<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q FINANCIAL INFORMATION*
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 1998
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: 33-88496*
S.D. WARREN COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2366983
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Franklin Street, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
(617) 423-7300
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(Registrant's telephone number, including area code)
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 __ No __ Not Applicable X*
---
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*This report is being voluntarily filed with the Securities and Exchange
Commission (the "Commission") pursuant to the registrant's contractual
obligations to file with the Commission all financial information that would be
required to be filed on a Form 10-Q. The registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
Form 10-Q, July 1, 1998
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company wishes to caution readers that this Report on Form 10-Q for S.D.
Warren Company and subsidiaries (the "Company") contains certain
"forward-looking statements" as that term is defined under the Private
Securities Litigation Reform Act of 1995. The words "believe," "anticipate,"
"intend," "estimate," "plan," "assume," and other similar expressions which are
predictions of or indicate future events and future trends which do not relate
to historical matters identify forward-looking statements. Reliance should not
be placed on forward-looking statements because they involve known and unknown
risks, uncertainties and other factors which are in some cases beyond the
control of the Company and may cause the actual results, performance or
achievements of the Company to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements. Certain factors that may cause such differences
include but are not limited to the following: global economic and market
conditions; production and capacity in the United States, Europe and the Far
East; production and pricing levels of pulp and paper; any major disruption in
production at the Company's key facilities; alterations in trade conditions in
and between the United States and other countries where the Company does
business; and changes in environmental, tax and other laws and regulations.
These and other factors that might cause differences between actual and
anticipated results, performance, and achievements are discussed in greater
detail in this Report on Form 10-Q. See also "Market Overview" under Part I,
Item 2, Management's Discussion and Analysis of Results of Operations and
Financial Condition.
2
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
Form 10-Q, July 1, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the three and nine
months ended July 2, 1997 and July 1, 1998 4, 5
Condensed Consolidated Balance Sheets at October 1, 1997 and July 1, 1998 6
Condensed Consolidated Statements of Cash Flows for the nine months ended
July 2, 1997 and July 1, 1998 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
3
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
July 2, 1997 July 1, 1998
----------------------- ----------------------
<S> <C> <C>
Sales $349.1 $352.9
Cost of goods sold 283.1 271.6
----------------------- ----------------------
Gross profit 66.0 81.3
Selling, general and administrative expense 34.3 35.0
----------------------- ----------------------
Income from operations 31.7 46.3
Other income, net 1.4 1.0
Interest expense 26.0 16.2
----------------------- ----------------------
Income before income taxes and extraordinary items 7.1 31.1
Income tax expense 2.9 13.1
----------------------- ----------------------
Income before extraordinary items 4.2 18.0
Extraordinary items, net of tax - (1.0)
----------------------- ----------------------
Net income 4.2 17.0
Dividends and accretions on Warren Series B preferred stock 3.8 3.9
----------------------- ----------------------
Net income applicable to common stockholder $0.4 $13.1
----------------------- ----------------------
----------------------- ----------------------
Earnings per common share:
Income before extraordinary items applicable to
common stockholder $0.00 $0.14
----------------------- ----------------------
----------------------- ----------------------
Net income applicable to common stockholder $0.00 $0.13
----------------------- ----------------------
----------------------- ----------------------
Weighted average number of shares outstanding 100 100
----------------------- ----------------------
----------------------- ----------------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
July 2, 1997 July 1, 1998
------------------------ -----------------------
<S> <C> <C>
Sales $1,009.3 $1,072.4
Cost of goods sold 819.4 825.2
------------------------ -----------------------
Gross profit 189.9 247.2
Selling, general and administrative expense 100.6 104.5
Restructuring 10.0 -
------------------------ -----------------------
Income from operations 79.3 142.7
Gain on sale of pressure sensitive business - 30.9
Other income, net 3.4 3.8
Interest expense 77.8 56.3
------------------------ -----------------------
Income before income taxes and extraordinary items 4.9 121.1
Income tax expense 1.8 49.9
------------------------ -----------------------
Income before extraordinary items 3.1 71.2
Extraordinary items, net of tax 0.9 (2.5)
------------------------ -----------------------
Net income 4.0 68.7
Dividends and accretions on Warren Series B preferred stock 11.2 12.2
------------------------ -----------------------
Net income (loss) applicable to common stockholder ($7.2) $56.5
----------------------- ----------------------
----------------------- ----------------------
Earnings per common share:
Income (loss) before extraordinary items applicable to
common stockholder ($0.08) $0.59
----------------------- -----------------------
----------------------- -----------------------
Net income (loss) applicable to common
stockholder ($0.07) $0.57
----------------------- -----------------------
----------------------- -----------------------
Weighted average number of shares outstanding 100 100
----------------------- -----------------------
----------------------- -----------------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
October 1, July 1,
1997 1998
(unaudited)
--------------- ------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $180.7 $29.3
Trade accounts receivable, net 40.3 34.3
Other receivables 14.8 9.8
Inventories 163.4 196.9
Deferred income taxes 28.3 28.3
Other current assets 9.8 10.3
--------------- ------------------
Total current assets 437.3 308.9
Plant assets, net 951.1 960.5
Timber resources, net 95.6 95.7
Goodwill, net 90.1 85.4
Deferred financing fees, net 35.4 29.4
Other assets, net 22.5 21.4
-------------- ------------------
Total assets $1,632.0 $1,501.3
-------------- ------------------
-------------- ------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $27.3 $5.1
Accounts payable 121.0 114.3
Accrued and other current liabilities 109.1 101.8
------------------ ------------------
Total current liabilities 257.4 221.2
------------------ ------------------
Long-term debt:
Term loans 251.5 145.0
Senior subordinated notes 375.0 360.3
Other 113.3 111.4
------------------ ------------------
739.8 616.7
------------------ ------------------
Deferred income taxes 48.7 67.6
------------------ ------------------
Other liabilities 113.6 113.5
------------------ ------------------
Total liabilities 1,159.5 1,019.0
------------------ ------------------
Commitments and contingencies (Notes 9 and 10)
Warren Series B redeemable exchangeable preferred stock
(liquidation value, $110.6 and $122.2, respectively) 103.2 115.4
------------------ ------------------
Stockholder's equity:
Common stock - -
Capital in excess of par value 331.8 321.4
Retained earnings 37.5 45.5
------------------ ------------------
Total stockholder's equity 369.3 366.9
------------------ ------------------
Total liabilities and stockholder's equity $1,632.0 $1,501.3
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
July 2, 1997 July 1, 1998
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $4.0 $68.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, cost of timber harvested and amortization 88.6 68.0
Loss on force majeure event 7.5 -
Deferred income taxes 3.1 18.9
Extraordinary item (1.5) 4.2
Gain on sale of pressure sensitive business - (30.9)
Other 1.8 0.3
Changes in assets and liabilities:
Trade and other accounts receivable, net 16.9 6.8
Inventories, net (12.3) (43.1)
Accounts payable, and accrued and other current liabilities 11.5 (16.4)
Other assets and liabilities (6.1) 2.1
----------------- -----------------
Net cash provided by operating activities 113.5 78.6
----------------- -----------------
Cash Flows from Investing Activities:
Investment in plant assets and timber resources (38.8) (73.4)
Proceeds from disposals of plant assets and timber resources 0.1 -
Proceeds from sale of pressure sensitive business - 51.5
Refurbishment of fixed assets (42.8) -
Insurance proceeds on force majeure events 27.5 -
Other investing activities - (1.5)
----------------- -----------------
Net cash used in investing activities (54.0) (23.4)
----------------- -----------------
Cash Flows from Financing Activities:
Repayments of long-term debt (87.7) (145.3)
Issuance of debt 38.1 -
Dividend paid to Holdings - (58.2)
Other financing activities (0.7) (3.1)
----------------- -----------------
Net cash used in financing activities (50.3) (206.6)
----------------- -----------------
Net change in cash and cash equivalents 9.2 (151.4)
----------------- -----------------
Cash and cash equivalents:
Beginning of period: 49.0 180.7
----------------- -----------------
End of period $58.2 $29.3
----------------- -----------------
----------------- -----------------
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $80.3 $75.1
----------------- -----------------
----------------- -----------------
Income taxes $1.2 $27.9
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
the accounts of S.D. Warren Company and its subsidiaries ("Warren" or the
"Company"). Intercompany balances and transactions have been eliminated in the
preparation of the accompanying unaudited condensed consolidated financial
statements.
The Company is a direct wholly owned subsidiary of SDW Holdings Corporation
("Holdings"). Holdings is an indirect subsidiary of Sappi Limited ("Sappi").
Business
The Company manufactures printing, publishing and specialty papers and has pulp
and timberland operations vertically integrated with certain of its
manufacturing facilities. Together these represent the Company's single line of
business. The Company currently operates four paper mills, a sheeting facility
and several distribution facilities. The Company also owns approximately 911,000
acres of timberlands in the State of Maine.
In May 1997, the chairman of Sappi announced that Sappi was evaluating the sale
of noncore assets throughout the Sappi group. Consequently, Warren is in the
process of investigating the sale or monetization of businesses not within its
main area of focus. Consistent with this strategy, the Company is exploring
alternatives with regard to the timberlands and its utility and recovery assets,
which may in each case involve the sale of the property. To date, no binding
agreements have been signed. In addition, the Company has also divested of its
pressure sensitive business (See Note 7).
Sappi Reorganization
On April 27, 1998, Sappi announced the integration of Warren with Sappi's four
international fine paper operations (KNP Leykam, Hannover Papier, Sappi U.K.'s
Blackburn mill and Sappi Fine Paper in South Africa) to create Sappi Fine Paper
plc. The Sappi Fine Paper Division will have a corporate head office in London.
The purpose of the reorganization is to focus on Sappi's main business sectors -
fine paper and forest products. Warren products are being marketed under the
name of Sappi Fine Paper North America. The legal entities of Holdings, Warren
and Warren's subsidiaries continue to remain in existence.
Unaudited Interim Condensed Consolidated Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position and results of operations. The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with
the audited financial statements included in the Company's Annual Report on Form
10-K for the fiscal year ended October 1, 1997. The unaudited condensed
consolidated results of operations for the three and nine months ended July 1,
1998 are not necessarily indicative of results that could be expected for a full
year.
8
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Costs of Computer Software Developed for Internal Use
The Company capitalizes direct costs of developing internal-use computer
software, including costs of external materials and services, and payroll and
related costs for employees directly associated with the project to the extent
their time is spent directly on the project. The costs will be amortized over
the estimated useful life of the completed software. As of July 1, 1998, $10.7
million of costs have been incurred which are directly related to the Company's
implementation of a company-wide integrated application system. These costs have
been included in plant assets.
NOTE 2. RELATED PARTY TRANSACTIONS
The Company sells products to certain subsidiaries of Sappi ("Affiliates"), at
market prices, primarily in U.S. Dollars. These Affiliates then sold the
Company's products to external customers. Proceeds from sales to Affiliates are
remitted to the Company net of a 5% sales commission. Sales to Affiliates, net
of commissions, were $30.0 million and $92.2 million for the three and nine
months ended July 1, 1998. Net sales to Affiliates for the corresponding periods
in the prior year were $29.2 million and $95.3 million, respectively. Trade
accounts receivable from Affiliates at July 1, 1998 and October 1, 1997 were
approximately $24.4 million and $24.5 million, respectively.
NOTE 3. INVENTORIES (IN MILLIONS)
<TABLE>
<CAPTION>
OCTOBER 1, 1997 JULY 2, 1997 JULY 1, 1998
--------------- ------------ ------------
<S> <C> <C> <C>
Finished products $ 76.7 $ 107.4 $ 102.8
Work in process 21.4 37.3 34.1
Pulp, logs and pulpwood 23.9 23.7 22.2
Maintenance parts and other supplies 41.4 39.6 37.8
$ 163.4 $ 208.0 $ 196.9
------------------- ------------------- --------------------
------------------- ------------------- --------------------
</TABLE>
NOTE 4. LONG-TERM DEBT
Modification of Credit Agreement
On March 6, 1998, Holdings and Warren modified Warren's credit arrangement with
a group of domestic and international lenders by refinancing the $196.3 million
aggregate balance outstanding under Warren's Tranche A and Tranche B term loans,
and entering into the Second Amended and Restated Credit Agreement (the
"Modified Agreement"). The Modified Agreement consists of (1) a seven-year
amortizing Term Loan, originally in an aggregate amount of $185.0 million, (2) a
$250.0 million Revolving Credit Facility and (3) a $150.8 million Letter of
Credit Facility (together collectively referred to herein as the "Credit
Facilities"). Pursuant to the modification, the Company repaid $11.3 million of
long-term debt.
Loans under the Modified Agreement bear interest at a rate equal to, at the
Company's option, (1) the ABR Rate plus the Applicable Margin ("ABR Loans") or
(2) the Eurodollar Rate (adjusted for reserves) for the respective interest
period plus the Applicable Margin ("Eurodollar Loans"). Applicable Margin means
a percentage annum rate ranging (a) in the case of ABR Loans, from 0% to 1.00%
and (b) in the case of Eurodollar loans, from 0.75% to 2.00%, in each case
determined by the Company's achievement of a certain financial ratio determined
from the most recent financial statements of the Company calculated as of the
last day of each fiscal quarter on a rolling four quarters basis. ABR Rate means
the
9
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
highest of (1) the prime rate, (2) the secondary market rate for three month
certificates of deposit (adjusted for reserves) plus 1.00% and (3) the federal
funds rate in effect from time to time plus 0.5%.
Term Loan
Pursuant to the Modified Agreement as originally written, the Term Loan was
payable in semi-annual installments beginning in September 1998 with a final
maturity in March 2005. Subsequent to the $40,000,000 prepayment (as discussed
below), the payment schedule was revised to commence semi-annual installments in
September 1999. At July 1, 1998, the Term Loan was a Eurodollar loan with a
weighted average interest rate of 6.95%.
Warren is required to prepay the Term Loan with (1) 50% of the net proceeds of
certain aggregate asset sales in excess of $50.0 million and (2) 100% of the net
proceeds of incurrences of indebtedness, to the extent that the aggregate
exceeds $20.0 million. Unless the Company achieves a certain financial ratio, as
defined, Warren will be required to prepay the Term Loan annually in an amount
equal to 50% of the Excess Cash Flow (as defined) of Warren and its subsidiaries
for the prior fiscal year.
Revolving Credit Facility
Under the Revolving Credit Facility, which expires in March 2005, Warren can
borrow up to $250.0 million. In addition, $75.0 million of the Revolving Credit
Facility is available to Warren for letters of credit. At July 1, 1998, $10.7
million of the Revolving Credit facility was utilized to guarantee the issuance
of letters of credit. In addition, Warren pays a quarterly commitment fee
between 0.20% and 0.50% per annum on the unused portion of the Revolving Credit
facility based on the achievement of a certain financial ratio.
Letter of Credit Facility
Warren had approximately $136.3 million and $150.8 million of letters of credit
outstanding under the Letter of Credit Facility at July 1, 1998 and October 1,
1997, respectively, in support of its ongoing obligations under tax-exempt bond
financings. Warren pays a commission, which is based on the achievement of a
certain financial ratio, of between 0.75% and 2.00% on outstanding letters of
credit and an issuance fee of 0.125% per annum on letters of credit issued.
Other Remaining Terms
Other significant terms of the credit arrangement pursuant to the Modified
Agreement, including restrictive covenants and security interests, are similar
to the terms of Warren's prior credit arrangement.
Long-term Debt Repayments
In December 1997 and April 1998, Warren made prepayments on its Tranche A and
Tranche B term loans and its term loan under the Modified Agreement for
aggregate amounts of $86.3 million (including amounts repaid pursuant to the
modification of the credit agreement) and $40.0 million, respectively. In June
1998, the Company purchased $14.7 million face value of its 12% Senior
Subordinated Notes (the "Notes"). The Notes purchase transactions were settled
for $11.1 million and $5.2 million of cash paid by the Company in June 1998 and
July 1998, respectively. The premium paid of $1.6 million to purchase the Notes,
together with the accelerated amortization of deferred financing fees relating
to the purchased Notes and the repayments of term loans, resulted in an
aggregate extraordinary loss of $1.0
10
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
million (net of a $0.7 million tax benefit) and $2.5 million (net of a $1.7
million tax benefit) for the three months and nine months ended July 1, 1998,
respectively.
In July 1998, the Company purchased an additional $15.4 million face value of
the Notes for $17.1 million in cash. The $1.7 million premium paid to
purchase the Notes, together with the write-off of related deferred financing
fees will be recorded in the fourth quarter of fiscal 1998 as an
extraordinary loss of approximately $1.0 million (net of a $0.8 million tax
benefit). The Company may continue to purchase small amounts of the Notes
subject to opportune pricing.
NOTE 5. DIVIDEND TO HOLDINGS
On December 15, 1997, the Company paid a dividend (the "Dividend") of $58.2
million to its parent company, Holdings. In turn, Holdings used the proceeds of
the Dividend to redeem its 15% Senior Exchangeable Preferred Stock including
accrued and unpaid dividends. In connection with the Dividend, the Company paid
$0.5 million in consent fees to the holders of the Notes in exchange for their
consent to the Dividend transaction. The Dividend and the consent fees together
resulted in $48.5 million and $10.2 million charged to retained earnings and
capital in excess of par, respectively.
NOTE 6. RESTRUCTURING
In October 1996, the Company commenced a restructuring plan which resulted in a
pretax charge of $10.0 million taken during the quarter ended January 1, 1997 to
cover the costs related to the reduction of approximately 200 salaried
positions, or approximately 14% of the Company's salaried work force.
Substantially all amounts had been expended at July 1, 1998.
NOTE 7. SALE OF PRESSURE SENSITIVE BUSINESS
On March 18, 1998, the Company sold its pressure sensitive business located at
the Westbrook mill to Spinnaker Industries, Inc. ("Spinnaker"). This business
unit manufactures pressure sensitive paper products in roll form which are sold
to label printers that produce products used primarily for informational labels
and product identification. Proceeds of the sale consisted of $44.8 million of
cash and a subordinated note (the "Spinnaker Note") from Spinnaker for $7.0
million. On March 31, 1998, the Company sold the Spinnaker Note to a third party
for $6.7 million which was received in cash on May 1, 1998. The Company
recognized a pretax gain from the sale of the business unit (net of the loss on
the sale of the Spinnaker Note) of $30.9 million. Sales of the pressure
sensitive business unit included in the accompanying statements of operations
for the nine-month periods ended July 1, 1998 and July 2, 1997 were
approximately $27.7 million and $47.6 million, respectively.
NOTE 8. FORCE MAJEURE EVENTS
Due to exceptionally heavy rains, the Presumpscot River flooded the Westbrook
mill on October 21, 1996. The flooding resulted in the temporary closure of the
mill. Damage to mill equipment was repaired and normal operating mill conditions
were restored in the quarter ended January 1, 1997. As of July 2, 1997, the
Company had accrued in cost of sales a flood damage loss, net of expected
insurance recoveries, of $7.5 million, based on management's estimate at the
time. By the end of fiscal year 1997, all flood related claims were submitted
and finalized, resulting in a final net flood loss of $0.6 million. In addition,
the Company received $11.8 million of cash proceeds related to business
interruption claims. Business interruption claim recoveries of $9.0 million and
$2.8 million were recorded as reductions to cost of sales in the second and
fourth quarters of fiscal year 1997, respectively.
11
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. ENVIRONMENTAL AND SAFETY MATTERS
The Company is subject to a wide variety of environmental laws and regulations
relating to, among other matters, air emissions, wastewater discharges, past and
present landfill operations and hazardous waste management. These laws include
the Federal Clean Air Act, the Clean Water Act, the Resource Conservation and
Recovery Act and their respective state counterparts. The Company will continue
to incur significant capital and operating expenditures to maintain compliance
with applicable federal and state environmental laws. These expenditures include
costs of compliance with federal worker safety laws, landfill expansions and
wastewater treatment system upgrades.
In addition to conventional pollutants, minute quantities of dioxins and other
chlorinated organic compounds may be contained in the wastewater effluent of the
Company's bleached kraft pulp mills in Somerset and Westbrook, Maine and
Muskegon, Michigan. The most recent National Pollutant Discharge Elimination
system ("NPDES") wastewater permit limits proposed by the EPA would limit dioxin
discharges from the Company's Somerset and Westbrook mills to less than the
level of detectability. The Company is presently meeting the EPA's proposed
dioxin limits, but it is not meeting the proposed limits for the other
parameters (e.g., temperature) and is attempting to revise these other
wastewater permit limits for its facilities. While the permit limitation at
these two facilities are being challenged, the Company continues to operate
under existing EPA permits in accordance with accepted administrative practice.
The Company's Muskegon mill is involved, as one of various industrial
plaintiffs, in litigation with the County of Muskegon (the "County") regarding a
1994 ordinance governing the County's industrial wastewater pre-treatment
program. The lawsuit challenges, among other things, the treatment capacity
availability and local effluent limit provisions of the ordinance. In July 1996,
the court hearing the lawsuit rendered a decision substantially in favor of the
Company and other plaintiffs, but the County has appealed the court's decision.
If the Company and the other plaintiffs do not prevail in that appeal or are not
successful in ongoing negotiations with the County, the Company may not be able
to obtain additional treatment capacity for future expansions, and the County
could impose stricter permit limits. In June 1997, the EPA sued the County for
failure to implement and enforce its industrial pre-treatment operations
associated with its operation of the wastewater facility. The Company is
uncertain as to the effects, if any, of this action on its current dispute with
the County which has raised the industrial users' contractual rights as an issue
in the EPA lawsuit. The group of industrial users and municipalities intervened
in the lawsuit. The imposition of currently proposed permit limits or the
failure of the Muskegon lawsuit could require substantial additional
expenditures, including short-term expenditures, and may lead to substantial
fines for any noncompliance. In December 1997, the County notified the Company
and other industrial users of its intentions to terminate their service
agreements on January 1, 2000. The Company believes that under Michigan contract
law, related contracts and county bond resolutions, the County does not have the
authority to unilaterally terminate the service agreements.
In November 1993, the EPA announced proposed regulations that would impose new
air and water quality standards aimed at further reductions of pollutants from
pulp and paper mills, particularly those conducting bleaching operations
(generally referred to as the "cluster rules"). The cluster rules were signed on
November 14, 1997 and published on April 15, 1998, with compliance with the
rules generally required beginning in 2001. The Company believes that
environmental compliance expenditures, the bulk of which are for the cluster
rules compliance, will require aggregate capital expenditures of approximately
$70.0 million to $112.0 million through 2001, of which $20.0 million has already
been incurred. The ultimate financial impact to the Company of compliance with
the cluster rules will depend upon the cost and availability of new technology.
12
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company believes that none of these matters, individually or in the
aggregate, is expected to have a material adverse effect on its financial
position, results of operations or cash flows.
NOTE 10. COMMITMENTS AND CONTINGENCIES
On May 4, 1998, the Company announced an agreement with Kimberly-Clark to
terminate effective September 1, 1999, a long-term pulp supply contract for pulp
produced at Kimberly-Clark's Mobile, Alabama pulp mill and consumed at the
Company's Mobile paper mill. The Company entered into the contract with
Kimberly-Clark's predecessor, Scott Paper Company ("Scott") at the time of
Warren's acquisition by Sappi from Scott. The cancellation of the pulp contract
is expected potentially to benefit the Company's paper making operations by
providing for increased flexibility in procuring fiber from competitive global
market sources. In addition, the Company believes the contract cancellation will
allow for improved paper machine scheduling efficiencies and product mix. The
cancellation of the pulp contract did not impact the Company's earnings for the
three months ended July 1, 1998. The Company has a long-term agreement (the
"Energy Agreement" ) with Mobile Energy Services Corporation ("MESC") to buy
electric power and steam for the Mobile paper mill at rates generally comparable
to market tariffs, including fuel cost and capital recovery components.
Kimberly-Clark has announced their intention to close their pulp mill at the
Mobile site effective September 1999. Upon the closure of the Kimberly-Clark
pulp mill, MESC has the right to terminate the Energy Agreement. The Company is
currently reviewing the availability of alternative sources of power and steam
to the Mobile mill in the event of the termination of the Energy Agreement.
The Company's power requirements at its Somerset mill are currently satisfied
through a power purchase agreement whereby the mill cogenerates electricity and
sells the output to Central Maine Power ("CMP") at market rates. The CMP
agreement relating to the Somerset mill also provides that the mill purchase
electricity from CMP at the standard industrial tariff rate. The Somerset
Agreement expires in the year 2012. Warren's long-term agreement with CMP
relating to its Westbrook mill expired on October 31, 1997, and has been
replaced by a short-term agreement with CMP in which the mill cogenerates
electricity and sells the excess output not used by the mill to CMP at market
rates. The short-term agreement for the Westbrook mill expires on October 31,
1998.
The Company is also involved in various other lawsuits and administrative
proceedings. The relief sought in such lawsuits and proceedings includes
injunctions, damages and penalties. Although the final results in these suits
and proceedings cannot be predicted with certainty, it is the present opinion of
the Company, after consulting with legal counsel, that they will not have a
material effect on the Company's financial position, results of operations or
cash flows.
NOTE 11. NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", which the Company is required to
implement no later than fiscal year 1999. SFAS No. 132 is an amendment to SFAS
Nos. 87, 88, and 106. The statement standardizes disclosure requirements for
pension and postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and eliminates certain other
disclosures. The implementation of SFAS No. 132 is not expected to have a
material effect on the Company's consolidated financial statements.
13
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-up Activities" which the
Company is required to implement no later than fiscal year 2000. SOP 98-5
establishes standards that require start-up and organization costs to be
expensed as incurred. The implementation of SOP 98-5 is not expected to have a
material effect on the Company's consolidated financial statements.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources. The Company wishes to caution readers that this discussion
and analysis contains certain " forward looking statements" as that term is
defined under the Private Securities Litigation Reform Act of 1995. Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors which are in some cases
beyond the control of the Company and may cause the actual results, performance
or achievements of the Company to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements. This discussion should be read in conjunction with
the financial statements and related notes of the Company included in this Form
10-Q, as well as the Consolidated Financial Statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
October 1, 1997. See "Note Regarding Forward - Looking Statements" on Page 2 of
this report.
SAPPI REORGANIZATION
On April 27, 1998, Sappi announced the integration of Warren and Sappi's four
international fine paper operations (Warren, KNP Leykam, Hannover Papier, Sappi
U.K.'s Blackburn mill and Sappi Fine Paper in South Africa) to create Sappi Fine
Paper plc. The Sappi Fine Paper Division will have a corporate head office in
London. The purpose of the reorganization is to focus on Sappi's main business
sectors - fine paper and forest products. Warren products are being marketed
under the name of Sappi Fine Paper North America. The legal entities of
Holdings, Warren and Warren's subsidiaries continue to remain in existence.
MARKET OVERVIEW
The market for coated paper has historically experienced price fluctuations,
which are driven by North American supply/demand imbalances, inventory shifts
and, to a lesser degree the availability and relative pricing of imported paper.
The exceptional increase in shipments that the industry experienced during the
last half of fiscal year 1997 slowed during the first nine months of fiscal year
1998. Industry shipments for the first nine months of fiscal year 1998 were flat
when compared to the previous year. In spite of the North American industry's
flat shipments, consumption of coated wood free paper has grown in North
America, but the increase in consumption has been absorbed by imports. For the
first nine months of fiscal year 1998, coated woodfree imports into the United
States are up almost 38% or 84,000 tons. The increase in imports is the result
of new capacity in both Europe and Asia. Coupled with depressed demand in Asia
due to the financial crisis in that part of the world, the new capacity causes
manufacturers to look to North America as an outlet for their added capacity.
During these nine months, industry-wide mill inventory of coated woodfree paper
increased by 124,000 tons to a total of 538,000 tons. Total industry-wide
inventory at July 2, 1997 was 456,000.
During the first nine months of fiscal year 1998, Warren shipments of coated
woodfree paper grew by 6.3% over the same period in fiscal year 1997 indicating
a continuing increase in Sappi's market share. During the first nine months of
fiscal year 1998, coated woodfree paper prices remained relatively stable.
During the three months ended July 1, 1998, the strong price floor which had
been provided by coated ground wood prices had begun to erode.
For the first nine months of fiscal year 1998, Warren improved its uncoated
product mix versus the same period in fiscal year 1997. The Company's shipments
of value-added (board and color offset) uncoated
15
<PAGE>
products grew by 4%, while total uncoated shipments were maintained despite a
declining market. On the specialties side of the business, demand for release
papers was strong versus both the three months and nine months ended July 2,
1997. The market for the Company's high-end products showed marked improvement
in the Far East, continuing a long-term migration from the U.S. and Europe.
Release sales volume increased significantly supported by the start-up of a new
coater during the second quarter of fiscal 1998.
Any failure of the industry to maintain its current levels of shipments and
pricing or any prolonged or severe weakness in the market for any of the
Company's products in the future, may adversely affect the Company's financial
position, results of operations and cash flows. In addition, new coated paper
capacity scheduled in Europe and the Far East, as well as certain machine
conversions to coated free sheet manufacture in the United States, will impact
supply/demand balance and may constrain upward movement of coated prices.
RESULTS OF OPERATIONS
Three Months Ended July 1, 1998 Compared to Three Months Ended July 2, 1997
Sales
Sales for the three months ended July 1, 1998 were $352.9 million compared to
$349.1 million for the three months ended July 2, 1997, an increase of $ 3.8
million or 1.1%. The increase was primarily due to a 2.4% increase in average
net revenue per paper ton for the quarter ended July 1, 1998 compared to the
same period in the prior fiscal year.
Cost of Goods Sold
Cost of goods sold for the three months ended July 1, 1998 decreased $11.5
million, or 4.1% to $271.6 million compared to $283.1 million for the three
months ended July 2, 1997. Cost of goods sold on a per paper ton basis decreased
to $795 per ton for the three months ended July 1, 1998 from $819 per ton for
the corresponding prior year quarter. The decrease was primarily due to the
impact of higher productivity, lower raw materials, and specific efficiency and
cost reduction initiatives.
Selling, General and Administrative Expense
Selling, general and administrative expense increased from $34.3 million for the
three months ended July 2, 1997 to $35.0 million for the three months ended July
1, 1998. This increase was largely due to costs associated with bringing
computer systems into compliance with year 2000 requirements.
Extraordinary Items
The premium paid of $1.6 million in connection with the repurchase of $14.7
million face value of 12% Senior Subordinated Notes, (the "Notes") together with
the accelerated amortization of deferred financing fees relating to the
purchased Notes and the repayments of term loans during the three months ended
July 1, 1998, resulted in an extraordinary loss of $1.0 million (net of a $0.7
million tax benefit).
16
<PAGE>
Interest Expense and Taxes
Interest expense for the three months ended July 1, 1998 was $16.2 million
compared to $26.0 million for the three months ended July 2, 1997. The $9.8
million decrease was primarily due to the impact of lower levels of outstanding
debt and improved bank margins. Interest expense includes the amortization of
deferred financing fees, but excludes write-offs due to accelerated reductions
in related financing.
For the three months ended July 1, 1998, income tax expense, excluding the $0.7
million tax benefit attributable to extraordinary losses, was $13.1 million
compared to $2.9 million for the corresponding period in the prior year,
primarily reflecting the change in the Company's earnings level.
Nine Months Ended July 1, 1998 Compared to the Nine Months Ended July 2, 1997
Sales
Sales for the nine months ended July 1, 1998 were $1,072.4 million compared to
$1,009.3 million for the nine months ended July 2, 1997, an increase of $63.1
million or 6.3%. The increase was primarily due to a 4.8% increase in paper
shipment volume during the period. Average net revenue per paper ton for the
nine months ended July 1, 1998 was 1.4% higher compared to the same period in
the prior fiscal year.
Cost of Goods Sold
Cost of goods sold for the nine months ended July 1, 1998 was $825.2 million
compared to $819.4 million for the nine months ended July 2, 1997, an increase
of $5.8 million or 0.7%. Cost of goods sold on a per paper ton basis decreased
to $812 per ton from $842 per ton for the corresponding prior year period. The
decrease was primarily due to the impact of higher productivity, lower raw
materials, and specific efficiency and cost reduction initiatives.
Selling, General and Administrative Expense
Selling, general and administrative expense was $104.5 million for the nine
months ended July 1, 1998 compared to $100.6 million for the nine months ended
July 2, 1997, an increase of $3.9 million. The increase of 3.9% is largely due
to costs associated with becoming year 2000 compliant and other administrative
costs.
Extraordinary Items
The premium paid of $1.6 million in connection with the purchase of $14.7
million face value of the Notes, together with the accelerated amortization of
deferred financing fees relating to the purchased Notes and the repayments of
term loans during the nine months ended July 1, 1998, resulted in an
extraordinary loss of $2.5 million (net of a $1.7 million tax benefit).
Interest Expense and Taxes
Interest expense for the nine months ended July 1, 1998 was $56.3 million
compared to $77.8 million for the nine months ended July 2, 1997. The $21.5
million reduction in interest expense was primarily due to lower levels of
outstanding debt and improved bank margins. Interest expense includes the normal
amortization of deferred financing fees, but excludes write-offs due to
accelerated reductions in related financing.
17
<PAGE>
For the nine months ended July 1, 1998, income tax expense, excluding the
aggregate $1.7 million of tax benefits attributable to the extraordinary losses,
was $49.9 million for the nine months ended July 1, 1998 compared to $1.8
million for the corresponding period in the prior year, primarily reflecting the
change in the Company's earnings level including the impact of the gain on the
sale of the Company's pressure sensitive business.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $78.6 million for the nine months
ended July 1, 1998 as compared to $113.5 million for the nine months ended July
2, 1997. The lower amount in 1998 largely resulted from the higher inventory
investment during the period. The higher income from operations in the nine
months ended July 1, 1998 partially offset this use of cash.
The Company's operating working capital was $24.9 million at July 1, 1998
compared to a deficit at October 1, 1997 of $11.6 million. Operating working
capital is defined as trade accounts receivable, other receivables and
inventories less accounts payable and accrued and other current liabilities.
This increase primarily resulted from an increase in inventory and a decrease in
accounts payable and accrued and other current liabilities, offset by decreases
in trade and other accounts receivable .
Capital expenditures for the nine months ended July 1, 1998 were $73.4 million,
up from $38.8 million for the nine months ended July 2, 1997. Of the $73.4
million, $7.5 million was related to construction in progress on the Company's
new sheeting and warehouse facility at the Muskegon, Michigan mill. Expenditures
for the nine months ended July 1, 1998 also include $10.7 million for the
company-wide integrated application system in progress. Capital expenditures are
estimated to be approximately $100.0 million during fiscal year 1998. In
addition, the Company believes that environmental compliance expenditures, the
bulk of which are for cluster rules compliance, will aggregate approximately
$70.0 million to $112.0 million through 2001, of which $20.0 million has already
been incurred. The Company believes that cash generated by operations and
amounts available under its revolving credit facility will be sufficient to meet
its ongoing operating and capital expenditure requirements.
Net cash used in financing activities was $206.6 million for the nine months
ended July 1, 1998 as compared to $50.3 million for the corresponding period of
the previous year. The Company made optional term loan prepayments aggregating
$115.0 million during the nine months ended July 1, 1998 compared with an
optional prepayment of $24.0 million made in the same period of the prior fiscal
year. In addition, as part of the modification of its credit arrangement, Warren
repaid $11.3 million of its term loans in March 1998. In June 1998, the Company
purchased $14.7 million face value of the Notes. The Note purchase transactions
were settled for cash of $11.1 million and $5.2 million paid by the Company in
June 1998 and July 1998, respectively. The current maturities of long-term debt
balance of $5.1 million at July 1, 1998 includes $4.7 million of Notes that were
settled in July 1998.
In July 1998, the Company paid $17.1 million to settle the purchase of $15.4
million face value of the Notes. The Company may continue to purchase small
amounts of the Notes subject to opportune pricing.
During December 1997, the Company paid a dividend (the "Dividend") of $58.2
million to its parent company, Holdings. In turn, Holdings used the proceeds of
the Dividend to redeem the Holdings 15% Senior Exchangeable Preferred Stock,
including accrued and unpaid dividends. In connection with the Dividend
transaction, the Company paid $0.5 million of fees to the holders of the Notes
in exchange for their consent to the Dividend transaction.
18
<PAGE>
Long-term Debt
On March 6, 1998, Holdings and Warren modified Warren's credit arrangement with
a group of domestic and international lenders by refinancing the $196.3 million
aggregate balance outstanding under Warren's Tranche A and Tranche B term loans,
and entering into the Second Amended and Restated Credit Agreement (the
"Modified Agreement"). The Modified Agreement consists of (1) a seven-year
amortizing Term Loan, originally in an aggregate amount of $185.0 million, (2) a
$250.0 million Revolving Credit Facility and (3) a $150.8 million Letter of
Credit Facility. See Note 4 - Long-Term Debt to the Condensed Consolidated
Financial Statements included in this Form 10-Q for further discussion of the
Modified Agreement.
At July 1, 1998, long-term debt was $616.7 compared to $739.8 million at
October 1, 1997, a decrease of $123.1 million. At July 1, 1998, Warren did
not have any borrowings outstanding under the Revolving Credit Facility,
resulting in an unused borrowing capacity of approximately $239.3 million,
after giving effect to outstanding letters of credit, which may be used to
finance working capital needs. In addition, Warren had approximately $136.3
and $150.8 million of letters of credit outstanding under its Letter of
Credit Facility at July 1, 1998 and October 1, 1997, respectively.
Evaluation of Noncore Assets
In May 1997, the chairman of Sappi announced that Sappi was evaluating the sale
of noncore assets throughout the Sappi group. Consequently, Warren is in the
process of investigating the sale or monetization of businesses not within its
main area of focus. Consistent with this strategy, the Company is exploring
alternatives with regard to its timberlands and energy and recovery assets, each
of which may involve the sale of the property. No binding agreements have been
signed.
In addition, on March 18, 1998, the Company sold its pressure sensitive business
located at the Westbrook mill to Spinnaker Industries, Inc. ("Spinnaker").
Proceeds of the sale consisted of $44.8 million of cash and a subordinated note
(the "Spinnaker Note") from Spinnaker for $7.0 million. On March 31, 1998, the
Company sold the Spinnaker Note to a third party for $6.7 million which was
received in cash on May 1, 1998. See Note 7 - Sale of Pressure Sensitive
Business to the Condensed Consolidated Financial Statements included in this
Form 10-Q for further discussion.
Force Majeure Events
See Note 8 - Force Majeure Events to the Condensed Consolidated Financial
Statements included in this Form 10-Q for a discussion of damages and insurance
recoveries resulting from the flooding of the Westbrook mill in October 1996.
Environmental and Safety Matters
The Company is subject to a wide variety of environmental laws and regulations
relating to, among other matters, air emissions, wastewater discharges, past and
present landfill operations and hazardous waste management. See Note 9
Environmental and Safety Matters to the Condensed Consolidated Financial
Statements included in this Form 10-Q for a discussion of these matters.
19
<PAGE>
Labor Relations
In February 1997, the Company reached a settlement on a new six-year labor
agreement with its three major Somerset, Maine mill unions. The ratified
contract reflects more flexible work rule provisions and a 3.0% annual wage
increase for the term of the agreement. In October 1, 1997 and in November 20,
1997, the Company reached settlements with both of its unions at Westbrook and
both of its unions at the Mobile mill, respectively, with the unions in each
case ratifying new five and six year agreements with more flexible work rule
provisions. On April 17, 1998, the Company reached a settlement on a new three-
year agreement with its Allentown, Pennsylvania facility union providing for a
2% annual wage increase for the term of the agreement. The Company's contract
with the major union at the Muskegon mill expired on June 15, 1998. The union
ratified a new six-year contract on July 3, 1998. The ratified contract reflects
more flexible work rule provisions. The Company has experienced no work stoppage
in the U.S. in the past eight years and believes that its relationship with its
employees is satisfactory.
Long-Term Contracts
See Note 10 - Commitments and Contingencies to the Condensed Consolidated
Financial Statements included in this Form 10-Q for a discussion of certain
long-term contracts.
New Accounting Pronouncements
See Note 11 - New Accounting Pronouncements to the Condensed Consolidated
Financial Statements in this Form 10-Q for a discussion of the Company's plans
for the implementation of Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", and
the Accounting Standards Executive "Reporting on the Costs of Start-up
Activities".
Year 2000
The Company is addressing the millenium computer date ("Year 2000") issue with a
concerted project effort which includes contracting with a national consulting
group specializing in Year 2000 initiatives. A company-wide systems assessment
has identified the systems requiring modification or replacement to become Year
2000 compliant. This initiative is expected to be completed by June 30, 1999
and, for those systems not currently being replaced in terms of an
implementation of a company-wide integrated application system, is estimated to
aggregate approximately $12.0 million in expenditures.
Control by Sappi
The Company is a wholly owned subsidiary of SDW Holdings Corporation
("Holdings."). Sappi Limited owns 100% of the issued and outstanding voting
common stock and 75.07% of the common equity of Holdings in the form of Holdings
Class A Common Stock. Heritage Springer Limited, a British Virgin Islands
company, owns the remaining 24.93% of the common equity of Holdings in the form
of Holdings non-voting, convertible Class B Common Stock.
Considerations Relating to Holdings' Cash Obligations
Because Holdings has no material assets other than the outstanding common stock
of Warren (all of which is pledged to the lenders under the Company's credit
agreement) and all of the operations of Holdings (other than the management of
its investment in Warren) are currently conducted through Warren and its
20
<PAGE>
subsidiaries, Holdings' ability to meet its cash obligations is dependent upon
the earnings of Warren and its subsidiaries and the distribution or other
provision of those earnings to Holdings. Holdings has no material indebtedness
outstanding (other than advances that may be owed from time to time to Warren
and guarantees in respect of indebtedness of Warren and its subsidiaries).
Holdings does, however, have various obligations with respect to its equity
securities (including in respect of registration rights granted by Holdings)
that have required and are likely to continue to require cash expenditures by
Holdings. The Company believes that the credit agreement, the Indenture
governing the Notes and the Warren Series B Preferred Stock permit Warren to pay
a dividend or otherwise provide funds to Holdings to enable Holdings to meet its
known cash obligations for the foreseeable future, provided that Warren meets
certain conditions. Among such conditions are that Warren maintain specified
financial ratios and comply with certain financial tests.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Intentionally omitted. *
ITEM 2. CHANGES IN SECURITIES
Intentionally omitted. *
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Intentionally omitted. *
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Intentionally omitted. *
ITEM 5. OTHER INFORMATION
Intentionally omitted. *
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Intentionally omitted. *
- --------------------------------------------------------------------------------
* This report is being voluntarily filed with the Commission pursuant to the
registrant's contractual obligations to file with the Commission all financial
information that would be required to be filed on a Form 10-Q. The registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
22
<PAGE>
SIGNATURE
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.
S.D. Warren Company
Date: August 3, 1998 By: /s/ TREVOR LARKAN
- --------------------- ----------------------
Trevor Larkan
Vice President (Principal Financial Officer)
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFO. EXTRACTED FROM S.D. WARREN
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JULY 1, 1998
FOUND ON PG. 4, 5 AND 6, OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q
FINANCIAL INFO. AND IS QUALIFIED IN ITS ENTIRETY BY REF. TO SUCH FIN.
STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-02-1997
<PERIOD-END> JUL-01-1998
<CASH> 29,300
<SECURITIES> 0
<RECEIVABLES> 39,700
<ALLOWANCES> 5,400
<INVENTORY> 196,900
<CURRENT-ASSETS> 308,900
<PP&E> 1,234,000
<DEPRECIATION> 273,500
<TOTAL-ASSETS> 1,501,300
<CURRENT-LIABILITIES> 221,200
<BONDS> 616,700
115,400
0
<COMMON> 0
<OTHER-SE> 321,400
<TOTAL-LIABILITY-AND-EQUITY> 1,501,300
<SALES> 1,072,400
<TOTAL-REVENUES> 1,072,400
<CGS> 825,200
<TOTAL-COSTS> 929,700
<OTHER-EXPENSES> 0
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