common Stock
  Note Contribution and Spin-off During the Second Quarter of 2008
    Impact of Recently Adopted Accounting Pronouncement
  4




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
  New Accounting Pronouncements
     2. Inventories, Net
 September 30,
    
    December 31,(Unaudited, in millions)
    
    2008
    
    2007At lower of cost or market:Raw materials and work in process
    
    $
    49
    
    
    $
    77Finished goods
    
    
    154
    
    
    
    143Mill stores and other supplies
    
    
    155
    
    
    
    171358
    
    
    
    391Excess of current cost over LIFO inventory value
    
    
    (14
    )
    
    
    (14
    )$
    344
    
    
    $
    377
 5




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
 3. Liquidity and Debt
 Liquidity, Short-term Bank Debt and Current Installments of Long-Term Debt
    Bank Credit Facilities
  WeightedAmount
    
    Commitment
    
    Termination
    
    Average(Unaudited, in millions)
    
    Commitment
    
    Outstanding
    
    Available(1)
    
    Date
    
    Interest Rate(2)U.S. credit facility
    
    $
    415
    
    
    $
    315
    
    
    $
    30
    
    
    
    05/11
    
    
    
    6.7
    %Canadian credit facility
    
    
    144
    
    
    
    67
    
    
    
    46
    
    
    
    06/09
    
    
    
    6.3
    %$
    559
    
    
    $
    382
    
    
    $
    76
 (1)
    
    The commitment available under each of these revolving bank credit facilities is subject to
collateral requirements and covenant restrictions (after giving
effect to the financial covenant waivers included in the
November 12, 2008 amendment) as described below or in our Annual Report
on Form 10-K for the year ended December 31, 2007, filed on April 14, 2008, in our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 15, 2008 or in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 22, 2008,
and is reduced by outstanding letters of credit of $70 million for our U.S. credit facility
and $31 million for our Canadian credit facility. Commitment fees for unused portions of our
U.S. and Canadian credit facilities are 50 and 25 basis points, respectively.(2)
    
    Borrowings under the bank credit facilities incur interest based, at our option, on specified
market interest rates plus a margin.
  6




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
  Amendments to Bank Credit Facilities
        7




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
 4. Accumulated Other Comprehensive Loss
  September 30,
    
    December 31,(Unaudited, in millions)
    
    2008
    
    2007Unamortized prior service costs (1)
    
    $
    3
    
    
    $
    Unamortized actuarial losses (2)
    
    
    (151
    )
    
    
    (135
    )Foreign currency translation (3)
    
    
    18
    
    
    
    19Unrecognized loss on hedging transactions (4)
    
    
    
    
    
    
    (2
    )$
    (130
    )
    
    $
    (118
    )
 (1)
    
    Net of deferred tax provision of $16 million and $13 million as of September 30, 2008 and
December 31, 2007, respectively. Net of minority interest of $3 million and $2 million as of
September 30, 2008 and December 31, 2007, respectively.(2)
    
    Net of deferred tax benefit of $71 million and $67 million as of September 30, 2008 and
December 31, 2007, respectively.(3)
    
    No tax effect is recorded for foreign currency translation since the foreign net assets
translated are deemed indefinitely invested.(4)
    
    Net of deferred tax benefit of $1 million as of September 30, 2008 and December 31, 2007.
  5. Closure Costs, Impairment and Other Related Charges
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Unaudited, in millions)
    
    2008
    
    2007
    
    2008
    
    2007Asset impairment
    
    $
    127
    
    
    $
    
    
    
    $
    127
    
    
    $
    Other closure costs:Noncancelable contracts
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    Severance and other
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    $
    127
    
    
    $
    
    
    
    $
    140
    
    
    $
    
  8




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
  6. Pension and Other Postretirement Expense
  Pension Plans:
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Unaudited, in millions)
    
    2008
    
    2007
    
    2008
    
    2007Components of net periodic benefit cost:Service cost
    
    $
    7
    
    
    $
    9
    
    
    $
    20
    
    
    $
    27Interest cost
    
    
    34
    
    
    
    33
    
    
    
    103
    
    
    
    95Expected return on plan assets
    
    
    (40
    )
    
    
    (35
    )
    
    
    (119
    )
    
    
    (100
    )Amortization of prior service cost
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    3Recognized net actuarial loss
    
    
    2
    
    
    
    7
    
    
    
    6
    
    
    
    21Special termination benefits
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    7Curtailments and settlements
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    12Net periodic benefit cost
    
    $
    4
    
    
    $
    23
    
    
    $
    13
    
    
    $
    65
 OPEB Plans:
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,(Unaudited, in millions)
    
    2008
    
    2007
    
    2008
    
    2007Components of net periodic benefit cost:Service cost
    
    $
    
    
    
    $
    1
    
    
    $
    1
    
    
    $
    2Interest cost
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    9Amortization of prior service credit
    
    
    (2
    )
    
    
    (3
    )
    
    
    (8
    )
    
    
    (9
    )Recognized net actuarial loss
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    5Curtailments and settlements
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    (3
    )Net periodic benefit cost
    
    $
    2
    
    
    $
    3
    
    
    $
    9
    
    
    $
    4
 Events Impacting Net Periodic Benefit Cost for the Three and Nine Months Ended September 30, 2008
  9




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
 Events Impacting Net Periodic Benefit Cost for the Three and Nine Months Ended September 30, 2007
      7. Note Contribution and Spin-off During the Second Quarter of 2008
   (Unaudited, in millions)Note contributedNote receivable  AbitibiBowater
    
    $
    650Total note contributed
    
    
    650Investment distributedCurrent assets
    
    
    68Fixed assets
    
    
    503Goodwill
    
    
    184Current liabilities
    
    
    (47
    )Long-term debt
    
    
    (5
    )Other long-term liabilities
    
    
    (3
    )Deferred taxes
    
    
    (131
    )Bowaters investment in Newsprint South
    
    
    569Net increase
in additional paid-in capital account in shareholders (deficit) equity
    
    $
    81
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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
 Review of Long-lived Assets (Including Goodwill)
    (Unaudited, in millions)Allocation of GoodwillComponents of Newsprint Reporting Unit
    
    as of May 15, 2008Components included in the Spin-off
    
    $
    184Other components that will remain with Bowater
    
    
    342$
    526
  8. Transactions with Related Parties
  11




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
      9. Commitments and Contingencies
   10. Off-Balance Sheet Debt Guarantees
  12




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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
   11. Segment Information
    Coated
    
    Specialty
    
    Market
    
    Wood
    
    Corporate
    
    Consolidated(Unaudited, in millions)
    
    
    
    
    
    Newsprint
    
    Papers
    
    Papers
    
    Pulp
    
    Products
    
    and Other
    
    TotalSalesThird Quarter
    
    
    2008
    
    
    $
    354
    
    
    $
    176
    
    
    $
    166
    
    
    $
    108
    
    
    $
    50
    
    
    $
    
    
    
    $
    854Third Quarter
    
    
    2007
    
    
    
    296
    
    
    
    152
    
    
    
    142
    
    
    
    160
    
    
    
    62
    
    
    
    3
    
    
    
    815Year to date
    
    
    2008
    
    
    960
    
    
    512
    
    
486
    
    
412
    
    
153
    
    
    
    1
    
    
    
    2,524Year to date
    
    
    2007
    
    
    
    912
    
    
    
    410
    
    
    
    434
    
    
    
    431
    
    
    
    189
    
    
    
    9
    
    
    
    2,385Operating income
(loss)(1)Third Quarter
    
    
    2008
    
    
    $
    40
    
    
    $
    30
    
    
    $
    11
    
    
    $
    4
    
    
    $
    (6
    )
    
    $
    (194
    )
    
    $
    (115
    )Third Quarter
    
    
    2007
    
    
    
    (39
    )
    
    
    14
    
    
    
    (20
    )
    
    
    29
    
    
    
    (11
    )
    
    
    (55
    )
    
    
    (82
    )Year to date
    
    
    2008
    
    
   12
    
    
99
    
    
    
    6
    
    
53
    
    
(27
    )
    
(234
    )

    
    
    (91
    )Year to date
    
    
    2007
    
    
    
    (55
    )
    
    
    27
    
    
    
    (39
    )
    
    
    66
    
    
    
    (32
    )
    
    
    (9
    )
    
    
    (42
    )
 (1)
    
    Corporate and Other operating loss included a net gain from disposition of assets of
$4 million and $17 million for the three months ended September 30, 2008 and 2007,
respectively, and $44 million and $140 million for
the nine months ended September 30, 2008 and 2007, respectively, and closure costs, impairment
and other related charges of $127 million and $140 million for the three and nine months ended
September 30, 2008, respectively, as well as charges for the writedown of mill stores inventory
related to the permanent closure of our Donnacona paper mill of $7 million for the three and
nine months ended September 30, 2008. Corporate and Other operating loss also included a pre-tax charge for an
arbitration award of $28 million for the three and nine months ended September 30, 2007.
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BOWATER INCORPORATED
Notes to Unaudited Condensed Consolidated Financial Statements
   September 30,
    
    December 31,(Unaudited, in millions)
    
    2008
    
    2007Newsprint (1)
    
    $
    403
    
    
    $
    587Coated papers
    
    
    26
    
    
    
    15Specialty papers
    
    
    92
    
    
    
    99Market pulp (1)
    
    
    28
    
    
    
    21Lumber
    
    
    12
    
    
    
    14Corporate and other (1)
    
    
    3,088
    
    
    
    3,883$
    3,649
    
    
    $
    4,619
 (1)
    
    We transferred our investment in Newsprint South to AbitibiBowater. Prior to the transfer, our
Newsprint, Market pulp and Corporate and other segments included assets of Newsprint South. See
Note 7, Note Contribution and Spin-off During the Second Quarter of 2008 for additional
information. Included in our investment was $184 million of goodwill previously included in our
Newsprint segment.
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BOWATER INCORPORATED
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    Note Contribution and Spin-off During the Second Quarter of 2008
    Cautionary Statements Regarding Forward-Looking Information
   15




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BOWATER INCORPORATED
  Accounting Policies and Estimates
    Goodwill
   16




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BOWATER INCORPORATED
      Long-lived Asset Impairment
   17




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BOWATER INCORPORATED
   18




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BOWATER INCORPORATED
 Business and Financial Review
 Nine Months EndedSeptember 30,(Unaudited, in millions)
    
    2008
    
    
    2007
    
    
    ChangeSales
    
    $
    2,524
    
    
    $
    2,385
    
    
    $
    139Operating loss
    
    
    (91
    )
    
    
    (42
    )
    
    
    (49
    )Net loss
    
    
    (294
    )
    
    
    (240
    )
    
    
    (54
    )Significant items that improved
(lowered) operating loss:Product pricing
    
    
    
    
    
    
    
    
    
    $
    326Shipment volume
    
    
    
    
    
    
    
    
    
    
    (187
    )Change in sales
    
    
    
    
    
    
    
    
    
    
    139Change in cost of sales and depreciation, amortization and cost of timber harvested
    
    
    
    
    
    
    
    
    
    
    (4
    )Change in distribution costs
    
    
    
    
    
    
    
    
    
    
    (3
    )Change in selling and administrative expenses
    
    
    
    
    
    
    
    
    
    
    27Change in arbitration award
    
    
    
    
    
    
    
    
    
    
    28Change in closure costs, impairment and other related charges
    
    
    
    
    
    
    
    
    
    
    (140
    )Change in net gain on disposition of assets
    
    
    
    
    
    
    
    
    
    
    (96
    )Change in operating loss
    
    
    
    
    
    
    
    
    
    
    (49
    )Other significant items that improved
(lowered) net loss:Change in equity in loss of Abitibi
    
    
    
    
    
    
    
    
    
    
    (92
    )Change in interest income
    
    
    
    
    
    
    
    
    
    
    29Change in interest expense
    
    
    
    
    
    
    
    
    
    
    (12
    )Change in
other income (expense), net
    
    
    
    
    
    
    
    
    
    
    48Change in income tax benefit (provision)
    
    
    
    
    
    
    
    
    
    
    20Change in minority interests, net of tax
    
    
    
    
    
    
    
    
    
    
    2Change in net loss
    
    
    
    
    
    
    
    
    
    $
    (54
    )
 Nine months ended September 30, 2008 versus September 30, 2007
  Sales
  Operating loss
  19




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BOWATER INCORPORATED
 Manufacturing Costs
  Distribution costs
  Selling
and administrative expenses
  Arbitration award
  Closure costs, impairment and other related charges
   Net gain on disposition of assets
  Net loss
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BOWATER INCORPORATED
    21




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BOWATER INCORPORATED
 Liquidity
 Overview
     Liquidity, Short-term Bank Debt and Current Installments of Long-Term Debt
    22




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BOWATER INCORPORATED
  Bank Credit Facilities
  WeightedAmount
    
    Commitment
    
    Termination
    
    Average(Unaudited, in millions)
    
    Commitment
    
    Outstanding
    
    Available(1)
    
    Date
    
    Interest Rate(2)U.S. credit facility
    
    $
    415
    
    
    $
    315
    
    
    $
    30
    
    
    
    05/11
    
    
    
    6.7
    %Canadian credit facility
    
    
    144
    
    
    
    67
    
    
    
    46
    
    
    
    06/09
    
    
    
    6.3
    %$
    559
    
    
    $
    382
    
    
    $
    76
 (1)
    
    The commitment available under each of these revolving bank credit facilities is subject to
collateral requirements and covenant restrictions (after giving
effect to the financial covenant waivers included in the
November 12, 2008 amendment) as described below or in our Annual Report
on Form 10-K for the year ended December 31, 2007, filed on April 14, 2008, in our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2008, filed on May 15, 2008 or in our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, filed on August 22, 2008,
and is reduced by outstanding letters of credit of $70 million for our U.S. credit facility
and $31 million for our Canadian credit facility. Commitment fees for unused portions of our
U.S. and Canadian credit facilities are 50 and 25 basis points, respectively.(2)
    
    Borrowings under the bank credit facilities incur interest based, at our option, on specified
market interest rates plus a margin.
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BOWATER INCORPORATED
  Amendments to Bank Credit Facilities
       24




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BOWATER INCORPORATED
  Employee Benefit Plans
 
   
 Item 4T. Controls and Procedures.
   (b)
    
    Changes in Internal Control over Financial Reporting:
  25




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BOWATER INCORPORATED
 
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  Our substantial indebtedness is currently affecting our financial health.
  
    
    limiting our ability to obtain additional financing, if needed, or refinancing, when
needed, for debt service requirements, working capital, capital expenditures or other
purposes;
    
    increasing our vulnerability to current and future adverse economic and industry
conditions;
    
    requiring us to dedicate a substantial portion of our cash flows from operations to
make payments on our debt;
    
    causing us and AbitibiBowater to monetize assets such as timberland or production
facilities on terms that may be unfavorable to us;
    
    causing us to offer debt securities on terms that may not be favorable to us;
    
    reducing funds available for operations, future business opportunities or other
purposes;
    
    limiting our flexibility in planning for, or reacting to, changes and opportunities
in our business and our industry;
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BOWATER INCORPORATED
 
    
    increasing employee turnover and uncertainty, diverting managements attention from
routine business and hindering our ability to recruit qualified employees; and
    
    placing us at a competitive disadvantage compared to our competitors that have less
debt.
    The current decline in the global economy and credit crisis may significantly inhibit our ability
to reduce and refinance our current indebtedness .
   Our operations require substantial capital and we may not have adequate capital resources to
provide for all of our capital requirements.
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BOWATER INCORPORATED
  If AbitibiBowater does not meet the continued listing requirements of the New York Stock Exchange,
its common stock may be delisted.
  Developments in alternative media could continue to adversely affect the demand for our products,
especially in North America, and our responses to these developments may not be successful.
   28




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BOWATER INCORPORATED
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 Exhibit No.
    
    Description31.1
    
    Certification of President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Vice President and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
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BOWATER INCORPORATED
 
   BOWATER INCORPORATEDBy
    /s/ William G. HarveyWilliam G. HarveyDirector, Vice President and TreasurerBy
    /s/ Joseph B. JohnsonJoseph B. JohnsonVice President and Controller  30




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BOWATER INCORPORATED
 
 INDEX TO EXHIBITS
 Exhibit No.
    
    Description31.1
    
    Certification of President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Vice President and Treasurer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.