Fellow Shareholders:

I am pleased to report that 2000 was an excellent year for Bowater. The markets for all of our pulp and paper products improved over the prior year, and we made substantial progress in meeting our strategic goals. We increased our strong market position in newsprint by acquiring a world-class newsprint mill in Grenada, Mississippi. And we announced a new coated groundwood paper strategy to increase our coated groundwood papers business, which will make us a market leader in that product line as well.

With an improved cost structure and asset base, Bowater took full advantage of higher prices to post excellent financial results. Our manufacturing costs continued to decline during the year, and we announced a new profit improvement initiative to continue our relentless drive to be more profitable over the cycle. Our strategy is working. We are delivering on our commitments.

Net income for the full year of 2000 was $159.4 million, or $3.02 per diluted share. This compares with net income in 1999 of $78.7 million, or $1.41 per diluted share, which included net gains on the sale of assets, net of impairment charges, of $72.8 million, or $1.32 per diluted share. Bowater had sales of $2.5 billion in 2000, compared with $2.3 billion in 1999.

During the year we generated $416.6 million in operating cash flow. We used $103.7 million to repurchase 2.1 million shares of common stock, continuing our share repurchase program that has totaled 3.1 million shares since May 1999. We paid $48.3 million in dividends and spent $283.2 million on capital projects to keep our mills cost effective and to improve efficiency. This spending level is higher than in the past as we ramp up spending on our coated papers strategy. We continue our commitment to spend below depreciation, even as we implement major projects that will add significant value to Bowater.

Short-term debt increased by $470.0 million, primarily resulting from the purchase of the Grenada mill. At year-end, our debt to total capitalization ratio stood at 48.6%. We expect to use cash flow from operations in 2001 to reduce our debt level toward our target range of approximately 40%.

Market conditions for newsprint, our largest product segment, improved substantially during 2000. Prices increased in each quarter of the year – from $495 per metric ton on average in the fourth quarter of 1999 to $583 per metric ton in the fourth quarter of 2000. Demand grew in Asia, recovering to the strongest levels since the 1997/98 economic crisis. The relatively mature markets of North America and Europe also experienced growth. The supply/demand picture for newsprint improved, as industry capacity declined during the year because producers converted to higher value grades and closed high-cost facilities. Approximately one million tons of annual production capacity are expected to be removed from the North American market over the next two years. Newsprint’s future looks bright.

The market for coated groundwood papers was solid. Even in the Internet age, advertising inserts, catalogs and magazines have shown remarkable growth. We expect growth to continue at approximately 3% annually, and we are capitalizing on that opportunity by adding capacity, in a very measured way, to meet customers’ increasing demands for a wide array of coated paper grades. Our unique coated paper strategy targets healthy and diverse niche markets at a low capital cost.

Market pulp, Bowater’s third major product, experienced an excellent year with strong demand and rising prices. Good markets for paper and paper products helped keep pulp prices up during most of the year. However, market pulp demand declined toward the end of the year, due to reduced demand for certain paper grades. We expect the pulp market to recover during the second half of 2001.

Lumber markets, to which Bowater has a small exposure, were weak during all of 2000. Soft export markets and excess supply kept prices depressed. However, we have seen recent indications of improvement in our lumber markets.