##### 



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 March 31, 2003

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 May 7, 2003.

|                              |  |                           
|----------------------------- |  | --------------------------
|Class                         |  | Outstanding at May 7, 2003
|                              |  |                           
|                             
|Common Stock, $1.00 Par Value |  | 55,377,345 Shares         





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BOWATER INCORPORATED
I N D E X

|                             |                                                                                          |                                                                                          |    |        |      | 
|---------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | -- | ------ | ---- | 
|                             |                                                                                          |                                                                                          |    | Page  
|                             |                                                                                          |                                                                                          |    | Number
|                             |                                                                                          |                                                                                          |    |       
|PART I FINANCIAL INFORMATION |                                                                                          |                                                                                          |    |       
|                             | 1. Financial Statements:                                                                 |                                                                                          |    |        |     
|                             |                                                                                          | Consolidated Statement of Operations for the Three
Months Ended March 31, 2003, and 2002 |    |        | 3    | 
|                             |                                                                                          | Consolidated Balance Sheet at March 31, 2003,
and December 31, 2002                      |    |        | 4    | 
|                             |                                                                                          | Consolidated Statement of Capital Accounts
for the Three Months Ended March 31, 2003     |    |        | 5    | 
|                             |                                                                                          | Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 2003 and 2002  |    |        | 6    | 
|                             |                                                                                          | Notes to Consolidated Financial Statements                                               |    |        | 7-17 | 
|                             | 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations |                                                                                          |    | 18-25  |     
|                             | 3. Quantitative and Qualitative Disclosures About Market Risk                            |                                                                                          |    | 25     |     
|                             | 4. Controls and Procedures                                                               |                                                                                          |    | 25     |     
|PART II OTHER INFORMATION    |                                                                                          |                                                                                          |    |       
|                             | Item 1. Legal Proceedings                                                                |                                                                                          |    | 26     |     
|                             | Item 6. Exhibits and Reports on Form 8-K                                                 |                                                                                          |    | 27     |     
|SIGNATURES                   |                                                                                          |                                                                                          | 28 |       





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##### 



BOWATER INCORPORATED

CONSOLIDATED STATEMENT OF OPERATIONS


(Unaudited, in millions of US dollars except per-share amounts)


|                                                                                                 |                                                             |   |                    |       |           |   |       |      |  
|------------------------------------------------------------------------------------------------ | ----------------------------------------------------------- | - | ------------------ | ----- | --------- | - | ----- | ---- | -
|                                                                                                 |                                                             |   | Three Months Ended
|                                                                                                 |                                                             |   |                   
|                                                                                                 |                                                             |   | March 31,          |       | March 31,
|                                                                                                 |                                                             |   | 2003               |       | 2002     
|                                                                                                 |                                                             |   |                    |       |          
|Sales                                                                                            |                                                             | $ | 630.5              |       |           | $ | 624.2 |     
|Cost of sales, excluding depreciation, amortization
and cost of timber harvested                 |                                                             |   | 516.5              |       |           |   | 470.6 |     
|Depreciation, amortization and cost of timber harvested                                          |                                                             |   | 82.5               |       |           |   | 86.3  |     
|Distribution costs                                                                               |                                                             |   | 62.1               |       |           |   | 56.5  |     
|Selling and administrative expense                                                               |                                                             |   | 36.8               |       |           |   | 35.5  |     
|Net gain on sale of assets                                                                       |                                                             |   | 11.1               |       |           |   | 71.5  |     
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|                                                                                                 | Operating income (loss)                                     |   |                    | (56.3 | )         |   |       | 46.8 |  
|Other expense (income):                                                                          |                                                             |   |                    |       |           |   |       |     
|                                                                                                 | Interest income                                             |   |                    | (1.0  | )         |   |       | (1.0 | )
|                                                                                                 | Interest expense, net of capitalized interest               |   |                    | 39.9  |           |   |       | 41.8 |  
|                                                                                                 | Other, net                                                  |   |                    | 8.3   |           |   |       | (0.1 | )
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|                                                                                                 |                                                             |   | 47.2               |       |           |   | 40.7  |     
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|Income (loss) before income taxes, minority interests
and cumulative effect of accounting change |                                                             |   | (103.5             | )     |           |   | 6.1   |     
|Provision for income tax expense (benefit)                                                       |                                                             |   | (30.3              | )     |           |   | (2.5  | )   
|Minority interests in net income (loss) of subsidiaries                                          |                                                             |   | (3.6               | )     |           |   | (1.6  | )   
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|Income (loss) before cumulative effect of accounting change                                      |                                                             |   | (69.6              | )     |           |   | 10.2  |     
|Cumulative effect of accounting change                                                           |                                                             |   | (2.1               | )     |           |   |      |     
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|Net income (loss)                                                                                |                                                             |   | (71.7              | )     |           |   | 10.2  |     
|Other comprehensive income (loss), net of tax:                                                   |                                                             |   |                    |       |           |   |       |     
|                                                                                                 | Foreign currency translation adjustments                    |   |                    | 4.7   |           |   |       | 0.6  |  
|                                                                                                 | Unrealized gain on hedged transactions                      |   |                    | 39.9  |           |   |       | 1.5  |  
|                                                                                                 | Minimum pension liability adjustments                       |   |                    | (2.5  | )         |   |       |     |  
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|Comprehensive income                                                                             |                                                             | $ | (29.6              | )     |           | $ | 12.3  |     
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|Basic
earnings per common share*                                                                 |                                                             |   |                    |       |           |   |       |     
|                                                                                                 | Income (loss) before cumulative effect of accounting change |   |                    | (1.22 | )         |   |       | 0.18 |  
|                                                                                                 | Cumulative effect of accounting change                      |   |                    | (0.04 | )         |   |       |     |  
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|                                                                                                 | Net income (loss)                                           |   | $                  | (1.26 | )         |   | $     | 0.18 |  
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|Diluted
earnings per common share*                                                               |                                                             |   |                    |       |           |   |       |      |  
|                                                                                                 | Income (loss) before cumulative effect of accounting change |   |                    | (1.22 | )         |   |       | 0.18 |  
|                                                                                                 | Cumulative effect of accounting change                      |   |                    | (0.04 | )         |   |       |     |  
|                                                                                                 |                                                             |   |                    |       |           |   |       |     
|                                                                                                 | Net income (loss)                                           |   | $                  | (1.26 | )         |   | $     | 0.18 |  
|                                                                                                 |                                                             |   |                    |       |           |   |       |     

*     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

3



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##### 



BOWATER INCORPORATED

CONSOLIDATED BALANCE SHEET


(Unaudited, in millions of US dollars)


|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |         |  |  | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------- | ------- | --------- | - | ------------ | ------- |  |  | 
|                                     |                                                                                                                                                          |                                            |   |         |         | March 31, |   | December 31,
|                                     |                                                                                                                                                          |                                            |   |         |         | 2003      |   | 2002        
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |             
|ASSETS                               |                                                                                                                                                          |                                            |   |         |         |           |   |             
|Current assets:                      |                                                                                                                                                          |                                            |   |         |         |           |   |             
|                                     | Cash and cash equivalents                                                                                                                                |                                            | $ | 87.7    |         |           | $ | 35.9         |        
|                                     | Accounts receivable, net                                                                                                                                 |                                            |   | 336.4   |         |           |   | 330.6        |        
|                                     | Inventories                                                                                                                                              |                                            |   | 281.7   |         |           |   | 257.2        |        
|                                     | Income taxes receivable                                                                                                                                  |                                            |   |        |         |           |   | 75.6         |        
|                                     | Other current assets                                                                                                                                     |                                            |   | 61.8    |         |           |   | 35.9         |        
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        
|                                     |                                                                                                                                                          | Total current assets                       |   |         | 767.6   |           |   |              | 735.2   | 
|                                     | Timber and timberlands                                                                                                                                   |                                            |   | 212.3   |         |           |   | 212.0        |        
|                                     | Fixed assets, net                                                                                                                                        |                                            |   | 3,647.2 |         |           |   | 3,645.6      |        
|                                     | Goodwill                                                                                                                                                 |                                            |   | 831.1   |         |           |   | 839.9        |        
|                                     | Other assets                                                                                                                                             |                                            |   | 180.1   |         |           |   | 157.6        |        
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        
|                                     |                                                                                                                                                          | Total assets                               |   | $       | 5,638.3 |           |   | $            | 5,590.3 | 
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                          |                                            |   |         |         |           |   |             
|Current liabilities:                 |                                                                                                                                                          |                                            |   |         |         |           |   |             
|                                     | Current installments of long-term debt                                                                                                                   |                                            | $ | 77.1    |         |           | $ | 84.3         |        
|                                     | Short-term bank debt                                                                                                                                     |                                            |   | 358.0   |         |           |   | 249.0        |        
|                                     | Accounts payable and accrued liabilities                                                                                                                 |                                            |   | 422.0   |         |           |   | 411.9        |        
|                                     | Dividends payable                                                                                                                                        |                                            |   | 11.2    |         |           |   | 11.2         |        
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        
|                                     |                                                                                                                                                          | Total current liabilities                  |   |         | 868.3   |           |   |              | 756.4   | 
|                                     | Long-term debt, net of current installments                                                                                                              |                                            |   | 2,039.9 |         |           |   | 2,037.4      |        
|                                     | Other long-term liabilities                                                                                                                              |                                            |   | 458.4   |         |           |   | 450.7        |        
|                                     | Deferred income taxes                                                                                                                                    |                                            |   | 485.0   |         |           |   | 518.2        |        
|                                     | Minority interests in subsidiaries                                                                                                                       |                                            |   | 71.3    |         |           |   | 72.1         |        
|                                     | Commitments and contingencies                                                                                                                            |                                            |   |        |         |           |   |             |        
|Shareholders equity:                |                                                                                                                                                          |                                            |   |         |         |           |   |             
|                                     | Common stock, $1 par value. Authorized 100,000,000 shares; issued
66,907,158 and 66,897,158 shares at March 31, 2003 and December 31, 2002,
respectively |                                            |   | 66.9    |         |           |   | 66.9         |        
|                                     | Exchangeable shares, no par value. Unlimited shares authorized;
1,643,248 outstanding at March 31, 2003 and December 31, 2002
respectively               |                                            |   | 78.3    |         |           |   | 78.3         |        
|                                     | Additional paid-in capital                                                                                                                               |                                            |   | 1,597.2 |         |           |   | 1,596.8      |        
|                                     | Retained earnings                                                                                                                                        |                                            |   | 566.7   |         |           |   | 649.9        |        
|                                     | Unearned compensation                                                                                                                                    |                                            |   | (2.9    | )       |           |   |             |        
|                                     | Accumulated other comprehensive loss                                                                                                                     |                                            |   | (108.0  | )       |           |   | (150.1       | )      
|                                     | Treasury stock, at cost, 11,530,414 and 11,617,494 shares at March 31, 2003
and December 31, 2002, respectively                                          |                                            |   | (482.8  | )       |           |   | (486.3       | )      
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        
|                                     |                                                                                                                                                          | Total shareholders equity                 |   |         | 1,715.4 |           |   |              | 1,755.5 | 
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        
|                                     |                                                                                                                                                          | Total liabilities and shareholders equity |   | $       | 5,638.3 |           |   | $            | 5,590.3 | 
|                                     |                                                                                                                                                          |                                            |   |         |         |           |   |              |        

See accompanying notes to consolidated financial statements

4



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##### 



BOWATER INCORPORATED

CONSOLIDATED STATEMENT OF CAPITAL ACCOUNTS


For The Three Months Ended March 31, 2003
(Unaudited, in millions of US dollars except per-share amounts)


|                                                                                                             |  |        |      |              |  |         |      |          |  |              |         |               |  |          |       |   |  |   |      |       |  |             |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ------ | ---- | ------------ |  | ------- | ---- | -------- |  | ------------ | ------- | ------------- |  | -------- | ----- | - |  | - | ---- | ----- |  | ----------- | ------ | - |  | - | ------ | -
|                                                                                                             |  |        |      |              |  |         |      |          |  |              |         |               |  |          |       |   |  |   |      |       |  | Accumulated |        |   |  |  
|                                                                                                             |  |        |      |              |  |         |      |          |  | Additional   |         |               |  |          |       |   |  |   |      | Other |  |             |        |  
|                                                                                                             |  | Common |      | Exchangeable |  | Paid-in |      | Retained |  | Unearned     |         | Comprehensive |  | Treasury
|                                                                                                             |  | Stock  |      | Shares       |  | Capital |      | Earnings |  | Compensation |         | Loss          |  | Stock   
|                                                                                                             |  |        |      |              |  |         |      |          |  |              |         |               |  |         
|Balance at December 31, 2002                                                                                 |  | $      | 66.9 |              |  | $       | 78.3 |          |  | $            | 1,596.8 |               |  | $        | 649.9 |   |  | $ |     |       |  | $           | (150.1 | ) |  | $ | (486.3 | )
|Net loss                                                                                                     |  |        |     |              |  |         |     |          |  |              |        |               |  |          | (71.7 | ) |  |   |     |       |  |             |       |   |  |   |       |  
|Dividends ($0.20 per share)                                                                                  |  |        |     |              |  |         |     |          |  |              |        |               |  |          | (11.5 | ) |  |   |     |       |  |             |       |   |  |   |       |  
|Foreign currency translation                                                                                 |  |        |     |              |  |         |     |          |  |              |        |               |  |          |      |   |  |   |     |       |  |             | 4.7    |   |  |   |       |  
|Stock options exercised (10,000 shares)                                                                      |  |        |     |              |  |         |     |          |  |              | 0.2     |               |  |          |      |   |  |   |     |       |  |             |       |   |  |   |       |  
|Tax benefit on exercise of stock options                                                                     |  |        |     |              |  |         |     |          |  |              | 0.1     |               |  |          |      |   |  |   |     |       |  |             |       |   |  |   |       |  
|Stock option compensation                                                                                    |  |        |     |              |  |         |     |          |  |              | 0.2     |               |  |          |      |   |  |   |     |       |  |             |       |   |  |   |       |  
|Pension plan additional minimum liability
net of tax benefit of $1.8                                         |  |        |     |              |  |         |     |          |  |              |        |               |  |          |      |   |  |   |     |       |  |             | (2.5   | ) |  |   |       |  
|Treasury stock used for dividend reinvestment plans and
to pay employee and director benefits (4,570 shares) |  |        |     |              |  |         |     |          |  |              |        |               |  |          |      |   |  |   |     |       |  |             |       |   |  |   | 0.1    |  
|Restricted stock grant (82,510 shares from Treasury Stock)                                                   |  |        |     |              |  |         |     |          |  |              | (0.1    | )             |  |          |      |   |  |   | (3.3 | )     |  |             |       |   |  |   | 3.4    |  
|Amortization of unearned compensation                                                                        |  |        |     |              |  |         |     |          |  |              |        |               |  |          |      |   |  |   | 0.4  |       |  |             |       |   |  |   |       |  
|Unrealized gain on hedged transactions,
net of tax provision of $24.4                                        |  |        |     |              |  |         |     |          |  |              |        |               |  |          |      |   |  |   |     |       |  |             | 39.9   |   |  |   |       |  
|                                                                                                             |  |        |      |              |  |         |      |          |  |              |         |               |  |          |       |   |  |   |      |       |  |             |        |   |  |   |        |  
|Balance at March 31, 2003                                                                                    |  | $      | 66.9 |              |  | $       | 78.3 |          |  | $            | 1,597.2 |               |  | $        | 566.7 |   |  | $ | (2.9 | )     |  | $           | (108.0 | ) |  | $ | (482.8 | )
|                                                                                                             |  |        |      |              |  |         |      |          |  |              |         |               |  |          |       |   |  |   |      |       |  |             |        |   |  |   |        |  

See accompanying notes to consolidated financial statements

5



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##### 



BOWATER INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS


(Unaudited, in millions of US Dollars)


|                                                                                  |                                                           |                                               |        |                    |       |           |        |       |       |  
|--------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------------------------- | ------ | ------------------ | ----- | --------- | ------ | ----- | ----- | -
|                                                                                  |                                                           |                                               |        | Three Months Ended
|                                                                                  |                                                           |                                               |        |                   
|                                                                                  |                                                           |                                               |        | March 31,          |       | March 31,
|                                                                                  |                                                           |                                               |        | 2003               |       | 2002     
|                                                                                  |                                                           |                                               |        |                    |       |          
|Cash flows from operating activities:                                             |                                                           |                                               |        |                    |       |           |        |      
|Net income (loss)                                                                 |                                                           | $                                             | (71.7  | )                  |       | $         | 10.2   |      
|Cumulative effect of accounting change                                            |                                                           |                                               | 2.1    |                    |       |           |       |      
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                           |                                               |        |                    |       |           |        |      
|Depreciation, amortization and cost of
timber harvested                           |                                                           |                                               | 82.5   |                    |       |           | 86.3   |      
|Deferred income taxes                                                             |                                                           |                                               | (30.8  | )                  |       |           | (3.3   | )    
|Amortization of unearned compensation                                             |                                                           |                                               | 0.4    |                    |       |           |       |      
|Minority interests in net income (loss) of subsidiaries                           |                                                           |                                               | (3.6   | )                  |       |           | (1.6   | )    
|Net gain on sale of assets                                                        |                                                           |                                               | (11.1  | )                  |       |           | (71.5  | )    
|Receipts (payments) on maturity of hedging contracts                              |                                                           |                                               | 2.7    |                    |       |           | (4.0   | )    
|Changes in working capital:                                                       |                                                           |                                               |        |                    |       |           |        |      
|                                                                                  | Accounts receivable, net                                  |                                               |        | (5.8               | )     |           |        | (16.8 | )    
|                                                                                  | Inventories                                               |                                               |        | (24.5              | )     |           |        | (20.7 | )    
|                                                                                  | Income taxes receivable                                   |                                               |        | 75.6               |       |           |        |      |      
|                                                                                  | Accounts payable and accrued liabilities                  |                                               |        | 2.8                |       |           |        | (37.3 | )    
|                                                                                  | Income taxes payable                                      |                                               |        | 20.4               |       |           |        | 0.7   |      
|Other, net                                                                        |                                                           |                                               | 9.6    |                    |       |           | (3.5   | )    
|                                                                                  |                                                           |                                               |        |                    |       |           |        |      
|                                                                                  |                                                           | Net cash from (used for) operating activities |        |                    | 48.6  |           |        |       | (61.5 | )
|Cash flows from investing activities:                                             |                                                           |                                               |        |                    |       |           |        |      
|Cash invested in fixed assets, timber and timberlands                             |                                                           |                                               | (96.3  | )                  |       |           | (70.4  | )    
|Disposition of assets, including timber and timberlands                           |                                                           |                                               | 11.4   |                    |       |           | 16.1   |      
|Proceeds from the monetization of notes receivable                                |                                                           |                                               |       |                    |       |           | 88.1   |      
|Cash invested in marketable securities                                            |                                                           |                                               |       |                    |       |           | (3.5   | )    
|Cash from maturity of marketable securities                                       |                                                           |                                               |       |                    |       |           | 3.8    |      
|                                                                                  |                                                           |                                               |        |                    |       |           |        |      
|                                                                                  |                                                           | Net cash from (used for) investing activities |        |                    | (84.9 | )         |        |       | 34.1  |  
|Cash flows from financing activities:                                             |                                                           |                                               |        |                    |       |           |        |      
|Cash dividends, including minority interests                                      |                                                           |                                               | (11.5  | )                  |       |           | (14.8  | )    
|Short-term financing                                                              |                                                           |                                               | 344.9  |                    |       |           | 254.3  |      
|Short-term financing repayments                                                   |                                                           |                                               | (235.9 | )                  |       |           | (228.0 | )    
|Purchases/payments of long-term debt                                              |                                                           |                                               | (9.7   | )                  |       |           | (2.4   | )    
|Stock options exercised                                                           |                                                           |                                               | 0.2    |                    |       |           | 4.7    |      
|Other                                                                             |                                                           |                                               | 0.1    |                    |       |           |       |      
|                                                                                  |                                                           |                                               |        |                    |       |           |        |      
|                                                                                  |                                                           | Net cash from financing activities            |        |                    | 88.1  |           |        |       | 13.8  |  
|                                                                                  |                                                           |                                               |        |                    |       |           |        |      
|Net increase (decrease) in cash and cash equivalents                              |                                                           |                                               | 51.8   |                    |       |           | (13.6  | )    
|Cash and cash equivalents at beginning of year                                    |                                                           |                                               | 35.9   |                    |       |           | 28.3   |      
|                                                                                  |                                                           |                                               |        |                    |       |           |        |      
|Cash and cash equivalents at end of period                                        |                                                           | $                                             | 87.7   |                    |       | $         | 14.7   |      
|                                                                                  |                                                           |                                               |        |                    |       |           |        |      
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                |                                                           |                                               |        |                    |       |           |        |      
|Cash paid during the period for:                                                  |                                                           |                                               |        |                    |       |           |        |      
|                                                                                  | Interest,
including capitalized interest of $3.0 and $1.5 |                                               | $      | 21.5               |       |           | $      | 22.4  |      
|                                                                                  | Income taxes                                              |                                               | $      | 1.0                |       |           | $      | 1.0   |      

See accompanying notes to consolidated financial statements

6



---



##### 



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 (Bowater). The consolidated balance
sheet as of March 31, 2003 and the related statement of operations, capital
accounts and cash flows for the three-month periods ended March 31, 2003 and
2002 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 March 31, 2003 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.
Certain prior-year amounts in the financial statements and the notes have
been reclassified to conform to the 2002 presentation.                                                                                                                                                          
|  
|2. |  | Guarantors Accounting and Disclosure Requirements for Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others. FIN 45 requires a guarantor to include disclosure of certain
obligations, and if applicable, at the inception of the guarantee, recognize
a liability for the fair value of other certain obligations undertaken in
issuing a guarantee. The recognition requirement is effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim or annual
periods ending after December 15, 2002. Bowater adopted the disclosure
requirements of FIN 45 effective with our Annual Report on Form 10-K for the
year ending December 31, 2002. Bowater adopted the recognition requirements
of FIN 45 on January 1, 2003. Bowaters off-balance sheet guarantees, which
are disclosed in our Annual Report on Form 10-K for the year ending December
31, 2002, were entered into prior to December 31, 2002, therefore the
adoption did not have an impact on our first quarter 2003 financial
statements.
|  
|3. |  | Asset Retirement Obligations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | In July 2001, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset Retirement Obligations. 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 and a
reasonable estimate of a fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
related long-lived asset. Subsequently, the asset retirement cost should be
allocated to expense using a systematic and rational method and the
liability should be accreted to its face amount. Prior to SFAS No. 143,
Bowater had not recorded an obligation for these asset retirement
obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Bowater adopted SFAS No. 143 on January 1, 2003 and recorded a cumulative
effect adjustment of $2.1 million, net of taxes ($0.04 per share) to our
consolidated statement of operations for the first quarter of 2003. The
adoption adjustment also included increases to fixed assets, net, of $0.9
million, long term obligations of $4.3 million and deferred taxes of $1.3
million. Asset retirement obligations were recorded for those obligations
where a legally enforceable obligation exists, the life is determinable and
a reasonable estimate of fair value can be made. Asset retirement
obligations recorded in connection with the adoption of SFAS No. 143 were
primarily for industrial waste landfills, bark piles and sludge basins where
we have a legally enforceable obligation to perform capping and post closure
monitoring procedures upon closing of these assets. The capitalized cost
recorded is depreciated over its estimated useful life on a straight-line
basis.                                                                                                                                                                                                                    
|  
|   |  | Additionally, we have certain asset retirement obligations that have
indeterminate useful lives and thereby have an indeterminate settlement date
for the related asset retirement obligation. As a result, no asset
retirement obligation was recorded for these assets. These assets for
example include, wastewater and effluent ponds that will be required to be
drained once the related operating facility is closed and removal of
chemicals and other related materials from storage sites on owned facilities
once the related operating facility is closed. Once the life of these
assets becomes determinable and an estimate of fair value can be made, an
asset retirement obligation will be recorded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

7



---



##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



| |  | The pro forma effects of the application of SFAS No. 143 as if the statement
had been adopted on January 1, 2002 (rather than January 1, 2003) are
presented below:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                       |  |                              |       |      |  |   |      | 
|-------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | ---- |  | - | ---- | 
|                                                                                       |  | Three months ended March 31,
|(Unaudited, in
millions, except per-share amounts)                                     |  | 2003                         |       | 2002
|                                                                                       |  |                              |       |     
|Pro forma amounts assuming the
accounting change is applied
retroactively, net of tax: |  |                              |       |      |  |   |      | 
|Net income (loss)                                                                      |  | $                            | (69.6 | )    |  | $ | 10.1 | 
|                                                                                       |  |                              |       |      |  |   |      | 
|Net income (loss) per diluted share                                                    |  | $                            | (1.22 | )    |  | $ | 0.18 | 
|                                                                                       |  |                              |       |      |  |   |      | 



| |  | The following table describes
changes to Bowaters asset retirement
obligation liability for the three months ended March 31, 2003:
| |  | -----------------------------------------------------------------------------------------------------------------------------------

|                                                         |  |      |     | 
|-------------------------------------------------------- |  | ---- | --- | 
|(Unaudited, in millions)                                 |  | 2003
|                                                         |  |     
|Asset retirement obligation at the beginning of period   |  | $    |    | 
|Cumulative effect adjustment of adoption of SFAS No. 143 |  |      | 4.3 | 
|Accretion expense                                        |  |      | 0.1 | 
|                                                         |  |      |     | 
|Asset retirement obligation at the end of period         |  | $    | 4.4 | 
|                                                         |  |      |     | 



|4. |  | Stock Based Compensation                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Bowater accounts for stock-based compensation utilizing the intrinsic value
method in accordance with Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. Compensation expense for
employee stock options is generally not recognized if the exercise price of
the option equals or exceeds the fair value of the stock on the date of
grant.                  
|  
|   |  | The following table represents the pro forma effect on net income (loss) and
earnings (loss) per share if we had applied the fair value-based method and
recognition provisions of SFAS No. 123 Accounting for Stock-Based Compensation. The estimated fair value
of the option is amortized to expense over the vesting period of the option
award, in accordance with the provisions of SFAS No. 123.

|                                                                                                               |  |                              |       |      |  |   |      |  
|-------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | ---- |  | - | ---- | -
|                                                                                                               |  | Three months ended March 31,
|(Unaudited, in millions, except per-share amounts)                                                             |  | 2003                         |       | 2002
|                                                                                                               |  |                              |       |     
|Net income (loss) as reported:                                                                                 |  | $                            | (71.7 | )    |  | $ | 10.2 |  
|Add: Stock-based compensation expense included in
net income                                                   |  |                              | 0.3   |      |  |   |     |  
|Deduct: Stock-based compensation expense
determined under fair value based methods, net of
related tax effects |  |                              | (1.9  | )    |  |   | (2.0 | )
|                                                                                                               |  |                              |       |      |  |   |      |  
|Pro forma net income (loss)                                                                                    |  | $                            | (73.3 | )    |  | $ | 8.2  |  
|                                                                                                               |  |                              |       |      |  |   |      |  
|Earnings (loss) per share:                                                                                     |  |                              |       |      |  |   |      |  
|Basic, as reported                                                                                             |  | $                            | (1.26 | )    |  | $ | 0.18 |  
|Basic, pro forma                                                                                               |  |                              | (1.29 | )    |  |   | 0.14 |  
|                                                                                                              
|Diluted, as reported                                                                                           |  | $                            | (1.26 | )    |  | $ | 0.18 |  
|Diluted, pro forma                                                                                             |  |                              | (1.29 | )    |  |   | 0.14 |  
|                                                                                                               |  |                              |       |      |  |   |      |  

8



---



##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



| |  | The fair value of each option granted in the three months ended March 31,
2003 and 2002, was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                           |                                |   |           |       |      |   |       |       |  
|------------------------------------------ | ------------------------------ | - | --------- | ----- | ---- | - | ----- | ----- | -
|                                           |                                |   | March 31,
|                                           |                                |   | 2003      |       | 2002
|                                           |                                |   |           |       |     
|Assumptions:                               |                                |   |           |       |      |   |       |      
|                                           | Dividend yield                 |   |           | 1.96  | %    |   |       | 1.64  | %
|                                           | Expected volatility            |   |           | 31.77 | %    |   |       | 30.29 | %
|                                           | Risk-free interest rate        |   |           | 3.35  | %    |   |       | 4.56  | %
|                                           | Expected option lives in years |   |           | 6.24  |      |   |       | 6.28  |  
|                                           |                                |   |           |       |      |   |       |       |  
|Weighted average fair value of each option |                                | $ | 12.20     |       |      | $ | 16.55 |      
|                                           |                                |   |           |       |      |   |       |       |  



|   |  | On January 28, 2003, Bowater granted 82,510 restricted stock awards to
certain officers under the 2002 stock option plan. The 82,510 shares of
restricted stock were issued from our treasury stock. In accordance with
APB 25, we will recognize a compensation charge over the vesting periods
equal to the fair market value of these shares on the date of the grant.
The expense measured under SFAS No. 123 does not differ from that under APB
25. Shares of restricted stock awarded under the 2002 plan vest at the rate
of 50% of each award on the first anniversary of the award date and the
remaining 50% on the second anniversary of the award date. Restricted
shares awarded under the 2002 stock option plan are subject to forfeiture in
the event of termination of employment prior to the vesting dates. Prior to
vesting, the participants may vote and receive dividends. The market value
of the restricted shares granted on January 28, 2003 was approximately $3.3
million and was recorded as unearned compensation, which is a separate
component of shareholders equity, in the first quarter of 2003. We
recorded compensation expense of approximately $0.4 million related to the
amortization of unearned compensation for the first quarter of 2003.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|5. |  | Net Gain on Sale of Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | In the first quarter of 2003, Bowater sold fixed assets and land resulting
in a pre-tax gain of $11.1 million, or $0.12 per diluted share after tax. In
the first quarter of 2002, Bowater sold fixed assets and land resulting in a
pre-tax gain of $71.5 million, or $0.74 per diluted share after tax.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



| |  |  | The notes receivable were monetized through a bankruptcy-remote
limited liability company. The bankruptcy-remote subsidiary is a
qualified special purpose entity (QSPE) under SFAS No. 140, and is not
consolidated in our financial statements.                                                                                                                                                                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 are 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 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). We 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%.
|
| |  |  | 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 quarter of 2002, Bowater sold approximately 2,700 acres of
other timberlands and recorded a net pre-tax gain of $1.1 million.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------

9



---



##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



|6. |  | Other Expense (Income)                                                          
|-- |  | --------------------------------------------------------------------------------
|  
|   |  | Other, net in the Consolidated Statement of Operations includes the
following:

|                               |  |                              |      |      |  |   |      |  
|------------------------------ |  | ---------------------------- | ---- | ---- |  | - | ---- | -
|                               |  | Three Months Ended March 31,
|(Unaudited, in millions)       |  | 2003                         |      | 2002
|                               |  |                              |      |     
|Foreign exchange (gain) loss   |  | $                            | 8.2  |      |  | $ | (1.1 | )
|Loss from joint venture        |  |                              | 0.8  |      |  |   | 1.1  |  
|Miscellaneous (income) expense |  |                              | (0.7 | )    |  |   | (0.1 | )
|                               |  |                              |      |      |  |   |      |  
|                               |  | $                            | 8.3  |      |  | $ | (0.1 | )
|                               |  |                              |      |      |  |   |      |  



|7. |  | Accumulated Other Comprehensive
Income (Loss)                                                                                                     
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The components of Accumulated Other Comprehensive Loss in the
Consolidated Balance Sheet at March 31, 2003 and December 31, 2002 are as
follows:

|                                               |  |           |        |              |  |   |        |  
|---------------------------------------------- |  | --------- | ------ | ------------ |  | - | ------ | -
|                                               |  | March 31, |        | December 31,
|(Unaudited, in millions)                       |  | 2003      |        | 2002        
|                                               |  |           |        |             
|Pension plan additional minimum liabilities    |  | $         | (216.2 | )            |  | $ | (211.9 | )
|Foreign currency translation                   |  |           | (5.2   | )            |  |   | (9.9   | )
|Unrealized gain (loss) on hedging transactions |  |           | 56.3   |              |  |   | (8.0   | )
|Taxes                                          |  |           | 57.1   |              |  |   | 79.7   |  
|                                               |  |           |        |              |  |   |        |  
|                                               |  | $         | (108.0 | )            |  | $ | (150.1 | )
|                                               |  |           |        |              |  |   |        |  



|8. |  | Earnings (Loss) Per Share                                                                                                 
|-- |  | --------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The calculation of basic and diluted earnings (loss) per share after
cumulative effect of accounting change is as follows:

|                                                       |         |      |                              |      |  |   |      |     | 
|------------------------------------------------------ | ------- | ---- | ---------------------------- | ---- |  | - | ---- | --- | 
|                                                       |         |      | Three Months Ended March 31,
|(Unaudited, in millions, except per-share amounts)     |         | 2003 |                              | 2002
|                                                       |         |      |                              |     
|Basic Computation:                                     |         |      |                              |      |  |   |      |    
|Basic income (loss) available to common shareholders   |         | $    | (71.7                        | )    |  | $ | 10.2 |    
|                                                       |         |      |                              |      |  |   |      |    
|Basic weighted average shares outstanding              |         |      | 56.9                         |      |  |   | 56.8 |    
|                                                       |         |      |                              |      |  |   |      |    
|Basic earnings (loss) per common share                 |         | $    | (1.26                        | )    |  | $ | 0.18 |    
|                                                       |         |      |                              |      |  |   |      |    
|Diluted Computation:                                   |         |      |                              |      |  |   |      |    
|Diluted income (loss) available to common shareholders |         | $    | (71.7                        | )    |  | $ | 10.2 |    
|                                                       |         |      |                              |      |  |   |      |    
|Basic weighted average shares outstanding              |         |      | 56.9                         |      |  |   | 56.8 |    
|Effect of dilutive securities:                         |         |      |                              |      |  |   |      |    
|                                                       | Options |      |                              |     |  |   |      | 0.4 | 
|                                                       |         |      |                              |      |  |   |      |    
|Diluted weighted average shares outstanding            |         |      | 56.9                         |      |  |   | 57.2 |    
|                                                       |         |      |                              |      |  |   |      |    
|Diluted earnings (loss) per common share               |         | $    | (1.26                        | )    |  | $ | 0.18 |    
|                                                       |         |      |                              |      |  |   |      |    



| |  | The dilutive effect of options outstanding is calculated using the treasury
stock method. Options for approximately 4.2 million shares outstanding at
March 31, 2003 and 0.7 million shares outstanding at March 31,
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



---



##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



|    |  | 2002, were excluded from the calculation of diluted earnings per share as
the impact would have been antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|9.  |  | Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | As of March 31, 2003 and December 31, 2002, we had unamortized goodwill in
the amount of $831.1 million and $839.9 million, respectively. As of March
31, 2003, and for our annual impairment testing purposes, Goodwill of $532.2
million and $298.9 million (including allocated corporate goodwill of $187.4
million and $108.9 million, respectively) is included in the Newsprint
Division and the Canadian Forest Products Division reportable segments,
respectively. Goodwill decreased by $8.8 million in the first quarter of
2003 as a result of the reduction of certain tax reserves in connection with
the resolution of certain Avenor acquisition tax matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|10. |  | Acquisition/Divestiture and Severance Related Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | COST REDUCTION PROGRAM:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | In the first quarter of 2003, Bowater reduced its salaried and hourly
workforce at certain locations by approximately 79 people and recorded
approximately $6.7 million for employee termination costs, including
severance, medical and other benefits. These terminations were part of
either a voluntary or involuntary reduction program that was finalized in
the first quarter of 2003. The $6.7 million termination costs are
classified in cost of sales ($5.7 million) for manufacturing personnel and
selling and administrative expense ($1.0 million) for administrative
personnel in our Consolidated Statement of Operations. These work force
reductions were part of a cost reduction program announced in the fourth
quarter of 2002. To date, under this cost reduction program, Bowater has
reduced its salaried and hourly workforce by approximately 264 people and
recorded approximately $20.1 million for employee termination costs ($13.4
million recorded in 2002). Related to the 264 people, additional employee
termination costs of approximately $4.4 million will be expensed throughout
the remainder of 2003 for those employees that will render service until
their final termination date. Approximately $5.0 million was paid in the
first quarter of 2003. The remaining accrual at March 31, 2003, of $14.6
million is expected to be paid during 2003, and is included in Accounts
payable and accrued liabilities in the Consolidated Balance Sheet.
|   
|    |  | In connection with the September 24, 2001, 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 $19.5 million (exclusive of
exchange of $0.2) was paid through December 31, 2002. Approximately $0.8
million was paid in the first quarter of 2003. The remaining accrual at
March 31, 2003, of $0.5 million is expected to be paid during the remainder
of 2003, and is included in Accounts payable and accrued liabilities in
the Consolidated Balance Sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The following table summarizes the activity for the liabilities described
above:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                           |  |          |      |         |  |              |      |          |  |          |     |  |  |   |   |  |  |   |      | 
|-------------------------- |  | -------- | ---- | ------- |  | ------------ | ---- | -------- |  | -------- | --- |  |  | - | - |  |  | - | ---- | 
|                           |  |          |      |         |  | Write-offs & |      |          |  |          |     |  |  |   |   |  |  |  
|                           |  |          |      |         |  | Payments     |      | Increase |  |          |     |  |  |   |   | 
|                           |  | Balance, |      | Against |  | (Decrease)   |      | Foreign  |  | Balance,
|(Unaudited, in millions)   |  | 12/31/02 |      | Reserve |  | Reserve      |      | Exchange |  | 3/31/03 
|                           |  |          |      |         |  |              |      |          |  |         
|Employee termination
costs |  | $        | 14.2 |         |  | $            | (5.8 | )        |  | $        | 6.7 |  |  | $ |  |  |  | $ | 15.1 | 
|                           |  |          |      |         |  |              |      |          |  |          |     |  |  |   |   |  |  |   |      | 

11



---



##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



| |  | The following table summarizes the activity of our cost reduction program,
by reportable segment expensed to our Consolidated Statement of Operations:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |                             |          |                                                     |                |                |         |            |     |  |   |      |      | 
|-------------------------------------- | --------------------------- | -------- | --------------------------------------------------- | -------------- | -------------- | ------- | ---------- | --- |  | - | ---- | ---- | 
|                                       |                             |          | Cost Reduction Program - Employee Termination Costs
|                                       |                             |          |                                                     |                |                |         | (Expense)  |     |  |   |     
|                                       |                             |          |                                                    
|                                       |                             |          | Expected to be                                      |                | 3 Months Ended |         | Cumulative
|(Unaudited, in millions)               |                             | Incurred |                                                     | March 31, 2003 |                | Expense
|                                       |                             |          |                                                     |                |                |        
|Employee termination costs by segment: |                             |          |                                                     |                |                |         |            |     |  |   |      |     
|                                       | Newsprint                   |          | $                                                   | 12.4           |                |         | $          | 4.7 |  |   | $    | 10.6 | 
|                                       | Coated and Specialty Papers |          |                                                     | 7.5            |                |         |            | 0.6 |  |   |      | 6.1  | 
|                                       | Canadian Forest Products    |          |                                                     | 1.0            |                |         |            | 0.4 |  |   |      | 0.4  | 
|                                       | Forest Products             |          |                                                     | 1.8            |                |         |            | 1.0 |  |   |      | 1.4  | 
|                                       | Corporate/Other             |          |                                                     | 1.8            |                |         |            |    |  |   |      | 1.6  | 
|                                       |                             |          |                                                     |                |                |         |            |     |  |   |      |      | 
|                                       |                             | $        | 24.5                                                |                |                | $       | 6.7        |     |  | $ | 20.1 |     
|                                       |                             |          |                                                     |                |                |         |            |     |  |   |      |     



|11. |  | Dividends to Minority Interest Shareholder                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | During the first quarter of 2003, the Board of Directors of Calhoun
Newsprint Company (CNC) did not declare a dividend. In the first quarter of
2002, the Board of Directors of CNC declared a $7.3 million dividend. As a
result, $3.6 million was paid to the minority shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|12. |  | Operating Lease  Special Purpose Entity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | A paper coating facility (referred to as Nuway) located in Covington,
Tennessee was constructed for Bowater in 2002. Construction of the facility
was financed through a special purpose entity (SPE). Bowater has no
ownership interest in the SPE. Bowater Nuway Inc., a wholly-owned
subsidiary of Bowater, has entered into a lease commitment with the SPE, the
lessor in the transaction, for this facility. The Covington, Tennessee
facility commenced operations in March of 2002. Total costs incurred by the
SPE for the construction of the Covington facility was approximately $52.3
million. The assets and debt associated with this facility are not
consolidated in Bowaters financial statements. The lease is classified as
operating lease and the payments expensed in accordance with SFAS No.
13, Accounting for Leases. This arrangement provides favorable cost
financing. The future minimum lease payments are approximately $2.2 million
per year. The base lease term for the facility expires on April 30, 2006.
We have options at the end of the base lease term to (1) extend the lease
term annually for an additional five years, (2) purchase the leased property
or (3) terminate the lease agreement. In the event that the lease agreement
is terminated, Bowater Nuway Inc. (as lessee) must cause the facility to be
sold and the lessor to be paid a residual value guarantee of approximately
83% of the lessors investment in the facility. The present value of rental
payments, estimated termination costs and the residual value guarantee at
the inception of the lease do not exceed in the aggregate 89.5% of the
lessors investment in the facility. Upon consummation of the sale, the
lessor is entitled to retain an amount equal to its remaining investment in
the facility, and any balance of the sale proceeds is to be paid to the
lessee. Bowater has guaranteed the lessees obligations under this
arrangement. In January 2003, The FASB issued Interpretation No. 46 (FIN
46), Consolidation of Variable Interest Entities. Many variable interest
entities have commonly been referred to as special-purpose entities or
off-balance sheet structures. Under the new guidance in FIN 46, we would be
required to consolidate the SPE and include the SPEs total assets and debt

on our Consolidated Balance Sheet effective July 1, 2003. Total assets and
debt of the SPE are approximately $51.9 million and $49.2 million,
respectively. In accordance with FIN 46, Bowater will consolidate the SPE
effective July 1, 2003 and initially measure the assets, liabilities and
noncontrolling interests of the SPE at their carrying amounts had the SPE
always been consolidated (since March 2002). Any difference between the net
amounts added to our balance sheet as a result of consolidating the SPE will
be recognized as a cumulative effect of an accounting change.

12



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##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



|13. |  | 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. Bowater believes that the ultimate disposition of these
matters will not have a material adverse effect on our financial
condition, but it could have a material adverse effect on the results
of operations in a given quarter or the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 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 840 claimants who sought
monetary damages in civil actions pending in state courts in Illinois,
Mississippi, Missouri, New York and Texas. Approximately 715 of these
actions have been dismissed, either voluntarily or by summary judgment,
and 125 claimants remain. All actions in Illinois and Missouri have been
dismissed, and plaintiffs counsel in those states has agreed not to file
similar cases. No new cases were filed in March or April. Insurers are
defending these cases and we have not settled or paid any of these
claimants. 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. |  | Bowater may be a potentially responsible party (PRP) with
respect to five hazardous waste sites which are being addressed
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (CERCLA or Superfund) or the
Resource Conservation and Recovery Act (RCRA) corrective action
authority. The first two sites are on CNC timberland tracts in South
Carolina. One was contaminated when acquired, and subsequently, the
prior owner remediated the site and continues to monitor the
groundwater. On the second site, several hundred steel drums
containing textile chemical residue were discarded by unknown persons.
The EPA, based on the remoteness of the site, listed it as No Further
Action Status in September 2002. The third
site, at our mill in Coosa Pines, Alabama, contained buried drums and
has been remediated pursuant to RCRA. We continue to monitor the
groundwater. The fourth site is a drum recycling plant in South
Carolina. We were one of numerous parties that shipped empty drums.
The U.S. EPA has remediated the site pursuant to Superfund at a cost of
$6.2 million dollars. Bowater has been designated by the EPA as a de
minimus PRP, which means that we will be required pay a small
percentage (estimated at 1-2%) of the cleanup cost based on the number
of drums involved. The fifth is a waste oil recycling site in
Tennessee, remediated by the EPA pursuant to Superfund. Bowater is
designated a de minimus PRP, and has agreed to settle with the EPA for
less than $20,000. We believe we will not be liable for any
significant amounts at any of these sites.
|
| | d. |  | 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 over $40 million in damages, and TVA has
not filed any counterclaims. The case is still in the discovery stage
in federal court in Knoxville, Tennessee, scheduled for trial in April
19, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

13



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##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



|14. |  | 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,
from time to time enter into commodity and currency option contracts that
are not accounted for as accounting hedges. On the earlier of the date into
which the derivative contract is entered or the date of transition, we
designate the derivative as a cash flow hedge.                                             
|   
|    |  | A significant portion of our operating expenses are paid in Canadian dollars
at our Canadian mill 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 certain of our
forecasted Canadian dollar cash outflows at the Canadian mill operations.                                                                                                                                                                                                                                                                                                               
|   
|    |  | During the first three months of 2003, we recorded a net gain of $64.3
million ($39.9 million, after tax) in Accumulated other comprehensive loss related to our cash flow hedges. The net gain results from a
reclassification of $1.3 million ($0.8 million, after tax) losses from
Accumulated other comprehensive loss to earnings and $63.0
million ($38.1 million, after tax) unrealized gain recorded for the change in value related to our cash
flow hedges. We
expect to reclassify a $30.1 million gain ($18.6 million, after-tax) from
Accumulated other comprehensive loss to earnings during the next
twelve 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 on-going 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.                                                                                                                                                                                                                                                                                                                            

|                                     |                 |             |       |           |       |              |      |                       |      |            |      |   |      |          |  |  |             | 
|------------------------------------ | --------------- | ----------- | ----- | --------- | ----- | ------------ | ---- | --------------------- | ---- | ---------- | ---- | - | ---- | -------- |  |  | ----------- | 
|                                     |                 |             |       |           |       |              |      | Net Asset (Liability) |      |            |      |  
|                                     |                 |             |       |           |       |              |      |                       |      |            |      |  
|                                     |                 |             |       | Notional  |       |              |      |                       |      |            |      |   |      | Range Of
|                                     |                 |             |       | Amount of |       | Carrying     |      | Fair                  |      | U.S.$/CDN$
|March 31, 2003 (in millions)         |                 | Derivatives |       | Amount    |       | Market Value |      | Exchange Rates       
|                                     |                 |             |       |           |       |              |      |                      
|Foreign Currency Exchange Agreements |                 |             |       |           |       |              |      |                       |      |            |      |   |      |          |  | 
|Buy Currency:                        |                 |             |       |           |       |              |      |                       |      |            |      |   |      |          |  | 
|                                     | Canadian dollar |             |       |           |       |              |      |                       |      |            |      |   |      |          |  |  |            
|                                     |                 | Due in 2003 |       | $         | 310.6 |              |      | $                     | 19.6 |            |      | $ | 19.6 |          |  |  | .6199-.6552 | 
|                                     |                 | Due in 2004 |       |           | 565.5 |              |      |                       | 34.9 |            |      |   | 34.9 |          |  |  | .6124-.6448 | 
|                                     |                 | Due in 2005 |       |           | 122.0 |              |      |                       | 2.0  |            |      |   | 2.0  |          |  |  | .6316-.6535 | 
|                                     |                 |             |       |           |       |              |      |                       |      |            |      |   |      |          |  | 
|                                     |                 | $           | 998.1 |           |       | $            | 56.5 |                       |      | $          | 56.5 |   |      |          |  | 
|                                     |                 |             |       |           |       |              |      |                       |      |            |      |   |      |          |  | 

14



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##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



|    |  | In order to reduce our exposure to exchange rate fluctuations on our
Canadian dollar denominated long-term debt, 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. At March 31, 2003, our
outstanding Canadian dollar forward contracts had notional amounts of $100
million due on June 27, 2003. The fair value of the Canadian dollar forward
contracts outstanding at March 31, 2003 was $0. We recorded gains of
approximately $7.9 million for the first three months of 2003 in the
Consolidated Statement of Operations as a result of these economic hedge
contracts.                                                                                                                                                                                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Additionally, in connection with the Alliance acquisition, 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 March 31, 2003, we had Canadian dollar range forward
contracts with notional amounts due in 2003 of $90.0 million. The fair
value of the Canadian dollar forward contracts was less than $1.0 million at
March 31, 2003. The gain or loss recorded for the first three months of
2003 and 2002 in the Consolidated Statement of Operations as a result of
these Canadian dollar forward contracts was less than $1.0 million. As
these contracts expire, we are not replacing them.
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|15. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Description of the types of products and services from which each reportable
segment derives its revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | 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 whose
administrative expenses are included in Corporate & other eliminations.
Therefore, the other four divisions are our reportable segments. Certain
segment information for the three-month period ended March 31, 2002 has been
reclassified to conform to the March 31, 2003 presentation.                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | NEWSPRINT DIVISION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | 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 has primary
responsibility for the domestic and international marketing and sales of
newsprint.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | COATED AND SPECIALTY PAPERS DIVISION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Coated and Specialty Papers Division operates a manufacturing site that
produces coated paper, newsprint (through January 2003), market pulp and
uncoated specialty papers, and two Nuway coating facilities, both located in
the United States. This division is responsible for the marketing and sales
of the full spectrum of coated and uncoated groundwood specialty papers
manufactured by Bowater.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

15



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##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



| |  | PULP DIVISION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Pulp Division markets and distributes market pulp produced by other
divisions. 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s selling and administrative expenses are included in Corporate
and other eliminations. Accordingly, no separate results are reported for
this division.                                                
|
| |  | FOREST PRODUCTS DIVISION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | 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. The division also operates four
softwood sawmills, supplies wood fiber to our pulp and paper production
sites and markets and sells timber and southern yellow pine lumber in North
America.                                             
|
| |  | CANADIAN FOREST PRODUCTS DIVISION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Canadian Forest Products Division operates four paper manufacturing
sites in Canada. The division manages 0.4 million acres of owned or leased
timberland and over 23.4 million acres of Crown-owned land in the Canadian
provinces of Quebec and New Brunswick on which we have cutting rights. The
division also operates nine sawmills and one wood treatment plant, supplies
wood to four paper mills and nine sawmills, and is responsible for the
marketing and sales of its timber and lumber production.
|
| |  | Factors management used to identify our segments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Bowaters reportable segments are business units responsible for the
marketing and sales of different products. They are managed separately
because of the different products they are responsible for manufacturing and
distributing.                                                                                                                                                                                                                                                                              
|
| |  | The line entitled Segment income (loss) in the following tables is equal
to Operating income (loss) as presented in our Consolidated Statement of
Operations. In addition, none of the income or loss items following
Operating income (loss) in our Consolidated Statement of Operations are
allocated to our segments, since they are reviewed separately by Bowaters
management.                                                                                                                          

16



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##### 



BOWATER INCORPORATED
Notes to Consolidated Financial Statements - Unaudited



| |  | The following tables summarize information about segment profit and loss for
the three months ended March 31, 2003 and 2002 and segment assets as of
March 31, 2003 and 2002:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |   |  |   |      |  |  |   |       |   |  |   |         |  
|--------------------------------- |  | --------- | ------- | -------- |  | --------- | ----- | -------- |  | ------- | ----- | ------------ |  | ---------- | ------- | - |  | - | ---- |  |  | - | ----- | - |  | - | ------- | -
|                                  |  |           |         |          |  | Coated    |       |          |  |         |       |              |  |            |         |   |  |   |      |  |  |   |       |   |  |  
|                                  |  |           |         |          |  | and       |       |          |  |         |       | Canadian     |  | Net        |         |   |  |   |      |  |  |  
|Three Months Ended                |  |           |         |          |  | Specialty |       | Forest   |  | Forest  |       | Gain on      |  | Corporate/ |         |   |  |  
|March 31, 2003                    |  | Newsprint |         | Papers   |  | Products  |       | Products |  | Sale of |       | Other        |  |            |         |  
|(Unaudited, in millions)          |  | Division  |         | Division |  | Division  |       | Division |  | Assets  |       | Eliminations |  | Total     
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |           
|Sales-including internal sales    |  | $         | 350.8   |          |  | $         | 106.2 |          |  | $       | 22.3  |              |  | $          | 171.3   |   |  | $ |     |  |  | $ |      |   |  | $ | 650.6   |  
|Elimination of intersegment sales |  |           |        |          |  |           |      |          |  |         |      |              |  |            |        |   |  |   |     |  |  |   | (20.1 | ) |  |   | (20.1   | )
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |   |  |   |      |  |  |   |       |   |  |   |         |  
|Sales - external customers        |  |           | 350.8   |          |  |           | 106.2 |          |  |         | 22.3  |              |  |            | 171.3   |   |  |   |     |  |  |   | (20.1 | ) |  |   | 630.5   |  
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |   |  |   |      |  |  |   |       |   |  |   |         |  
|Segment income (loss)             |  |           | (21.0   | )        |  |           | (20.3 | )        |  |         | (1.8  | )            |  |            | (12.0   | ) |  |   | 11.1 |  |  |   | (12.3 | ) |  |   | (56.3   | )
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |   |  |   |      |  |  |   |       |   |  |   |         |  
|Total assets at 3/31/03           |  | $         | 2,945.3 |          |  | $         | 777.8 |          |  | $       | 271.6 |              |  | $          | 1,296.0 |   |  | $ |     |  |  | $ | 347.6 |   |  | $ | 5,638.3 |  
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |   |  |   |      |  |  |   |       |   |  |   |         |  

|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |  |  |   |      |  |  |   |       |   |  |   |         |  
|--------------------------------- |  | --------- | ------- | -------- |  | --------- | ----- | -------- |  | ------- | ----- | ------------ |  | ---------- | ------- |  |  | - | ---- |  |  | - | ----- | - |  | - | ------- | -
|                                  |  |           |         |          |  | Coated    |       |          |  |         |       |              |  |            |         |  |  |   |      |  |  |   |       |   |  |  
|                                  |  |           |         |          |  | and       |       |          |  |         |       | Canadian     |  | Net        |         |  |  |   |      |  |  |  
|Three Months Ended                |  |           |         |          |  | Specialty |       | Forest   |  | Forest  |       | Gain on      |  | Corporate/ |         |  |  |  
|March 31, 2002                    |  | Newsprint |         | Papers   |  | Products  |       | Products |  | Sale of |       | Other        |  |            |         | 
|(Unaudited, in millions)          |  | Division  |         | Division |  | Division  |       | Division |  | Assets  |       | Eliminations |  | Total     
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |           
|Sales-including internal sales    |  | $         | 329.7   |          |  | $         | 115.4 |          |  | $       | 21.3  |              |  | $          | 173.4   |  |  | $ |     |  |  | $ |      |   |  | $ | 639.8   |  
|Elimination of intersegment sales |  |           |        |          |  |           |      |          |  |         |      |              |  |            |        |  |  |   |     |  |  |   | (15.6 | ) |  |   | (15.6   | )
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |  |  |   |      |  |  |   |       |   |  |   |         |  
|Sales  external customers        |  |           | 329.7   |          |  |           | 115.4 |          |  |         | 21.3  |              |  |            | 173.4   |  |  |   |     |  |  |   | (15.6 | ) |  |   | 624.2   |  
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |  |  |   |      |  |  |   |       |   |  |   |         |  
|Segment income (loss)             |  |           | (5.0    | )        |  |           | (5.9  | )        |  |         | 0.3   |              |  |            | 8.1     |  |  |   | 71.5 |  |  |   | (22.2 | ) |  |   | 46.8    |  
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |  |  |   |      |  |  |   |       |   |  |   |         |  
|Total assets at 3/31/02           |  | $         | 3,058.3 |          |  | $         | 640.4 |          |  | $       | 237.3 |              |  | $          | 1,403.3 |  |  | $ |     |  |  | $ | 376.6 |   |  | $ | 5,715.9 |  
|                                  |  |           |         |          |  |           |       |          |  |         |       |              |  |            |         |  |  |   |      |  |  |   |       |   |  |   |         |  

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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 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. Forward-looking statements include,
for example, statements about our business outlook, assessment of market
conditions, strategies, future plans, future sales, prices for our major
products, inventory levels, capital spending and tax rates. These
forward-looking statements are not guarantees of future performance. They are
based on managements expectations that involve a number of business risks and
uncertainties, any of which could cause actual results to differ materially
from those expressed in or implied by the forward-looking statements. The risks
and uncertainties relating to the forward-looking statements in this report
include those described under the caption Cautionary Statement Regarding
Forward-Looking Information in Bowaters annual report on Form 10-K for the
year ended December 31, 2002, 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 provides information that we believe is
useful in understanding our operating results, cash flows and financial
condition 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 for the year ended
December 31, 2002. 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 for the year ended December 31, 2002.

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

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 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 financial statements understand that actual
results could differ materially from these estimates, assumptions, projections
and judgments.

Results of Operations

Three Months Ended March 31, 2003, versus March 31, 2002

For the first quarter of 2003, Bowater had an operating loss of $56.3 million
compared to operating income of $46.8 million for the first quarter of 2002.
Operating income for the first quarter of 2003 includes a gain on the sale of
assets of $11.1 million compared to a gain on the sale of assets of $71.5
million for the first quarter of 2002. Excluding these asset sales, operating
income decreased $42.7 million. This decrease is attributable to lower
transaction prices for coated and specialty papers ($11.1 million) and lumber
($3.4 million) and higher operating costs ($32.1 million). These decreases
were offset partially by higher transaction prices for newsprint ($1.1
million), market pulp ($9.4 million) and timber ($1.4 million). Operating
costs were higher for the quarter due to higher

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BOWATER INCORPORATED AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition and Results of Operations

wood, energy, chemical costs, severance charges and the strengthening of the
Canadian dollar ($16.9 million). Energy costs were higher as a result of
increased prices and usage due to a severe winter, and wood costs increased as
a result of Canadian sawmill production curtailments, which reduced available
chip supply, and from unusually wet weather in the U.S. South. The severance
charge for the first quarter of 2003 was $6.7 million of which $5.7 million was
recorded in operating costs and $1.0 million recorded in selling and
administrative expense. No severance was recorded in the first quarter of 2002.

Net loss for the first quarter of 2003 was $71.7 million, or $(1.26) per
diluted share, compared with net income of $10.2 million, or $0.18 per diluted
share, in the first quarter of 2002. Sales for the first quarter of 2003 were
$630.5 million compared with $624.2 million for the first quarter of 2002. Net
loss for the first quarter of 2003 includes an after tax charge of $2.1
million, or $0.04 per diluted share, for a cumulative effect adjustment from
the adoption of SFAS No. 143, Accounting for Asset Retirement Obligations.

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.

In general, Bowaters products are globally-traded commodities. Pricing and
the level of shipments of these products will continue to be influenced by the
balance between supply and demand as affected by global economic conditions,
changes in consumption and capacity, the level of customer and producer
inventories and fluctuations in exchange rates.

Sales by Product:

|                         |                             |      |                              |       |  |   |       |       | 
|------------------------ | --------------------------- | ---- | ---------------------------- | ----- |  | - | ----- | ----- | 
|                         |                             |      | Three Months Ended March 31,
|(Unaudited, in millions) |                             | 2003 |                              | 2002 
|                         |                             |      |                              |      
|Sales:                   |                             |      |                              |       |  |   |       |      
|                         | Newsprint                   |      | $                            | 290.8 |  |   | $     | 290.7 | 
|                         | Market Pulp                 |      |                              | 128.9 |  |   |       | 116.3 | 
|                         | Coated and Specialty Papers |      |                              | 153.7 |  |   |       | 152.8 | 
|                         | Lumber                      |      |                              | 49.3  |  |   |       | 56.9  | 
|                         | Other                       |      |                              | 7.8   |  |   |       | 7.5   | 
|                         |                             |      |                              |       |  |   |       |       | 
|Total sales              |                             | $    | 630.5                        |       |  | $ | 624.2 |      
|                         |                             |      |                              |       |  |   |       |       | 

Newsprint:Our shipments were unchanged compared to the first quarter of 2002.
There was approximately 49,000 metric tons of market and maintenance downtime
in the first quarter of 2003 compared to approximately 70,000 metric tons of
downtime during the first quarter of 2002. One of two idled newsprint machines
at Calhoun started back up in January of this year after being down since
January of 2002. This startup is in conjunction with the shutdown of a
specialty paper machine at Donnacona and a transfer of those specialty orders
to Calhoun (100,000 metric tons of annual capacity). The second idled machine
will start up when market conditions improve. We plan to take 45,000 metric
tons of market and maintenance downtime in the second quarter of this year and
we will continue to match our production to our orders. We also removed 240,000
metric tons of annual capacity with the conversion of a newsprint paper machine
at Catawba to coated paper. Inventories increased approximately 23,400 metric
tons compared to December 31, 2002. Inventories have increased in order to
service our customers in Europe and due to a shortage of containers for export
shipments due to the war in Iraq. Bowaters average transaction price for
newsprint was 0.4% higher in the first quarter of 2003 compared to the first
quarter of 2002 and 0.8% lower compared to the fourth quarter of 2002. Prices
were lower than the fourth quarter primarily due to export markets. We
implemented a $50 per metric ton price increase in the domestic market
effective March 1, 2003.

Newsprint Third Party Data:In the first quarter of 2003, total United States
demand and consumption of newsprint increased 3.8% and 1.1%, respectively,
compared to the same period a year ago. North American net exports of

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BOWATER INCORPORATED AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition and Results of Operations

newsprint increased 7.1% from the first quarter 2002 level. Newspaper
advertising linage improved 1.3% in the first three months of 2003 compared to
2002. Total inventories (North American mills and users) at March 31, 2003
were 1.54 million metric tons, approximately 159,000 metric tons below
historical levels.

Market Pulp:Bowaters average transaction price for market pulp in the first
quarter of 2003 increased 6.6% compared to the first quarter of 2002 and was up
3.7% compared to the fourth quarter of 2002. We announced a price increase of
$40 per metric ton, effective April 1, 2003 for our paper grade market pulps.
Our shipments increased 3.9% compared to the same period last year, primarily
due to increased demand from North American integrated paper makers. Our
market pulp inventories remained low ending the first quarter at 59.7 tons or
17 days supply of our production.

Market Pulp Third Party Data:Demand for market pulp increased in the first
three months of 2003 compared to the same period last year. North America and
Nordic (United States, Canada, Finland and Sweden) shipments were up 8% for the
first three months of 2003 compared to the same period in 2002. North American
and Nordic operated at 94% of capacity but shipped at 96% of capacity.
Consequently, inventories decreased over the quarter by 164,000 metric tons, to
end the quarter at 1.47 million metric tons, or 23 days supply. Inventories
are 221,000 metric tons or 6 days supply below the corresponding period of
2002.

Coated and Specialty Papers:Bowaters average transaction price for coated
paper was 8.2% lower in the first quarter of 2003 compared to the first quarter
of 2002 and 0.3% higher compared to the fourth quarter of 2002. Our coated
groundwood papers shipments increased 12.3% compared to the same period last
year, due to production from our recently completed No. 3 machine conversion at
our Catawba facility in March 2003 and increased Nuway shipments from our
Covington facility which was in start up in the first quarter of 2002. Our
average transaction price for specialty paper was 6.0% lower in the first
quarter of 2003 compared to the first quarter of 2002 and 0.3% lower compared
to the fourth quarter of 2002. Our specialty papers shipments increased 4.5%
compared to the same period last year.

Coated and Specialty Papers Third Party Data:U.S. magazine advertising pages
increased 10% compared to the first quarter of 2002 and catalog mailings
(measured by Standard A mail weight) increased 5% compared to the same period
last year. North American demand for coated groundwood papers was up 15%
compared to the first quarter of 2002. North American demand for
supercalendered A/B papers and other uncoated groundwood papers was down 5% and
up 4%, respectively, compared to the first quarter of 2002.

Lumber:Bowaters average transaction price for lumber products decreased 7.8%
in the first quarter of 2003 compared to the first quarter of 2002 and
increased 1.6% compared to the fourth quarter of 2002. Our lumber shipments
decreased in the first quarter of 2003 compared to the first quarter of 2002
due to the temporary closure of certain of our sawmills and the sale of our
Riviere Bleue sawmill. The U.S. housing starts in the first quarter were
strong, increasing 6.3% in the first quarter of 2003 compared to the same
period last year.

The U.S. 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 became effective for lumber shipments beginning May 22,
2002 and are payable in cash. Lumber duties are included as a component of
distribution costs on our consolidated statement of operations.

The Canadian government has appealed the duties to the World Trade Organization
(WTO) and under the terms of the North American Free Trade Agreement (NAFTA)
and requested that the duties be refunded. 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.

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BOWATER INCORPORATED AND SUBSIDIARIES

Managements Discussion and Analysis of Financial Condition and Results of Operations


Divisional Performance

|                            |  |                              |       |                              |  |      |       |      |  |   |       |   |  |   |       |  
|--------------------------- |  | ---------------------------- | ----- | ---------------------------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                            |  | Sales(1)                     |       | Segment Income (Loss) (1)   
|                            |  |                              |       |                             
|                            |  | Three Months Ended March 31, |       | Three Months Ended March 31,
|(In millions)               |  | 2003                         |       | 2002                         |  | 2003 |       | 2002
|                            |  |                              |       |                              |  |      |       |     
|Newsprint                   |  | $                            | 350.8 |                              |  | $    | 329.7 |      |  | $ | (21.0 | ) |  | $ | (5.0  | )
|Coated and Specialty Papers |  |                              | 106.2 |                              |  |      | 115.4 |      |  |   | (20.3 | ) |  |   | (5.9  | )
|Forest Products             |  |                              | 22.3  |                              |  |      | 21.3  |      |  |   | (1.8  | ) |  |   | 0.3   |  
|Canadian Forest Products    |  |                              | 171.3 |                              |  |      | 173.4 |      |  |   | (12.0 | ) |  |   | 8.1   |  
|Net gain on sale of assets  |  |                              |      |                              |  |      |      |      |  |   | 11.1  |   |  |   | 71.5  |  
|Corporate & eliminations    |  |                              | (20.1 | )                            |  |      | (15.6 | )    |  |   | (12.3 | ) |  |   | (22.2 | )
|                            |  |                              |       |                              |  |      |       |      |  |   |       |   |  |   |       |  
|Total                       |  | $                            | 630.5 |                              |  | $    | 624.2 |      |  | $ | (56.3 | ) |  | $ | 46.8  |  
|                            |  |                              |       |                              |  |      |       |      |  |   |       |   |  |   |       |  



|(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.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Total segment income in the preceding table is equal to Operating income as
presented in our Consolidated Statement of Operations.

Newsprint Division:Sales for the division increased $21.1 million, from $329.7
million for the first quarter of 2002 to $350.8 million for the first quarter
of 2003. This increase is primarily the result of higher shipments of
newsprint ($8.9 million), uncoated specialty paper ($3.6 million), and market
pulp ($1.2 million), and higher transaction prices for market pulp ($5.7
million), uncoated specialty paper ($1.2 million), and newsprint ($0.5
million). See the previous discussion of product line results. Segment income
for the first quarter of 2003 decreased $16.0 million from an operating loss of
$5.0 million for the first quarter of 2002 to an operating loss of $21.0
million for the first quarter of 2003. This decrease is due primarily to
higher costs ($18.2 million) due to higher wood, fuel, repairs, machine
clothing costs and a stronger Canadian dollar. Severance costs ($4.5 million)
also contributed to this decrease. Energy costs were higher as a result of
increased prices and usage due to a severe winter and wood costs increased as a
result of Canadian sawmill production curtailments, which reduced available
chip supply, and unusually wet weather in the U.S. South. These increases in
costs were partially offset by higher selling prices for market pulp ($5.7
million) and uncoated specialty paper ($1.2 million).

Coated and Specialty Papers Division:Sales for the division decreased $9.2
million, from $115.4 million for the first quarter of 2002 to $106.2 million
for the first quarter of 2003. This decrease was primarily due to lower
transaction prices for coated and specialty papers ($6.0 million) and a
decrease in newsprint shipments ($14.9 million) due to lost production as a
result of our No. 3 machine conversion at our Catawba facility. In January
2003, the No. 3 machine, with an annual newsprint capacity of approximately
240,000 metric tons, was shut down to convert its production to coated paper.
The conversion was completed in March 2003. These decreases were partially
offset by increases in transaction price for market pulp ($3.7 million) and
increased shipments of coated and specialty papers ($7.7 million) and market
pulp ($0.3 million). See the previous discussion of product line results.
Segment income decreased $14.4 million from an operating loss of $5.9 million
for the first quarter of 2002 to an operating loss of $20.3 million for the
first quarter of 2003. This decrease was primarily the result of the lower
production volume due to our No. 3 machine conversion ($8.2 million), lower
transaction prices for coated and specialty papers ($6.0 million), higher fuel
costs ($3.1 million), and higher distribution costs ($0.8 million). These
decreases were partially offset by increases in market pulp transaction prices
($3.7 million).

The collective bargaining agreement with the hourly employees of the Catawba
mill expired in April, 2003. We have reached a tentative agreement with the
employees bargaining representatives and the employees are scheduled to vote
on the agreement.

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BOWATER INCORPORATED AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition and Results of Operations

Forest Products Division:Sales for the division increased $1.0 million, from
$21.3 million for the first quarter of 2002 to $22.3 million for the first
quarter of 2003. This increase is primarily the result of higher timber
transaction prices ($1.0 million) and favorable timber shipments mix ($0.9
million), partially offset by lower lumber transaction prices ($0.4 million)
and lower lumber shipments ($0.5 million). See the previous discussion of
product line results. Segment income for the division decreased $2.1 million
from an operating income of $0.3 million for the first quarter of 2002 to an
operating loss of $1.8 million for the first quarter of 2003. This decrease
was due to higher manufacturing costs ($1.4 million), higher distribution costs
($0.9 million), severance charges ($1.0 million) and lower lumber transaction
prices ($0.4 million). These decreases were partially offset by higher timber
transaction prices ($1.0 million) and higher timber shipments ($0.5 million).

Canadian Forest Products Division:Sales for the division decreased $2.1
million, from $173.4 million for the first quarter of 2002 to $171.3 million
for the first quarter of 2003. This decrease is primarily the result of the
lower transaction prices in lumber ($3.0 million) and coated and
specialty papers
($4.6 million) offset by increased shipments. Segment income decreased $20.1
million, from operating income of $8.1 million for the first quarter of 2002 to
an operating loss of $12.0 million for the first quarter of 2003. This
decrease was primarily the result of lower transaction prices in lumber ($3.0
million) and coated & specialty papers ($4.6 million), along with higher costs ($9.5
million), primarily due to a stronger Canadian dollar, and severance charges
($0.4 million).

Net Gain on Sale of Assets:In the first quarter of 2003, Bowater sold fixed
assets and land resulting in a pre-tax gain of $11.1 million, or $0.12 per
diluted share after tax. In the first quarter of 2002, Bowater sold fixed
assets and land resulting in a pre-tax gain of $71.5 million, or $0.74 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. Also in the first quarter of 2002, we had other asset sales
resulting in a pre-tax gain of $1.1 million

Corporate & Eliminations:The elimination of intersegment sales increased $4.5
million, comparing the first quarter of 2003 to the first quarter of 2002.
Corporate expenses decreased $9.9 million due primarily to hedging gains.

Interest and Other Income and Expenses

Interest expense decreased $1.9 million from $41.8 million for the first
quarter of 2002 to $39.9 million for the first quarter of 2003. This decrease
was attributable to higher capitalized interest on our construction in
progress, offsetting interest expense. Other expense increased $8.4 million in
the first quarter of 2003 to expense of $8.3 million from income of $0.1
million for the same period in 2002. The increase in other expense is
primarily due to foreign exchange loss recorded in the first quarter of 2003.
Bowater recorded a foreign exchange loss of $8.2 million compared to a gain of
$1.1 million in the first quarter of 2002. The majority of our exchange gain
(loss) amounts is attributable to the revaluation of unhedged foreign
denominated liabilities into United States dollars.

Bowaters effective tax rate for the first quarter of 2003 was 29.2% versus
(41.5)% for the prior years first quarter. The rate in 2003 was primarily
impacted by certain exchange losses on which the company receives no tax
benefit. The negative 2002 rate was due primarily to a one-time tax benefit
arising from an IRS settlement ($2.8 million).

Liquidity and Capital Resources

Bowaters cash and cash equivalents increased to $87.7 million at March 31,
2003, from $35.9 million at December 31, 2002. We generated cash from
operations of $48.6 million, used $84.9 million of cash from investing
activities, and generated $88.1 million of cash from financing activities.

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BOWATER INCORPORATED AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition and Results of Operations

Cash from Operating Activities:

During the first three months of 2003, Bowaters operations generated $48.6
million of cash compared to the use of $61.5 million of cash during the first
three months of 2002, an increase of $110.1 million. This increase is
primarily due to lower working capital needs in the first quarter of 2003,
which generated cash of $68.5 million compared to working capital needs of the
first quarter of 2002, which used cash of $74.1 million. During the first
quarter of 2003, Bowater received tax refunds of approximately $75 million,
which are included in cash generated from operating activities. This increase
was offset by a higher operating loss of $67.4 million (excluding gain on asset
sales) in the first quarter of 2003 compared to a loss of $24.7 million in the
first quarter of 2002.

Cash from Investing Activities:

Cash used for investing activities during the first three months of 2003
totaled $84.9 million, compared with cash from investing activities of $34.1
million during the first three months of 2002. The first quarter of 2002
included the net cash proceeds of $88.1 million from the monetization of a note
receivable. Cash invested in fixed assets, timber and timberlands increased
$25.9 million for the first quarter of 2003 compared to the first quarter of
2002.

Cash from Financing Activities:

Cash generated from financing activities was $88.1 million for the first three
months of 2003 compared to $13.8 million during the first three months of 2002.
During the first three months of 2003, Bowater received proceeds of $109
million (net of payments of $235.9 million) from its short-term credit
facilities compared to proceeds received in the first three months of 2002, of
$26.3 million (net of payments of $228.0 million) from our short-term credit
facilities. Also in the first three months of 2003, we made payments on
long-term borrowings amounting to $9.7 million compared with payments of $2.4
million during the first three months of 2002.

Cash dividends paid in the first three months of 2003 decreased $3.3 million
from the prior year period as no dividends were declared or paid in the first
quarter of 2003 to CNC, our minority interest shareholder.

Credit Arrangements:

Bowater believes that cash generated from operations, proceeds from the sale of
additional timberlands and access to our credit facilities will be sufficient
to provide for our anticipated requirements for working capital, contractual
obligations and capital expenditures for the next 12 months and approved
capital projects extending beyond 12 months.

Bowater has available credit facilities with various banks that provide for
borrowings up to $800.0 million. The credit facilities consist of a $500.0
million revolving credit facility, a $200.0 million 364-day accounts receivable
securitization arrangement and a $100.0 million 364-day credit facility of a
wholly-owned subsidiary, Bowater Canadian Forest Products Inc. At March 31,
2003, $358 million was outstanding under these facilities and approximately
$20.1 million was outstanding under letter of credit agreements, which was
committed against our credit facilities. Additionally, Bowater had $87.7
million of cash on the balance sheet at March 31, 2003.

Our credit facilities contain various covenants including requirements to
maintain adequate net worth and compliance with a required ratio of total debt
to total capital as defined in the credit facilities. These credit facilities
require us to maintain a minimum consolidated net worth (generally defined in
the credit facilities as common shareholders equity plus any outstanding
preferred stock) of $1.625 billion as of March 31, 2003. In addition, the
agreement imposes a maximum 60% ratio of total debt (defined as total debt less
revaluation of debt assumed through acquisitions) to total capital (defined in
the agreement as total debt less revaluation of debt assumed through
acquisitions plus net worth including minority interest). At March 31, 2003,
our consolidated net worth was $1.715 billion, and our ratio of total debt to
total capital was 57.2% calculated according to our credit facilities
guidelines.

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 for the year ended December 31, 2002.

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BOWATER INCORPORATED AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition and Results of Operations

Cost Reduction Program

In April 2003, Bowater announced that it would increase its workforce
reductions to 600 positions from the previously announced 500 positions in the
fourth quarter of 2002. The workforce reductions are expected to affect
approximately 7% of our total workforce. Through March 31, 2003, approximately
264 positions were eliminated with the balance of the 600 positions to come
throughout 2003. These workforce reductions were part of an announced cost
reduction program that will consist of workforce reductions, lowering of
manufacturing costs and rationalization of production. Estimated annual cost
savings related to the cost reduction program are expected to be in excess of
$75 million, pre-tax, by the end of 2003.

Subsequent Event

Bowater has signed an agreement to sell approximately 82,000 acres of
southeastern timberland to investors of Evergreen Timberland Investment
Management, a business unit of Wachovia Bank, National Association, for
proceeds of approximately $123 million. The transaction is expected to close in
May 2003.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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 adopted SFAS No. 143 on January 1, 2003 and
recorded a cumulative effect adjustment of $2.1 million, net of taxes ($0.04
per share).

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 or modified after December 31, 2002. Bowater adopted the
SFAS No. 146 on January 1, 2003 and accounts for exit or disposal activities in
accordance with the provisions of SFAS No. 146.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a guarantor to include
disclosure of certain obligations, and if applicable, at the inception of the
guarantee, recognize a liability for the fair value of other certain
obligations undertaken in issuing a guarantee. The recognition requirement is
effective for guarantees issued or modified after December 31, 2002. Bowaters
off-balance sheet debt guarantees include: $48.0 million related to Ponderay
Newsprint Company, an unconsolidated partnership in which Bowater has a 40%
interest, $11.0 million, representing 25% of the outstanding investor notes
principal balance of Timber Note Holdings LLC, one of our QSPEs and $43.5
million on our synthetic lease for our Covington Tennessee Nuway facility.
These off-balance sheet arrangements were entered into prior to December 31,
2002. Bowater adopted the provisions of FIN 45 on January 1, 2003 and we will
follow FIN 45 guidance for any guarantees issued or modified.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosurean amendment of FASB Statement No. 123,
Accounting for Stock-Based Compensation (SFAS No. 148). This Statement amends
SFAS No. 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No.
148 is effective for annual periods ending after December 15, 2002 and interim
periods beginning after December 15, 2002. We have adopted the provision of
SFAS 148 on January 1, 2003 and have provided SFAS No. 148s interim
disclosures requirements in our notes to our unaudited Consolidated Financial
Statements for the period ending March 31, 2003.

24



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##### 



BOWATER INCORPORATED AND SUBSIDIARIES
Managements Discussion and Analysis of Financial Condition and Results of Operations

In January 2003, The FASB issued Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities. Many variable interest entities have commonly
been referred to as special-purpose entities or off-balance sheet structures.
In general, a variable interest entity is a corporation, partnership, trust, or
any other legal structure used for business purposes that either (a) does not
have equity investors with voting rights or (b) has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. Interpretation 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entitys activities or entitled to receive a
majority of the entitys residual returns or both. A company that consolidates
a variable interest entity is called the primary beneficiary of that entity.
The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply
to older entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. Bowater operates the Covington coating
facility under an operating lease with a special purpose entity. Under the new
guidance in FIN 46, we would be required to consolidate the special purpose
entity and include the SPEs total assets and debt on our Consolidated Balance
Sheet effective July 1, 2003. Total assets and debt of the SPE were
approximately $51.9 million and $49.2 million, respectively. Management is
currently assessing alternate financing structures for this SPE.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

Bowaters market risk disclosure included in its 2002 Form 10-K, Part II, Item
7A, is still applicable as of March 31, 2003. We have updated the disclosure
concerning our Canadian dollar forward contracts, which is included in Footnote
10 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.

25



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##### 



BOWATER INCORPORATED AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.



|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. Bowater
believes that the ultimate disposition of these matters will not have a
material adverse effect on our financial condition, but it could have a
material adverse effect on the results of operations in a given quarter or
the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|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 840 claimants who sought
monetary damages in civil actions pending in state courts in Illinois,
Mississippi, Missouri, New York and Texas. Approximately 715 of these
actions have been dismissed, either voluntarily or by summary judgment, and
125 claimants remain. All actions in Illinois and Missouri have been
dismissed, and plaintiffs counsel in those states has agreed not to file
similar cases. No new cases were filed in March or April. Insurers are
defending these cases and we have not settled or paid any of these
claimants. 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. |  | Bowater may be a potentially responsible party (PRP) with respect to
five hazardous waste sites which are being addressed pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (CERCLA or Superfund) or the Resource Conservation and
Recovery Act (RCRA) corrective action authority. The first two sites
are on CNC timberland tracts in South Carolina. One was contaminated when
acquired, and subsequently, the prior owner remediated the site and
continues to monitor the groundwater. On the second site, several hundred
steel drums containing textile chemical residue were discarded by unknown
persons. The EPA, based on the remoteness of the site, listed it as No
Further Action Status in September 2002. The third
site, at our mill in Coosa Pines, Alabama, contained buried drums and has
been remediated pursuant to RCRA. We continue to monitor the groundwater.
The fourth site is a drum recycling plant in South Carolina. We were one
of numerous parties that shipped empty drums. The U.S. EPA has remediated
the site pursuant to Superfund at a cost of $6.2 million dollars. Bowater
has been designated by the EPA as a de minimus PRP, which means that we
will be required pay a small percentage (estimated at 1-2%) of the cleanup
cost based on the number of drums involved. The fifth is a waste oil
recycling site in Tennessee, remediated by the EPA pursuant to Superfund.
Bowater is designated a de minimus PRP, and has agreed to settle with the
EPA for less than $20,000. We believe we will not be liable for any
significant amounts at any of these sites.
|  
|d. |  | 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 over $40 million in damages, and TVA has not filed any
counterclaims. The case is still in the discovery stage in federal court
in Knoxville, Tennessee, scheduled for trial in April 19, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

26



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##### 



BOWATER INCORPORATED AND SUBSIDIARIES

PART II

OTHER INFORMATION

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



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

|            |  |                                                                        | 
|----------- |  | ---------------------------------------------------------------------- | 
|Exhibit No. |  | Description                                                            | 
|            |  |                                                                        | 
|12.1        |  | Statement regarding Computation of Ratio of Earnings to Fixed Charges. | 



| | (b) |  | Reports on Form 8-K:
| | --- |  | --------------------
|
| |     |  | None                

27



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##### 



BOWATER INCORPORATED AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

| |                      |    |  |                              
| | -------------------- | -- |  | -----------------------------
| | BOWATER INCORPORATED
| |                      |    |  |                              
| |                      | By |  | /s/ David G. Maffucci        
| |                      |    |  |                              
| |                      |    |  | David G. Maffucci            
| |                      |    |  | Executive Vice President and 
| |                      |    |  | Chief Financial Officer      
| |                      |    |  |                              
| |                      | By |  | /s/ Michael F. Nocito        
| |                      |    |  |                              
| |                      |    |  | Michael F. Nocito            
| |                      |    |  | Vice President and Controller

Dated: May 14, 2003

28



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##### 



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: May 14, 2003

/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.



---



##### 



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: May 14, 2003

/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.



---



##### 



INDEX TO EXHIBITS

|            |  |                                                                        | 
|----------- |  | ---------------------------------------------------------------------- | 
|Exhibit No. |  | Description                                                            | 
|            |  |                                                                        | 
|12.1        |  | Statement regarding Computation of Ratio of Earnings to Fixed Charges. |