<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 DECEMBER 29, 1999
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
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 423-7300
- --------------------------------------------------------------------------------
(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*
- --------------------------------------------------------------------------------
*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, DECEMBER 29, 1999
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: (a) increased competition from
either domestic or foreign paper producers, including increases in competitive
capacity through construction of new mills or conversion of older facilities to
produce competitive products, (b) variations in demand for the Company's
products, (c) changes in the cost or availability of the raw materials used by
the Company, particularly market pulp and wood, (d) costs of compliance with new
environmental laws and regulations, (e) decisions by the Company to make a
significant acquisition or a significant increase in production capacity, (f)
competitive pricing pressures for the Company's products, (g) unanticipated
manufacturing disruptions, and (h) 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, DECEMBER 29, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE NO.
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the
three months ended December 30, 1998 and December 29, 1999 ............. 4
Condensed Consolidated Balance Sheets at September 29, 1999
and December 29, 1999................................................... 5
Condensed Consolidated Statements of Cash Flows for the
three months ended December 30, 1998 and December 29, 1999 ............. 6
Notes to Unaudited Condensed Consolidated Financial Statements.......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION................. ......................................14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................21
Item 2. Changes in Securities..........................................21
Item 3. Default upon Senior Securities.................................21
Item 4. Submission of Matters to a Vote of Security Holders............21
Item 5. Other Information..............................................21
Item 6. Exhibits and Reports on Form 8-K..............................21
SIGNATURE..................................................................22
</TABLE>
3
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 30, 1998 DECEMBER 29, 1999
-------------------- -------------------
<S> <C> <C>
Net sales $ 333.4 $ 361.8
Cost of goods sold 260.5 288.4
-------------------- -------------------
Gross profit 72.9 73.4
Selling, general and administrative expense 35.1 38.4
Restructuring 3.7 -
-------------------- -------------------
Income from operations 34.1 35.0
Gain on sale of timberlands 75.4 -
Other income, net 2.1 3.2
Interest expense 14.3 16.2
-------------------- -------------------
Income before income taxes and extraordinary items 97.3 22.0
Income tax expense 40.5 8.8
-------------------- -------------------
Income before extraordinary items 56.8 13.2
Extraordinary items, net of tax (1.6) -
-------------------- -------------------
Net income 55.2 13.2
Dividends and accretion on S.D. Warren Series B preferred stock 4.6 -
-------------------- -------------------
Net income applicable to common stockholder $ 50.6 $ 13.2
==================== ===================
Earnings per common share:
Income before extraordinary items applicable to
common stockholder $ 0.52 $ 0.13
==================== ===================
Net income applicable to common stockholder $ 0.51 $ 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 BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 29,
1999 1999
-------------- --------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 73.8 $ 65.6
Trade accounts receivable, net 59.4 69.0
Other receivables 18.0 33.4
Inventories, net 173.4 191.8
Deferred income taxes 20.4 20.4
Other current assets 24.2 10.1
-------------- --------------
Total current assets 369.2 390.3
Plant assets, net 974.1 964.7
Goodwill, net 79.0 78.0
Deferred financing fees, net 22.6 21.7
Other assets, net 38.6 37.6
-------------- --------------
Total assets $ 1,483.5 $ 1,492.3
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 8.4 $ 8.4
Accounts payable 155.8 161.6
Accrued and other current liabilities 102.9 89.1
-------------- --------------
Total current liabilities 267.1 259.1
-------------- --------------
Long-term debt:
Term Loans 82.4 82.4
Senior subordinated notes 232.4 232.4
Exchange Debentures 133.1 133.3
Revenue Bonds 110.5 110.5
-------------- --------------
Total long-term debt 558.4 558.6
Deferred income taxes 113.9 117.4
Other liabilities 118.1 118.0
-------------- --------------
Total liabilities 1,057.5 1,053.1
-------------- --------------
Commitments and contingencies (Notes 9 and 10)
Stockholder's equity:
Common stock ($.01 par value; 1,000 shares authorized; 100
shares issued and outstanding) - -
Capital in excess of par value 321.4 321.4
Retained earnings 104.6 117.8
-------------- --------------
Total stockholder's equity 426.0 439.2
-------------- --------------
Total liabilities and stockholder's equity $ 1,483.5 $ 1,492.3
============== ==============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
DECEMBER 30, DECEMBER 29,
1998 1999
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 55.2 $ 13.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 22.5 24.6
Deferred income taxes 27.1 3.5
Extraordinary items 2.8 -
Gain on sale of timberlands (75.4) -
Changes in assets and liabilities:
Trade and other accounts receivable, net 6.4 (25.0)
Inventories, net (23.0) (18.4)
Accounts payable, accrued and other current liabilities (3.4) (8.0)
Other assets and liabilities 7.1 14.7
-------------- --------------
Net cash provided by operating activities 19.3 4.6
-------------- --------------
Cash Flows from Investing Activities:
Investment in plant assets (25.2) (12.5)
Proceeds from sale of timberlands 3.3 -
Other investing activities 1.0 (0.5)
-------------- --------------
Net cash used in investing activities (20.9) (13.0)
-------------- --------------
Cash Flows from Financing Activities:
Repayments of long-term debt, including premiums paid (29.0) -
Other financing activities (0.1) 0.2
-------------- --------------
Net cash provided by (used) in financing activities (29.1) 0.2
-------------- --------------
Net change in cash and cash equivalents (30.7) (8.2)
-------------- --------------
Cash and cash equivalents:
Beginning of period 34.7 73.8
============== ==============
End of period $ 4.0 $ 65.6
============== ==============
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 24.9 $ 28.0
============== ==============
Income taxes $ 0.3 $ 0.3
============== ==============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
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, doing business as
Sappi Fine Paper North America ("SFPNA" 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
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 owned and operated approximately
905,000 acres of timberlands in the State of Maine, which it sold on November
12, 1998 (See Note 6).
SAPPI REORGANIZATION
On April 27, 1998, Sappi announced the business integration of SFPNA with
Sappi's four international fine paper operations (KNP Leykam, Hannover Papier,
Sappi UK's Blackburn mill and Sappi Fine Paper in South Africa) to create Sappi
Fine Paper plc. The Sappi Fine Paper Division has established 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. S.D. Warren products are now
being marketed under the name Sappi Fine Paper North America. The legal entities
of Holdings, Warren and Warren's subsidiaries continue to remain in existence.
CONTROL BY SAPPI
The Company is a wholly owned subsidiary of Holdings. Sappi indirectly 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.
7
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting of 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 September 29, 1999. The unaudited condensed consolidated
results of operations for the three months ended December 29, 1999 are not
necessarily indicative of results that could be expected for a full year.
NOTE 2. ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and is effective for the Company in the
first quarter of fiscal year 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The Company is
currently evaluating the impact of SFAS No. 133 and has not yet determined its
effect on the Company's consolidated financial statements.
NOTE 3. RELATED PARTY TRANSACTIONS
SFPNA sells products to certain Sappi subsidiaries (Sappi Europe, Sappi UK,
Sappi South Africa, Specialty Pulp Services and U.S. Paper). These subsidiaries
then resell SFPNA's products to external customers at market prices and remit
the proceeds from such sales to SFPNA, net of a 5% sales commission. Net of
commissions, SFPNA shipped $31.1 million and $26.6 million to certain Sappi
subsidiaries for the three months ended December 29, 1999 and December 30, 1998,
respectively. At December 29, 1999 and September 29, 1999, approximately 22% and
19%, respectively, of the Company's gross trade receivables (including those
receivables which were securitized and sold) were due from Sappi affiliates.
SFPNA also purchases products from certain affiliates (Sappi UK, Hannover
Papier, and beginning in the fourth quarter of fiscal 1998, KNP Leykam) for sale
to SFPNA's North American customers. SFPNA resells these products at market
prices and remits the proceeds, net of a 5% sales commission, to the Sappi
affiliates. Net of commissions, SFPNA imported approximately $23.3 million and
$15.1 million of products from these Sappi affiliates for the three months ended
December 29, 1999 and December 30, 1998, respectively.
In addition to the above, the Company has contracted through a management
services agreement with Sappi Fine Paper Plc ("SFP") to provide management
advisory services. The aggregate fee paid by the Company is limited to an annual
amount of $1.0 million. The aggregate fees charged to the Company by SFP were
$2.3 million and $1.8 million for the three months ended December 29, 1999 and
December 30, 1998, respectively. The accompanying balance sheets at December 29,
1999 and September 29, 1999 include accrued management advisory service fees of
$8.6 million and $6.3 million, respectively.
8
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
NOTE 4. INVENTORIES, NET (IN MILLIONS)
<TABLE>
<CAPTION>
September 29, 1999 December 29, 1999
------------------ -----------------
<S> <C> <C>
Finished products $81.7 $89.0
Work in process 27.8 35.2
Pulp, logs and pulpwood 28.1 31.0
Maintenance parts and other supplies 35.8 36.6
---------- -------
$173.4 $191.8
====== ======
</TABLE>
NOTE 5. LONG-TERM DEBT
The current portion of long-term debt of $8.4 million consists primarily of bank
term loan principal payments scheduled for March 2000 and September 2000.
During the three months ended December 30, 1998, the Company purchased $26.6
million face value of its 12% Senior Subordinated Notes (the "Notes"). The
Note purchase transactions were settled for $29.0 million of cash. The
premium paid of $2.4 million to purchase the Notes, together with the related
accelerated amortization of $0.4 million of deferred financing fees resulted
in an extraordinary loss of $1.6 million (net of a $1.2 million tax benefit)
recorded in the three months ended December 30, 1998. The Company did not
purchase any Notes during the three months ended December 29, 1999. The
Company may continue to purchase additional amounts of the Notes subject to
opportune pricing, or call the Notes which, in terms of the Note Indenture,
became collectable with effect from December 15, 1999.
NOTE 6. SALE OF TIMBERLANDS
On November 12, 1998, the Company sold its interest in approximately 905,000
acres of timberlands located in Maine and certain machinery and equipment to
Plum Creek Timber Company, L.P. ("Plum Creek") in exchange for notes receivable
(the "Notes Receivable") with a fair market value of $177.1 million and cash of
approximately $3.3 million. The Notes Receivable have an aggregate face amount
of $171.4 million and original maturities ranging from 8.25 years to 12.25
years. Interest rates on the Notes Receivable range from 7.62% to 7.83% per
annum. To consummate the sale, the Company transferred all of its timberlands
and related machinery and equipment to a wholly-owned limited liability company,
all of the membership interest of which was then sold to Plum Creek. The Company
recognized a pre-tax gain from the sale of the timberlands of $75.4 million.
The Company and Plum Creek executed a fiber supply agreement (the "supply
agreement"), with an initial term of 25 years and with three five-year renewal
options. Under the supply agreement, the Company will purchase hardwood pulpwood
at an annual minimum of 300,000 to 375,000 tons, or approximately 13% of the
Company's annual requirements, at market prices.
On January 21, 1999, the Notes Receivable were contributed to a wholly owned
bankruptcy remote subsidiary, SDW Timber III LLC ("SDW III"). On February 12,
1999, SDW III issued an aggregate of $156.0 million of SDW III Notes Payable
using the Notes Receivable as a pledge of security. The SDW III Notes Payable
mature in three installments ranging from 8 to 12 years and bear interest
payable semi-annually at rates ranging from 7.16% to 7.36% per annum. The
earnings of SDW III, of $0.6 million which consist of interest income earned
on the Notes Receivable, net of interest expense incurred on the SDW III
Notes Payable, are included in other income in the accompanying unaudited
condensed consolidated statements of operations for the three months ended
December 29, 1999. The Company's investment in the undivided interest in SDW
III of approximately $23.6 million and $25.2 million is included in other
9
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
noncurrent assets in the accompanying unaudited condensed consolidated
balance sheets as of December 29, 1999 and September 29, 1999, respectively.
NOTE 7. RESTRUCTURINGS
In October 1998, the Company announced a restructuring plan at the Westbrook,
Maine mill, which included production and maintenance job consolidations and
eliminations, as well as the decision to shut down one of its paper machines.
This paper machine produced release liner paper and face sheets used for
pressure sensitive papers. The Company recorded a charge of $3.7 million to
cover costs relating to the restructuring which included $2.8 million of costs
associated with the termination of 105 employees, or approximately 14% of the
Westbrook mill workforce in force at that date, and an estimated loss of $0.9
million to dispose of the paper machine. All amounts were utilized as of
September 29, 1999.
On April 13, 1999, the Company announced the closures at its facility in
Westbrook, Maine of both the pulp mill and a paper machine, which made coated
base paper. Approximately 315 employees, both salaried and hourly, have been
affected by the closures, or approximately 48% of the then remaining Westbrook
mill workforce. The Company has recorded a pre-tax charge of approximately $35.9
million during fiscal year 1999. The restructuring costs associated with the
above closures include $20.3 million of non-cash expenses relating to fixed
asset write-offs and $15.6 million of accruals of one-time cash costs, primarily
associated with the termination of employees. Of this restructuring charge,
$34.8 million had been utilized as of September 29, 1999 and $1.1 million was
utilized during the three months ended December 29, 1999.
NOTE 8. FORCE MAJEURE EVENT
On November 2, 1999, a paper machine malfunction caused a fire at the Muskegon,
Michigan mill. The fire resulted in the temporary closure of the mill, but
within 24 hours normal operating mill conditions were restored to the entire
facility except for the affected paper machine. The Company commenced producing
paper on the affected paper machine during the second week of December 1999.
Total losses are not expected to exceed the Company's insurance coverage limits,
which include both business interruption and property loss coverage. During the
three months ended December 29, 1999, the Company recorded a receivable from its
insurance company for property damage of approximately $17.0 million, of which
$3.0 million has been collected as of December 29, 1999. In addition, the
Company has recorded a $4.0 million recovery for a portion of the business
interruption claim submitted for the disruption caused by damages incurred with
respect to the Muskegon fire.
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.
The Company's Muskegon mill is involved, as one of various industrial
plaintiffs, in litigation with the County of Muskegon (the "County") regarding
an 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 1998, the appeals
court affirmed the lower
10
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
court's decision substantially in favor of the Company and other plaintiffs.
However, in February 1999, the County passed a similar ordinance in connection
with a federal consent decree. If the Company and other plaintiffs do not
prevail in any future appeal regarding the consent decree or are not successful
in ongoing negotiations with government authorities, 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 United States and Environmental Protection Agency ("EPA") sued
the County for failure to (a) meet its discharge permit limits for the
wastewater facility and (b) to develop and enforce an industrial pretreatment
program. A group of industrial users, including the Company and a group of
municipalities filed motions to intervene in the EPA lawsuit. In December 1998,
the federal court approved a motion filed by the County to terminate the
industrial users' rights to discharge certain pollutant loadings, but not the
right to discharge certain volumes of wastewater to the system. The industrial
users believe they have a meritorious basis for further legal action and are
evaluating their alternatives. A final adverse decision in either of these
lawsuits 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 County
continues to provide service under the permit. 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 April 1998, the EPA issued final regulations that 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"). Compliance with the cluster rules will be required
beginning in 2001 for the Somerset, Maine and Muskegon, Michigan mills. The
Company believes that future environmental compliance expenditures, the bulk of
which are for the cluster rules compliance, will require aggregate capital
expenditures of approximately $30.0 million to $55.0 million through 2001.
Approximately $20.0 million has already been incurred, primarily for required
improvements at the Somerset mill, which has installed elemental chlorine free
(ECF) technology and is in compliance with the effluent guidelines of the
cluster rules.
The Company believes that none of these matters, individually or in the
aggregate, is expected to have a material adverse effect on its consolidated
financial position, results of operations or cash flows.
NOTE 10. COMMITMENTS AND CONTINGENCIES
In connection with the acquisition of the Company from Scott Paper ("Scott"),
the Company entered into long-term (25 years initially, subject to mill closures
and certain FORCE majeure events) agreements with Scott (now Kimberly-Clark) for
the supply of pulp and water and the treatment of effluent at the Mobile mill.
Under the pulp supply agreement, wood pulp was supplied generally at market
prices which were discounted due to the elimination of freight costs associated
with delivering pulp to the Company's Mobile mill. On May 4, 1998, the Company
announced an agreement with Kimberly-Clark to terminate the long-term pulp
supply contract effective September 1, 1999. The cancellation of the pulp
contract did not materially impact the Company's earnings for the three months
ended December 29, 1999. Prices for other services to be provided by
Kimberly-Clark are generally based upon cost.
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 closed their
pulp mill at the Mobile site effective September 1999. The closure of the
Kimberly-Clark pulp mill may result in a MESC default under certain bond
indentures. On January 24, 2000, the
11
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
bankruptcy court granted motions filed by MESC, its bondholders and others to
proceed with the development of a new cogeneration facility at the Mobile,
Alabama site. The Company is currently evaluating the impact on continued MESC
operations of both the closure of the Kimberly-Clark pulp mill and MESC's
proposed cogeneration facility. Loss of biomass and black liquor fuels currently
provided to MESC by the pulp mill could have an adverse impact on the Company's
energy rates.
A substantial majority of the Company's electricity requirements are
satisfied through its own generation or cogeneration agreements. The
Company's power requirements at its Somerset mill are currently satisfied
through a cogeneration 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, but does not require,
that the mill purchase electricity from CMP at the standard industrial tariff
rate. The Somerset agreement expires in the year 2012. The Company also has a
short-term agreement with CMP pursuant to which the Westbrook mill
cogenerates electricity and sells any excess output not used by the mill to
CMP at market rates. The short-term agreement for the Westbrook mill will
expire on February 29, 2000. The Company is currently evaluating its energy
options at its Maine mills in light of the deregulation of the Maine power
industry effective March 1, 2000. In connection with the acquisition of the
Company from Scott, the Company established a deferred asset and deferred
liability of approximately $32.3 million and $15.0 million, respectively, to
reflect the fair value of the CMP agreements in place at such date. The
deferred asset became fully amortized as of fiscal year 1997. The deferred
liability is being amortized over eleven years with amortization beginning in
fiscal year 1998. Accordingly, $0.3 million and $0.3 million of the deferred
liability was amortized during the three months ended December 29, 1999 and
December 30, 1998, respectively. The unamortized deferred liability of
approximately $10.9 million and $10.6 million (net of current portions of
$1.4 million) at September 29, 1999 and December 29, 1999, respectively, is
included in other liabilities in the accompanying consolidated balance
sheets. Power sales revenue is recognized by the Company at the time that
power is provided to or used by CMP based on fixed rates per kilowatt-hour in
the case of the Westbrook agreement and variable rates per kilowatt-hour in
the case of the Somerset agreement.
The Company has a Supply Agreement with Plum Creek, with an initial term of 25
years and with three five-year renewal options. Under the supply agreement, the
Company will purchase hardwood pulpwood at an annual minimum of 300,000 to
375,000 tons, or approximately 13% of the Company's annual requirements, at
market prices.
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 consolidated financial position, results of
operations or cash flows.
The Company received a notice of infringement from the Lemelson Medical,
Educational and Research Foundation, Limited Partnership ("Lemelson") asserting
that the Company has infringed upon various patents owned by Lemelson. In
connection with this assertion, Lemelson is seeking a royalty-based license for
the Company's past and future use of those patents. The Company, along with its
legal counsel, is currently reviewing this matter and cannot make a
determination as to the legitimacy of the claim or the financial liability, if
any, that may result.
NOTE 11. SEGMENTS AND OTHER RELATED INFORMATION
The Company reports segment and other information in accordance with SFAS No.
131, "Disclosures about Segment of an Enterprise and Related Information", which
requires disclosure of segmented
12
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
information about the Company's operations based upon how management oversees
and evaluates the results of such operations. The Company's segments have been
aggregated into a single reportable segment, as permitted under SFAS No. 131,
since they have similar economic characteristics, products, production
processes, types of customers and distribution methods.
Net sales information by the Company's product groups are as follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
DECEMBER 30, DECEMBER 29,
1998 1999
------------------ --------------------
<S> <C> <C>
Coated Papers $ 243.6 $ 268.4
Uncoated Papers 57.5 57.8
Specialty Papers and Other 32.3 35.6
------------------ --------------------
Total $ 333.4 $ 361.8
================== ====================
</TABLE>
13
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
SAPPI REORGANIZATION
On April 27, 1998, Sappi Limited ("Sappi") announced the business integration of
S.D. Warren and its subsidiaries, doing business as Sappi Fine Paper North
America ("SFPNA") and Sappi's four international fine paper operations (KNP
Leykam, Hannover Papier, Sappi UK's Blackburn mill and Sappi Fine Paper in South
Africa) to create Sappi Fine Paper plc. The Sappi Fine Paper Division has
established 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.
S.D. Warren products are now being marketed under the name Sappi Fine Paper
North America. The legal entities of Holdings, S.D. Warren and S.D. Warren's
subsidiaries continue to remain in existence.
MARKET OVERVIEW
The market for coated paper has historically experienced price fluctuations
driven by global supply/demand imbalances, inventory shifts and the
availability and relative pricing of imported products. Coated freesheet
industry volume in the United States was up during the first fiscal quarter
versus the same period in the prior year. The Company's coated volume over
the same period, the three months ended December 29, 1999, was up compared to
the prior year. Increased coated freesheet imports, together with enhanced
domestic production output levels, has over the past one to two years played
a key role in placing downward pressure on coated freesheet industry pricing.
Overall Company pricing has generally followed industry pricing. Given recent
increases in pulp prices, the Company announced price increases in most
coated grades in December, 1999.
Uncoated and technical papers experienced a 5% decline in volume over the same
period in the prior year. After adjusting for the business exited, due to the
restructuring at the Westbrook mill, this segment reported flat sales year over
year with improvements achieved in the sales mix of higher margin products. The
Company has experienced an increase in prices due to improved market conditions
and product mix.
The Company's specialty papers experienced increased sales of its high-end
products during the first fiscal quarter due to strong demand in both Europe
and South America. Overall volume improved by 8%, with noted strength in both
the high-end and commodity product lines. Excess capacity in the industry has
kept pricing flat, although this may change as prices of key raw materials
increase.
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 consolidated
financial position, results of operations and cash flow.
The following discussion and analysis should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements and the Notes thereto.
14
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
THREE MONTHS ENDED DECEMBER 29, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 30, 1998
NET SALES
Net Sales for the three months ended December 29, 1999 were $361.8 million
compared to $333.4 million for the three months ended December 30, 1998, an
increase of $28.4 million or 8.5%. The increase was primarily due to a 33,000
ton or a 10.2% increase in paper shipment volume, attributable to improved
productivity and additional import sales.
COST OF GOODS SOLD
Cost of goods sold for the three months ended December 29, 1999 was $288.4
million compared to $260.5 million for the three months ended December 30,
1998. Cost of goods sold for the three months ended December 29, 1999 is net
of a $4.0 million business interruption insurance claim recovery (see Note 8
- - "Force Majeure Events"). Including this insurance recovery, cost of goods
sold on a per paper ton basis increased to $784 per ton for the three months
ended December 29, 1999 from $782 per ton for the corresponding prior year
quarter. The increase was primarily due to higher pulp costs.
RESTRUCTURINGS
In October 1998, the Company announced a restructuring plan at the Westbrook,
Maine mill, which included production and maintenance job consolidations and
eliminations, as well as the decision to shut down one of its paper machines.
This paper machine produced release liner paper and face sheets used for
pressure sensitive papers. The Company recorded a charge of $3.7 million to
cover costs relating to the restructuring which included $2.8 million of costs
associated with the termination of 105 employees, or approximately 14% of the
Westbrook mill workforce in force at that date, and an estimated loss of $0.9
million to dispose of the paper machine. All amounts were utilized as of
September 29, 1999.
On April 13, 1999, the Company announced the closures at its facility in
Westbrook, Maine of both the pulp mill and a paper machine, which made coated
base paper. Approximately 315 employees, both salaried and hourly, have been
affected by the closures, or approximately 48% of the then remaining Westbrook
mill workforce. The Company has recorded a pre-tax charge of approximately $35.9
million during fiscal year 1999. The restructuring costs associated with the
above closures include $20.3 million of non-cash expenses relating to fixed
asset write-offs and $15.6 million of accruals of one-time cash costs, primarily
associated with the termination of employees. Of this restructuring charge,
$34.8 million has been utilized as of September 29, 1999 and $1.1 million was
utilized during the three months ended December 29, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense totaled $38.4 million for the
three months ended December 29, 1999 compared to $35.1 million for the three
months ended December 30, 1998. The increase over the prior years quarter
results partly from the support services relating to the recently installed
integrated information system, as well as other miscellaneous charges related
to delivery, commissions and other information technology projects.
OTHER INCOME, NET
Other income, net includes interest income of $1.5 million and $2.1 million for
the three months ended December 29, 1999 and December 30, 1998, respectively. Of
the $1.5 million for the three months ended December 29, 1999, $0.6 million
represented interest earned on the Notes Receivable received in
15
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
exchange for the sale of the Company's timberlands (net of interest expense
accrued on the SDW Timber III Notes Payable).
EXTRAORDINARY ITEM
The premium paid of $2.4 million in connection with the purchase of $26.6
million face value of the Company's Senior Subordinated Notes (the "Notes"),
together with the related $0.4 million of accelerated amortization of deferred
financing fees resulted in an extraordinary loss of $1.6 million (net of $1.2
million of tax benefits) in the three months ended December 30, 1998. The
Company did not purchase any Notes during the three months ended December 29,
1999.
INTEREST EXPENSE AND TAXES
Interest expense for the three months ended December 29, 1999 was $16.2 million
compared to $14.3 million for the three months ended December 30, 1998. Interest
expense adjusted for $5.1 million of interest related to the 14% Subordinated
Exchange Debentures issued on June 15, 1999, was approximately $11.1 million for
the three months ended December 29, 1999, compared to $14.3 million for the
three months ended December 30, 1998, primarily due to lower levels of
outstanding debt in the current year. 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 December 29, 1999, income tax expense was $8.8
million, compared to $40.5 million for the three months ended December 30, 1998,
which included the $1.6 million tax benefit attributable to the extraordinary
loss, primarily reflecting the change in the Company's earnings level including
the impact of the sale of the timberlands in November 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.6 million for the three months
ended December 29, 1999 compared to $19.3 million for the three months ended
December 30, 1998. This decrease of $14.7 million is primarily due to an
increased investment in working capital, as a result of the insurance claim
receivable of $18.0 million which is reflected in other receivables.
The Company's operating working capital was $43.5 million at December 29, 1999
compared to a deficit of $7.9 million at September 29, 1999. Operating working
capital is defined as trade accounts receivable, other receivables and
inventories less accounts payable and accrued and other current liabilities.
This increase resulted primarily from an increase in trade accounts receivable
and inventories during the three months ended December 29, 1999, offset by an
increase in accounts payable.
Capital expenditures for the three months ended December 29, 1999 were $12.5
million, down from $25.2 million for the three months ended December 30, 1998.
The reduction from last year is due to completion of the Company's new sheeting
and warehouse facility at the Muskegon, Michigan mill and completion of the
first phase of the company-wide integrated application system implementation.
Capital expenditures are projected to be approximately $125.0 million during
fiscal year 2000. In addition, the Company believes that environmental
compliance expenditures, the bulk of which are for cluster rules compliance,
will approximate $55.0 million to $75.0 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 for the remainder of 2000.
16
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
Cash used in financing activities for the three months ended December 29, 1999
was $0.2 million compared to $29.1 million for the corresponding period of the
previous year. During the three months ended December 30, 1998, the Company
purchased $26.6 million of face value of Notes for $29.0 million of cash.
LONG-TERM DEBT
At December 29, 1999, long-term debt, excluding current maturities, was $558.6
million compared to $558.4 million at September 29, 1999. At December 29, 1999,
SFPNA did not have any borrowings outstanding under its revolving credit
facility, resulting in an unused borrowing capacity of approximately $232.4
million, after giving effect to outstanding letters of credit, which may be used
to finance working capital needs. In addition, SFPNA had approximately $120.2
million of letters of credit outstanding under its letter of credit facility at
December 29, 1999.
OTHER ITEMS
SALE OF TIMBERLANDS
See Note 6 - Sale of Timberlands.
FORCE MAJEURE EVENT
See Note 8 - Force Majeure Event
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 in the Notes to Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q for a discussion of
these matters.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 - New Accounting Pronouncements in the Notes to Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q for a discussion of
these matters.
LONG-TERM CONTRACTS
See Note 10 - Commitments and Contingencies in the Notes to Unaudited Condensed
Consolidated Financial Statements included in this Form 10-Q for a discussion of
certain long-term contracts.
YEAR 2000
In fiscal year 1996 the Company commenced its Year 2000 project to remediate the
cross-century date processing problem within the Company's computer systems
including business information systems, manufacturing execution systems,
production control systems, and data communications infrastructure. The Company
contracted with a national consulting firm specializing in Year 2000
initiatives. This consulting firm employed its Year 2000 compliance methodology
as well as specialized project management and technical staff to advise and
assist in the conduct of the Company's Year 2000 project.
17
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
Compliance strategies employed by the Year 2000 project team included: system
remediation (Year 2000 readiness modifications), system retirement, and
system replacement. This included the replacement of a significant number of
legacy business systems with the implementation of a company-wide integrated
application system ("the integrated system"). Compliance strategies also
included assessing the Year 2000 readiness of critical vendors and customers.
The Company utilized a "Day Zero" contingency plan, which provided for an
enterprise communications center to be active during the New Year transition
period of December 31, 1999 through January 4, 2000. The purpose of this center
was to enable the Company to address effectively any internal or external Year
2000 impact scenarios.
The Company's business information systems, manufacturing execution systems,
production control systems, and data communications infrastructure were not
adversely effected on the January 1, 2000 transition and continue to operate as
intended. The Company has also not experienced any significant delays in
conducting business with its critical vendors or customers. The Company is aware
that certain problems may arise periodically throughout the year relating to the
Year 2000, but it is expected that they would be inconsequential.
For those systems not replaced by the implementation of the integrated
system, the cost of the Year 2000 project aggregated approximately $13.9
million which included $12.6 million for remediation services by third party
consultants and $1.3 million for new hardware and software. Future costs with
respect to Year 2000 are not expected to be material.
CONSIDERATIONS RELATING TO HOLDINGS' CASH OBLIGATIONS
The Company expects that it may make certain cash payments to Holdings or
other affiliates during fiscal 2000 to the extent cash is available and to
the extent it is permitted to do so under the terms of the Credit Agreement,
the Indentures relating to the Notes and Exchange Debentures. Such payments
may include, among other things, (i) amounts under a tax sharing agreement
between the Company and Holdings necessary to enable Holdings to pay the
Company's taxes, (ii) an administrative fee to Holdings and amounts to cover
specified costs and expenses of Holdings, (iii) an annual advisory fee for
management advisory services to Sappi and/or its affiliates, the cash payment
of which is limited to $1.0 million in any one year and (iv) any dividends
that might be paid to Sappi. The accompanying condensed consolidated balance
sheets at December 29, 1999 and September 29, 1999, respectively, include an
accrual of $2.3 million and $6.3 million relating to the annual advisory fee,
the payment of which is subject to the above mentioned limitations under the
terms of its current financial instruments.
Because Holdings has no material assets other than the outstanding common stock
of SFPNA (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 SFPNA) are currently conducted through SFPNA and its
subsidiaries, Holdings' ability to meet its cash obligations is dependent upon
the earnings of SFPNA 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 SFPNA and
guarantees in respect of indebtedness of SFPNA 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
18
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
Holdings. The Company believes that the Credit Agreement, the Indenture relating
to the Notes and the Exchange Debentures permit SFPNA 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 SFPNA meets certain
conditions. Among such conditions are that SFPNA maintain specified financial
ratios and comply with certain financial tests.
19
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with changes in interest rates.
The Company's objective in managing its exposure to interest rate change is to
limit the impact of interest rate changes in earnings and cash flow and to lower
its overall borrowings costs. Short-term borrowings, if required, are used to
meet working capital requirements and long-term borrowings are generally used to
finance long-term investments. The Company's financial instruments consist
mainly of cash and cash equivalents, accounts receivable, accounts payable and
debt. In addition, the Company uses interest rate swaps as a means of managing
interest rate risk associated with relevant outstanding debt receivables. The
carrying amounts of cash, cash equivalents, accounts receivable and accounts
payable approximate fair value due to the short-term nature of these
instruments.
The Company's Credit Facility bears interest at rates which fluctuate with
changes in the Eurodollar rate. The majority of the Company's long-term debt,
approximately $476.2 million at December 29, 1999, is at fixed interest rates.
The Company's interest expense on its Credit Facility and the fair value of its
fixed long-term debt is sensitive to changes in market interest rates. The
effect of a 10% adverse change in market interest rates on the Company's
interest expense and the fair value of its long-term debt and interest rate swap
would not be materially different than that disclosed in the Company's Annual
Report on Form 10-K for the year ended September 29, 1999.
During the three months ended December 29, 1999, the Company did not engage in
foreign currency hedging activities. The currency exchange impact from the
Company's transactions with its affiliates was immaterial.
20
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Intentionally omitted.*
ITEM 2. CHANGES IN SECURITIES
Intentionally omitted.*
ITEM 3. DEFAULT 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.
21
<PAGE>
S.D. WARREN COMPANY AND SUBSIDIARIES
FORM 10-Q, DECEMBER 29, 1999
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: February 2, 2000 BY: /s/ TREVOR LARKAN
-------------------------------
Trevor Larkan
Vice President and Chief Financial Officer
(Principal Financial Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM S.D. WARREN
COMPANY'S (THE "COMPANY") CONDENSED STATEMENTS OF OPERATIONS FOR THE QUARTER
ENDED DECEMBER 29, 1999 AND BALANCE SHEET AS OF DECEMBER 29, 1999 FOUND ON
PAGE 4 AND 5, RESPECTIVELY, OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-2000
<PERIOD-START> SEP-30-1999
<PERIOD-END> DEC-29-1999
<CASH> 65,600
<SECURITIES> 0
<RECEIVABLES> 71,900
<ALLOWANCES> 2,900
<INVENTORY> 191,800
<CURRENT-ASSETS> 390,300
<PP&E> 1,350,200
<DEPRECIATION> 385,500
<TOTAL-ASSETS> 1,492,300
<CURRENT-LIABILITIES> 259,100
<BONDS> 558,600
0
0
<COMMON> 0
<OTHER-SE> 321,400
<TOTAL-LIABILITY-AND-EQUITY> 1,492,300
<SALES> 361,800
<TOTAL-REVENUES> 361,800
<CGS> 288,400
<TOTAL-COSTS> 326,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,200
<INCOME-PRETAX> 22,000
<INCOME-TAX> 8,800
<INCOME-CONTINUING> 13,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,200
<EPS-BASIC> $0.13
<EPS-DILUTED> $0.13
</TABLE>
