<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 January 1, 1997
----------------
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: 033-88496-01*
-------------
SDW HOLDINGS CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3795926
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2700 Westchester Avenue, Purchase, NY 10577-2554
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(914) 696-0021
- -------------------------------------------------------------------------------
(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>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
FORM 10-Q, JANUARY 1, 1997
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q for SDW Holdings Corporation (the "Company") contains
forward-looking information which, at the time made, reflects on the future and
is based upon management's interpretations of what it believes are significant
factors affecting the Company's business, and there can be no assurance that
Management's interpretations and the assumptions on which they are based will
prove to be correct. The Company believes that various factors could affect the
Company's actual results and could cause the Company's actual results, for 1997
and beyond, to differ materially from those expressed in any forward-looking
statement made by or on behalf of the Company. Such factors include, but are
not limited to: global economic and market conditions, production and capacity
in the United States and Europe; production and pricing levels of pulp and
paper; any major disruption in production at 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. See also "Market Overview" under Item 2, Management's Discussion
and Analysis of Results of Operations and Financial Condition.
-2-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
FORM 10-Q, JANUARY 1, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the
three months ended January 3, 1996 and January 1, 1997 4
Condensed Consolidated Balance Sheets at October 2, 1996
and January 1, 1997 5
Condensed Consolidated Statements of Cash Flows for the
three months ended January 3, 1996 and January 1, 1997 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 21
</TABLE>
-3-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JANUARY 3, 1996 JANUARY 1, 1997
(RESTATED)
------------------ ------------------
<S> <C> <C>
Sales $361.3 $314.5
Cost of goods sold 287.8 267.2
------ ------
Gross profit 73.5 47.3
Selling, general and administrative
expense 32.1 33.1
Restructuring - 10.0
------ ------
Income from operations 41.4 4.2
Other income, net 2.4 1.2
Interest expense 30.5 25.2
------ ------
Income (loss) before income taxes,
dividends and accretion on Warren
Series B preferred stock 13.3 (19.8)
Income tax expense (benefit) 5.4 (8.0)
Dividends and accretion on Warren
Series B preferred stock 3.4 3.6
------ ------
Net income (loss) 4.5 (15.4)
Dividends on preferred stock 1.7 1.9
------ ------
Net income (loss) applicable to
common stockholders $ 2.8 $(17.3)
====== ======
Earnings (loss) per common share:
Net income (loss) $ 0.13 $(0.50)
====== ======
Net income (loss) applicable to
common stockholders $ 0.08 $(0.56)
====== ======
Weighted average number of shares
outstanding 35.9 30.7
====== ======
</TABLE>
See accompanying notes to unaudited condensed, consolidated financial
statements.
-4-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 2, JANUARY 1,
1996 1997
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49.0 $ 67.4
Trade accounts receivable, net 49.1 27.8
Other receivables 34.2 49.6
Inventories 195.7 191.7
Deferred income taxes 18.0 23.5
Other current assets 9.4 19.4
-------- --------
Total current assets 355.4 379.4
Plant assets, net 1,114.7 1,102.4
Timber resources, net 95.3 95.4
Goodwill, net 94.1 93.1
Deferred financing fees, net 44.8 42.8
Other assets, net 21.1 20.4
-------- --------
Total assets $1,725.4 $1,733.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $ 46.4 $ 77.4
Accounts payable 101.6 130.0
Accrued and other current
liabilities 97.6 103.6
-------- --------
Total current liabilities 245.6 311.0
-------- --------
Long-term debt:
Term loans 411.4 362.7
Senior subordinated notes 375.0 375.0
Other 116.1 115.9
-------- --------
902.5 853.6
-------- --------
Deferred income taxes 34.6 40.1
-------- --------
Other liabilities 98.2 96.2
-------- --------
Total liabilities 1280.9 1,300.9
-------- --------
Commitments and contingencies
(Notes 7 and 8)
Warren Series B redeemable
exchangeable preferred stock
(liquidation value, $96.2
and $99.6, respectively) 88.0 91.5
-------- --------
Stockholders' equity:
Preferred stock, at
liquidation value 49.0 50.9
Common stock 0.3 0.3
Capital in excess of par value 294.0 294.0
Retained earnings 13.2 (4.1)
-------- --------
Total stockholders' equity 356.5 341.1
-------- --------
Total liabilities and
stockholders' equity $1,725.4 $1,733.5
======== ========
</TABLE>
See accompanying notes to unaudited condensed, consolidated financial
statements.
-5-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JANUARY 3, 1996 JANUARY 1, 1997
(RESTATED)
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 4.5 $(15.4)
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation, cost of timber
harvested and amortization 28.7 29.5
Loss on force
majeure events - 4.8
Dividends and accretion
on Warren preferred stock 3.4 3.6
Deferred income taxes - (5.5)
Other 5.4 (0.1)
Changes in assets and liabilities:
Trade and other accounts
receivable, net 28.0 27.7
Inventories (16.1) 4.0
Accounts payable, accrued
and other current liabilities (42.9) 12.4
Other assets and liabilities 3.1 (9.4)
------ ------
Net cash provided by operating
activities 14.1 51.6
------ ------
Cash Flows from Investing Activities:
Proceeds from disposals of
plant assets - 0.1
Investment in plant assets
and timber resources (10.1) (10.8)
Refurbishment of plant
assets - (22.7)
Insurance proceeds on force
majeure events - 18.1
------ ------
Net cash used in investing
activities (10.1) (15.3)
------ ------
Cash Flows from Financing Activities:
Proceeds from debt 9.3 -
Repayments of debt (74.9) (17.9)
------ ------
Net cash used in financing
activities (65.6) (17.9)
------ ------
Net change in cash and cash equivalents (61.6) 18.4
Cash and cash equivalents, beginning of
period 62.2 49.0
------ ------
Cash and cash equivalents, end of period $ 0.6 $ 67.4
====== ======
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 44.8 $ 32.4
====== ======
Income Taxes $ 3.6 -
====== ======
</TABLE>
See accompanying notes to unaudited condensed, consolidated financial
statements.
-6-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
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 SDW Holdings Corporation ("Holdings"), a wholly-owned subsidiary
of Sappi Ltd ("Sappi"), and a holding company which owns all of the outstanding
common stock of S. D. Warren Company ("Warren"). Holdings has no material assets
other than its investment in Warren and all the operations of Holdings (other
than the management of its investment in Warren and the provision of certain
corporate services to Warren) are currently conducted through Warren. Holdings
and Warren are collectively referred to herein as the "Company." Intercompany
balances and transactions have been eliminated in the preparation of the
accompanying unaudited condensed, consolidated financial statements.
The Company reviewed its accounting policy with respect to accounting for
certain costs relating to compliance with safety and other governmental laws and
regulations. These costs were previously accounted for on an accrual basis and
the Company changed to an "as incurred" basis. Accordingly, the financial
statements for the three months ended January 3, 1996 have been restated to
reflect the effect of this change in accounting for these costs. The effects of
the restatement were not material to the three month period ended January 3,
1996.
In addition to the aforementioned restatement, certain prior period items have
been reclassified to conform to the current presentation followed by the
Company.
Business
The Company manufactures printing, publishing and specialty papers and has pulp
and timberland operations vertically integrated with certain of its
manufacturing facilities which represent the Company's single line of business.
The Company currently operates four paper mills, a sheeting and several
distribution facilities and owns approximately 911,000 acres of timberlands in
the State of Maine.
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 Holdings' Annual Report on Form 10-
K for the fiscal year ended October 2, 1996. The unaudited condensed,
consolidated results of operations for the three months ended January 1, 1997
are not necessarily indicative of results that could be expected for a full
year.
NOTE 2. RELATED PARTY TRANSACTIONS
During the three months ended January 1, 1997, the Company sold 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
sales commissions. The Company sold approximately $42.4 million to affiliates
and incurred fees of approximately $2.4 million relating to these sales for the
three months ended January 1, 1997. Trade accounts receivable from affiliates
at January 1, 1997 were approximately $30.9 million compared to $13.1
-7-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
million at January 3, 1996. The Company has formalized certain of these
agreements and is in the process of formalizing the remainder.
The Company also conducts business through Affiliates in currencies other than
the U.S. Dollar, primarily the Japanese Yen. The Company manages the potential
exposure associated with transacting in currencies other than the U.S. dollar
through the use of foreign currency forward contracts. These contracts are used
to offset the effects of exchange rate fluctuations on a portion of the
underlying Yen-denominated exposure. This exposure primarily represents firm
trade accounts receivable from Affiliates. Total trade accounts receivable from
affiliates denominated in Yen, as well as any related realized and unrealized
gains and losses on these receivables and related hedge instruments at January
3, 1996 and January 1, 1997, were immaterial.
During fiscal year 1996, the Company began purchasing products from certain
affiliates in U.S. Dollars primarily for sale to external customers. The
Company receives commissions from the affiliates on such sales. These
transactions to date have not been material.
NOTE 3. INVENTORIES (IN MILLIONS)
<TABLE>
<CAPTION>
OCTOBER 2, 1996 JANUARY 1, 1997
--------------- ---------------
<S> <C> <C>
Finished products $ 92.8 $ 93.4
Work in process 34.5 32.4
Pulp, logs and pulpwood 25.8 24.9
Maintenance parts and other supplies 42.6 41.0
------ ------
$195.7 $191.7
====== ======
</TABLE>
NOTE 4. LONG-TERM DEBT
The current maturities of long-term debt balance of $77.4 million at January 1,
1997 primarily represents the amounts payable in June 1997 and December 1997
under Warren's term loan facilities, and also includes an optional prepayment of
the Company's term loans of $24.0 million made by the Company in early January
1997.
On February 7, 1997 the Company amended certain provisions of its credit
agreement with a syndicate of banks agented by The Chase Manhattan Bank
providing for term, revolving and letter of credit facilities (the "Credit
Agreement"), including the interest coverage covenant, the optional prepayment
terms and, in order to permit the granting of senior liens in connection with
the refinancing of certain industrial revenue bonds of the Company, the covenant
restricting certain liens.
NOTE 5. 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 up to approximately 200 salaried
positions, or approximately 14% of the Company's salaried workforce.
NOTE 6. FORCE MAJEURE EVENTS
On October 17, 1996 a fire occurred at an outside warehouse location in
Muskegon, Michigan, which resulted in the loss of approximately 8,000 tons of
inventory valued in excess of $6.0 million. While the Company cannot reasonably
estimate at this time the total loss experienced, or the amount to be recovered
under its insurance policies, it does not expect that losses will exceed its
insurance coverage limits.
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 has since been repaired and normal operating
mill conditions have been restored. While the Company cannot reasonably
estimate at this time the total loss experienced, or the exact amount to be
recovered under its insurance policies, early indications suggest that such
amounts may be significant. However, total losses are not
-8-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
expected to exceed the Company's insurance coverage limits, which include both
business interruption and property loss coverage. The Company will be submitting
a business interruption insurance claim for these losses during the second
fiscal quarter. No business interruption insurance recovery has been
incorporated in the results for the quarter ended January 1, 1997.
The Company has accrued an estimate of $44.7 million of costs to refurbish plant
assets at the Westbrook facility, of which $22.7 million has been paid in cash
with the remainder included in accounts payable in the condensed consolidated
balance sheet at January 1, 1997. The Company has accrued $39.9 million of
insurance claim for the refurbishment costs of which $18.1 million has been
received to date with the remainder included in other receivables in the
condensed consolidated balance sheet at January 1, 1997. The $4.8 million for
which no insurance claim was accrued primarily represents nonrecoverable
insurance amounts and is disclosed in the condensed consolidated statement of
cash flows for the three months ended January 1, 1997 as an adjustment to
reconcile net income to net cash provided by operating activities.
NOTE 7. ENVIRONMENTAL AND SAFETY MATTERS
The Company is subject to a wide variety of increasingly stringent 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 other parameters
(e.g., temperature and color) and is attempting to revise these other wastewater
permit limits for its facilities. While the permit limitations at these two
facilities are being challenged, the Company continues to operate under existing
EPA permits, which have technically expired, in accordance with accepted
administrative practice. In addition, the Muskegon mill is involved, as one of
various industrial plaintiffs, in litigation with the County of Muskegon
regarding a 1994 ordinance governing the County's industrial wastewater
pretreatment program. The lawsuit challenges, among other things, the treatment
capacity availability and local effluent limit provisions of the ordinance. In
July 1996, the Court 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. 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 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"). Although the EPA has not made
any commitments, final promulgation of the cluster rules is expected to occur
early in 1997 and compliance with the rules may be required beginning in 1998.
The Company believes that compliance with the cluster rules, if adopted as
currently proposed, may require aggregate capital expenditures of
-9-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
approximately $76.0 million through 1999. The ultimate financial impact to the
Company of compliance with the cluster rules will depend upon the nature of the
final regulations, the timing of required implementation and the cost and
availability of new technology. The Company also anticipates that it will incur
an estimated $10.0 million to $20.0 million of capital expenditures through 1999
related to environmental compliance other than as a result of the cluster rules.
The Company's mills generate substantial quantities of solid wastes and by-
products that are disposed of at permitted landfills and solid waste management
units at the mills. The Company is currently planning to expand the landfill at
the Somerset mill at a projected total cost of approximately $16.0 million, of
which $7.0 million is expected to be incurred prior to the year 2000 with the
remainder being spent subsequent to 2004.
The Muskegon mill has had discussions with the Michigan Department of Natural
Resources ("DNR") regarding a wastewater surge pond adjacent to the Muskegon
Lake. The DNR presently is considering whether the surge pond is in compliance
with Michigan Act 245 (Water Resources Commission Act) regarding potential
discharges from that pond. The matter is now subject to the results of a pending
engineering investigation. There is a possibility that, as a result of DNR
requirements, the surge pond may be closed in the future. The Company estimates
the cost of closure will be approximately $2.0 million. In addition, if it is
necessary to replace the functional capacity of the surge pond with above-grade
structures, the Company preliminarily estimates that up to an additional $8.0
million may be required for such construction costs.
The Company has been identified as a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for cleanup
of contamination at seven sites. Based upon the Company's understanding of the
total amount of liability at each site, its calculation of its percentage share
in each proceeding, and the number of potentially responsible parties at each
site, the Company presently believes that its aggregate exposure for these
matters is not material. Moreover, as a result of the Acquisition, the Company's
former parent, Scott, agreed to indemnify and defend the Company for and
against, among other things, the full amount of any damages or costs resulting
from the off-site disposal of hazardous substances occurring prior to the date
of closing, including all damages and costs related to these seven sites. Since
the date of closing of the Acquisition, Scott has been performing under the
terms of this environmental indemnity and defense provision and, therefore, the
Company has not expended any funds with respect to these seven sites.
The Company currently has a five year demolition project in progress at its
Westbrook Facility for health and safety reasons which is expected to be
completed in the year 2001. Total costs of the project are estimated to be
approximately $9.0 million, of which approximately $5.7 million had been spent
as of January 1, 1997. The Company recognizes these costs as they are incurred.
The Company does not believe that it will have any liability under recent
emergency legislation enacted by the State of Maine to cover a significant
shortfall in the Maine workers' compensation system through assessments of
employers and insurers; however, there can be no assurance that the existing
legislation will fully address the shortfall.
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 8. COMMITMENTS AND CONTINGENCIES
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<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Mobile, Alabama paper mill was historically operated by Scott as part of an
integrated facility (including a tissue mill, a pulp mill and energy facility).
In connection with the Acquisition, Warren entered into long-term (25 years
initially, subject to mill closures and certain force majeure events) supply
agreements with Scott for the supply of pulp and water and the treatment of
effluent at the Mobile Mill. Wood pulp will be supplied generally at market
prices. Pulp prices will be discounted due to the elimination of freight costs
associated with delivering pulp to Warren's Mobile paper mill and pulp
quantities will be subject to minimum (170,000 to 182,400 tons per year) and
maximum (220,000 to 233,400 tons per year) limits. Prices for other services to
be provided by Scott will generally be based upon cost. Prior to the
Acquisition, Scott sold its energy facility at Mobile to Mobile Energy Services
Corporation ("MESC"). In connection with the sale of the energy facility, MESC
entered into a long-term agreement with Warren to provide electric power and
steam to the paper mill at rates generally comparable to market tariffs,
including fuel cost and capital recovery components. Scott, MESC and Warren have
also entered into a long-term shared facilities and services agreement (the
"Shared Facilities Agreement") with respect to medical and security services,
common roads and parking areas, office space and similar items and a
comprehensive master operating agreement providing for the coordination of
services and integration of operations among the energy facility, the paper
mill, the pulp mill and the tissue mill. Annual fees under the Shared Facilities
Agreement are expected to be approximately $1.5 million per year through the 25
year term of the agreement. Warren has the option to cancel certain non-
essential services covered by the Shared Services Agreement at any time prior to
the end of the 25 year term.
A substantial portion of the Company's electricity requirements are satisfied
through cogeneration agreements ("Power Purchase Agreements" or "Agreements")
whereby the Somerset and Westbrook mills each cogenerate electricity and sell
the output to Central Maine Power Company ("CMP"). The Westbrook and Somerset
Agreements require CMP to purchase such energy produced by these cogeneration
facilities at above market rates which has reduced the Company's historical cost
of electrical energy. The Westbrook Agreement expires October 31, 1997 and the
Somerset Agreement expires in the year 2012. The favorable pricing element of
the Somerset Agreement will end on November 30, 1997. The agreements also
require the mills to purchase electricity from CMP at the standard industrial
tariff rate. To reflect the fair market value of the acquired Power Purchase
Agreements in accordance with APB No. 16, as of the Acquisition date, the
Company established a deferred asset of approximately $32.3 million. This
deferred asset is recorded with other contracts valued at the Acquisition date
as a net long-term liability. This deferred asset is being amortized over the
remaining life of the favorable Power Purchase Agreements. For the three months
ended January 1, 1997 amortization expense related to this asset approximated
$3.0 million.
The Company is also involved in various other lawsuits and administrative
proceedings. The relief sought in such lawsuits and proceedings include
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.
On November 5, 1996, a proposed binding referendum measure to eliminate
clearcutting in unincorporated areas in the State of Maine was defeated. A
competing measure, which could establish new forestry standards stricter than
current law, but which would not completely ban clearcutting, received a
plurality vote. This competing measure was supported by the Company, other
major timber interests in Maine, several environmental groups as well as the
Governor of Maine. Under Maine law, this competing measure will not
automatically become law unless it receives a simple majority of the votes cast
in a special election to be held in 1997. If this competing measure does become
law, the consequence to the Company is not
-11-
<PAGE>
SDW HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
expected to be material, because such measure generally reflects sustainable
forestry initiatives already voluntarily adopted by the Company.
NOTE 9. SUBSEQUENT EVENT
On February 6, 1997, the Company reached settlement on a new six-year labor
agreement with its three Somerset, Maine mill unions, concluding sixteen months
of negotiations. The ratified contract, which is effective immediately,
reflects more flexible work rule provisions and a 3% annual wage increase for
the term of the agreement. The Company has experienced improved productivity at
the Somerset facility since mid-December 1996, when the terms of the new work
rules were first implemented prior to ratification.
-12-
<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. Forward-looking statements contained in the following
discussion are expectations only and there can be no assurance that actual
results will not materially differ from these expectations. 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 Holdings Annual Report on Form 10-K
for the fiscal year ended October 2, 1996. See "Note Regarding Forward -
Looking Statements" on page 2 of this report.
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
products. Coated free paper shipments in the segments in which the Company
competes showed very little change over the prior quarter, but were up between
15% and 20% over the first fiscal quarter of the prior year.
The uncoated market, in which the Company has a relatively small market share,
showed some improvement on the previous year and very little change from the
previous quarter. The specialty businesses experienced stable market volume and
pricing.
The industry's coated freesheet mill inventories, having peaked in May 1996 at
approximately 600,000 tons, had declined to a level of approximately 460,000
tons during the quarter ended December 31, 1996. The improvement in industry
shipments and reduction in inventories has caused coated pricing on average to
stabilize at approximately 15% below the previous year levels. The Company's
sales volume, incorporating all products of the Company, for the quarter ended
January 1, 1997 totaled approximately 304,000 tons compared with a figure
marginally lower for the corresponding period in the prior year, although lower
than the seasonally high demand of the final 1996 fiscal quarter.
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. Management anticipates an improvement in business
conditions for the Company's products as the Company exits the seasonally weaker
periods of its fiscal year. However, new coated paper capacity scheduled for the
end of calendar year 1997 in Europe, as well as certain machine conversions
during 1997 to coated freesheet manufacture in the United States, will impact
market supply/demand balance and may constrain upward movement of coated prices.
RESULTS OF OPERATIONS
Sales
Sales for the three months ended January 1, 1997 were $314.5 million compared to
$361.3 million for the three months ended January 3, 1996, a decrease of $46.8
million or 13.0%. The decrease was primarily due to a 14% decrease in average
net revenue per ton partially offset by a 1.1% increase in shipment volume
during such period.
Cost of Goods Sold
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<PAGE>
Cost of goods sold for the three months ended January 1, 1997 decreased $20.6
million, or 7.2%, to $267.2 million compared to $287.8 million for the three
months ended January 3, 1996. Cost of goods sold for the three months ended
January 1, 1997 included $4.8 million of non-recurring costs representing the
nonrecoverable insurance claims (see "Other Items - Force Majeure Events").
Including these costs, cost of goods sold on a per ton basis decreased to $914
per ton from $995 per ton for the corresponding prior year quarter. The decrease
was primarily due to lower fiber input costs and, to a lesser extent, cost
cutting efforts which resulted in lower personnel and maintenance costs, and the
mix of products sold.
Selling, General and Administrative Expense
Selling, general and administrative expense was virtually flat for the quarter
ended January 1, 1997 as compared to the corresponding period in the prior year.
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 workforce.
Income from Operations
The flood described in "Other Items - Force Majeure Events" represented a
significant disruption to the Westbrook, Maine mill's production, as well as to
its shipments and utility sales during the quarter ended January 1, 1997. The
Company will be submitting a business interruption insurance claim for these
losses during the second fiscal quarter. No business interruption insurance
recovery has been incorporated in the results for the quarter ended January 1,
1997.
Interest Expense, Taxes, and Dividends and Accretion on Warren Series B
Preferred Stock
Interest expense for the three months ended January 1, 1997 was $25.2 million
compared to $30.5 million for the three months ended January 3, 1996. The $5.3
million reduction in interest expense for the comparable period was primarily
due to lower levels of outstanding debt and a reduction in applicable margins
on the Company's term loans. Interest expense includes the amortization of
deferred financing fees.
Income tax expense was a benefit of $8.0 million for the three months ended
January 1, 1997 compared to an expense of $5.4 million for the corresponding
period in the prior year, primarily reflecting the change in the Company's
earnings level.
Dividends and accretion on Warren Series B preferred stock of $3.6 million are
accounted for as the equivalent of a minority interest for financial statement
purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $51.6 million for
the three months ended January 1, 1997 as compared to $14.1 million for the
three months ended January 3, 1996. The increase is due mainly to a $75.1
million favorable swing in working capital requirements for the comparable
periods as inventories declined and accounts payable increased relative to the
first fiscal quarter of the prior year, partially offset by the net loss for the
first fiscal quarter of 1997 compared to net income for the corresponding period
in the prior year.
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<PAGE>
The increase in accounts payable at January 1, 1997 compared to October 2, 1996
was primarily attributable to increased purchasing activity as a result of the
Westbrook flood with the increase in other receivables being primarily
attributable to the accrual of the property damage insurance recovery.
The Company's operating working capital decreased to $35.5 million at January 1,
1997 compared to $79.8 million at October 2, 1996. Operating working capital is
defined as trade accounts receivable, other receivables and inventories less
accounts payable and accrued and other current liabilities. This decrease
primarily resulted from a decrease in trade accounts receivables together with
the increase in accrued and other current liabilities mentioned above.
Capital expenditures for the three months ended January 1, 1997 at $10.8 million
were flat, excluding the effect of force majeure events when compared to $10.1
million for the three months ended January 3, 1996. Capital expenditures are
estimated to approximate $80.0 million during fiscal year 1997. In addition, due
to a wide variety of environmental laws and regulations, including compliance
with the cluster rules, the Company anticipates that aggregate capital
expenditures related to environmental compliance will approximate $90.0 million
through fiscal year 1999, assuming the cluster rules are adopted. 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 lower during the three months ended
January 1, 1997 compared to the corresponding quarter of the previous year
reflecting differences in optional and excess cashflow prepayments made with
respect to the Company's term loan facilities. The Company did, however, make an
optional prepayment of its term loans totaling $24.0 million in early January
1997.
Debt and Preferred Stock
At January 1, 1997, the Company's long-term debt was $853.6 million compared to
$902.5 million at October 2, 1996, a decrease of $48.9 million. The current
maturities of long-term debt balance of $77.4 million at January 1, 1997
primarily represents the amounts payable in June 1997 and December 1997 under
the Company's term loan facilities, and also includes the aforementioned
optional prepayment of $24.0 million.
Warren has a $250.0 million revolving credit facility to finance working capital
needs. At January 1, 1997, Warren did not have any borrowings outstanding under
this facility, resulting in an unused borrowing capacity of approximately $249.0
million, after giving effect to outstanding letters of credit, which may be used
to finance working capital needs. Warren is required to pay a commitment fee,
which is based on the achievement of a certain financial ratio, of between
0.375% and 0.5% per annum on the average daily unused commitment available under
the revolving credit facility.
In addition, Warren had approximately $170.5 million of letters of credit
outstanding under its letter of credit facility at each of January 1, 1997 and
October 2, 1996. Warren pays a commission, which is based on the achievement of
a certain financial ratio, of between 1.00% and 2.50% on outstanding letters of
credit and an issuance fee of between 0.125% and 0.25% per annum on letters of
credit issued.
On February 7, 1997 the Company amended certain provisions of the Credit
Agreement, as defined in the Notes to Unaudited Condensed Consolidated Financial
Statements, including the interest coverage covenant, the optional prepayment
terms and, in order to permit the granting of senior liens in connection with
the refinancing of certain industrial revenue bonds of the Company, the covenant
restricting certain liens.
OTHER ITEMS
Environmental and Safety Matters
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<PAGE>
The Company is subject to a wide variety of increasingly stringent 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 other parameters
(e.g., temperature and color) and is attempting to revise these other wastewater
permit limits for its facilities. While the permit limitations at these two
facilities are being challenged, the Company continues to operate under existing
EPA permits, which have technically expired, in accordance with accepted
administrative practice. In addition, the Muskegon mill is involved, as one of
various industrial plaintiffs, in litigation with the County of Muskegon
regarding a 1994 ordinance governing the County's industrial wastewater
pretreatment program. The lawsuit challenges, among other things, the treatment
capacity availability and local effluent limit provisions of the ordinance. In
July 1996, the Court 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. 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 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"). Although the EPA has not made
any commitments, final promulgation of the cluster rules is expected to occur
early in 1997 and compliance with the rules may be required beginning in 1998.
The Company believes that compliance with the cluster rules, if adopted as
currently proposed, may require aggregate capital expenditures of approximately
$76.0 million through 1999. The ultimate financial impact to the Company of
compliance with the cluster rules will depend upon the nature of the final
regulations, the timing of required implementation and the cost and availability
of new technology. The Company also anticipates that it will incur an estimated
$10.0 million to $20.0 million of capital expenditures through 1999 related to
environmental compliance other than as a result of the cluster rules.
The Company's mills generate substantial quantities of solid wastes and by-
products that are disposed of at permitted landfills and solid waste management
units at the mills. The Company is currently planning to expand the landfill at
the Somerset mill at a projected total cost of approximately $16.0 million, of
which $7.0 million is expected to be incurred prior to the year 2000 with the
remainder being spent subsequent to 2004.
The Muskegon mill has had discussions with the Michigan Department of Natural
Resources ("DNR") regarding a wastewater surge pond adjacent to the Muskegon
Lake. The DNR presently is considering whether the surge pond is in compliance
with Michigan Act 245 (Water Resources Commission Act)
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<PAGE>
regarding potential discharges from that pond. The matter is now subject to the
results of a pending engineering investigation. There is a possibility that, as
a result of DNR requirements, the surge pond may be closed in the future. The
Company estimates the cost of closure will be approximately $2.0 million. In
addition, if it is necessary to replace the functional capacity of the surge
pond with above-grade structures, the Company preliminarily estimates that up to
an additional $8.0 million may be required for such construction costs.
The Company has been identified as a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for cleanup
of contamination at seven sites. Based upon the Company's understanding of the
total amount of liability at each site, its calculation of its percentage share
in each proceeding, and the number of potentially responsible parties at each
site, the Company presently believes that its aggregate exposure for these
matters is not material. Moreover, as a result of the Acquisition, the Company's
former parent, Scott, agreed to indemnify and defend the Company for and
against, among other things, the full amount of any damages or costs resulting
from the off-site disposal of hazardous substances occurring prior to the date
of closing, including all damages and costs related to these seven sites. Since
the date of closing of the Acquisition, Scott has been performing under the
terms of this environmental indemnity and defense provision and, therefore, the
Company has not expended any funds with respect to these seven sites.
The Company currently has a five year demolition project in progress at its
Westbrook Facility for health and safety reasons which is expected to be
completed in the year 2001. Total costs of the project are estimated to be
approximately $9.0 million, of which approximately $5.7 million had been spent
as of January 1, 1997. The Company recognizes these costs as they are incurred.
The Company does not believe that it will have any liability under recent
emergency legislation enacted by the State of Maine to cover a significant
shortfall in the Maine workers' compensation system through assessments of
employers and insurers; however, there can be no assurance that the existing
legislation will fully address the shortfall.
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.
Labor Relations
On February 6, 1997, the Company reached settlement on a new six-year labor
agreement with its three Somerset, Maine mill unions, concluding sixteen months
of negotiations. The ratified contract, which is effective immediately,
reflects more flexible work rule provisions and a 3% annual wage increase for
the term of the agreement. The Company has experienced improved productivity at
the Somerset facility since mid-December, when the terms of the new work rules
were first implemented prior to ratification.
Force Majeure Events
On October 17, 1996 a fire occurred at an outside warehouse location in
Muskegon, Michigan, which resulted in the loss of approximately 8,000 tons of
inventory valued in excess of $6.0 million. While the Company cannot reasonably
estimate at this time the total loss experienced, or the amount to be recovered
under its insurance policies, it does not expect that losses will exceed its
insurance coverage limits.
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 has since been
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<PAGE>
repaired and normal operating mill conditions have been restored. While the
Company cannot reasonably estimate at this time the total loss experienced, or
the exact amount to be recovered under its insurance policies, early indications
suggest that such amounts may be significant. However, total losses are not
expected to exceed the Company's insurance coverage limits, which include both
business interruption and property loss coverage. The Company anticipates
significant recoveries from business interruption insurance. However, no amounts
have been recorded through January 1, 1997 pending negotiations with the
insurance carrier.
Long-Term Contracts
The Mobile, Alabama paper mill was historically operated by Scott as part of an
integrated facility (including a tissue mill, a pulp mill and energy facility).
In connection with the Acquisition, Warren entered into long-term (25 years
initially, subject to mill closures and certain force majeure events) supply
agreements with Scott for the supply of pulp and water and the treatment of
effluent at the Mobile Mill. Wood pulp will be supplied generally at market
prices. Pulp prices will be discounted due to the elimination of freight costs
associated with delivering pulp to Warren's Mobile paper mill and pulp
quantities will be subject to minimum (170,000 to 182,400 tons per year) and
maximum (220,000 to 233,400 tons per year) limits. Prices for other services to
be provided by Scott will generally be based upon cost. Prior to the
Acquisition, Scott sold its energy facility at Mobile to Mobile Energy Services
Corporation ("MESC"). In connection with the sale of the energy facility, MESC
entered into a long-term agreement with Warren to provide electric power and
steam to the paper mill at rates generally comparable to market tariffs,
including fuel cost and capital recovery components. Scott, MESC and Warren have
also entered into a long-term shared facilities and services agreement (the
"Shared Facilities Agreement") with respect to medical and security services,
common roads and parking areas, office space and similar items and a
comprehensive master operating agreement providing for the coordination of
services and integration of operations among the energy facility, the paper
mill, the pulp mill and the tissue mill. Annual fees under the Shared Facilities
Agreement are expected to be approximately $1.5 million per year through the 25
year term of the agreement. Warren has the option to cancel certain non-
essential services covered by the Shared Services Agreement at any time prior to
the end of the 25 year term.
A substantial portion of the Company's electricity requirements are satisfied
through cogeneration agreements ("Power Purchase Agreements" or "Agreements")
whereby the Somerset and Westbrook mills each cogenerate electricity and sell
the output to Central Maine Power Company ("CMP"). The Westbrook and Somerset
Agreements require CMP to purchase such energy produced by these cogeneration
facilities at above market rates which has reduced the Company's historical cost
of electrical energy. The Westbrook Agreement expires October 31, 1997 and the
Somerset Agreement expires in the year 2012. The favorable pricing element of
the Somerset Agreement will end on November 30, 1997. The agreements also
require the mills to purchase electricity from CMP at the standard industrial
tariff rate. To reflect the fair market value of the acquired Power Purchase
Agreements in accordance with APB No. 16, as of the Acquisition date, the
Company established a deferred asset of approximately $32.3 million. This
deferred asset is recorded with other contracts valued at the Acquisition date
as a net long-term liability. This deferred asset is being amortized over the
remaining life of the favorable Power Purchase Agreements. For the three months
ended January 1, 1997 amortization expense related to this asset approximated $3
million.
The Company is also involved in various other lawsuits and administrative
proceedings. The relief sought in such lawsuits and proceedings include
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
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<PAGE>
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.
Regulatory Matters
On November 5, 1996, a proposed binding referendum measure to eliminate
clearcutting in unincorporated areas in the State of Maine was defeated. A
competing measure, which could establish new forestry standards stricter than
current law, but which would not completely ban clearcutting, received a
plurality vote. This competing measure was supported by the Company, other
major timber interests in Maine, several environmental groups as well as the
Governor of Maine. Under Maine law, this competing measure will not
automatically become law unless it receives a simple majority of the votes cast
in a special election to be held in 1997. If this competing measure does become
law, the consequence to the Company is not expected to be material, because such
measure generally reflects sustainable forestry initiatives already voluntarily
adopted by the Company.
Control by Sappi
On November 27, 1996, Sappi agreed to acquire (the "Minority Acquisition"),
subject to certain customary conditions, the minority common equity interests in
Holdings held by DLJ Merchant Banking Partners, L.P.; DLJ International
Partners, C.V.; DLJ Offshore Partners, C.V.; DLJ Merchant Banking Funding, Inc.;
DLJ First ESC L.L.C.; and UBS Capital L.L.C. (the "Sellers"). Jointly, the
sellers own approximately 22% of the common equity of Holdings on a fully-
diluted basis.
Under the terms of the agreement, Sappi has agreed to purchase the Sellers'
interests at a price of $138.0 million, or $17.25 per share of common stock
within 180 days of the date of execution of the agreement. Following the
Minority Acquisition, Sappi will own in excess of 97% of the common equity of
Holdings on a fully diluted basis. Sappi has agreed to use reasonable efforts
to acquire the remaining common equity interests in Holdings within 120 days of
the closing of the Minority Acquisition.
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 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
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) and
preferred stock, which was issued in connection with the Acquisition, is not
mandatorily redeemable (except upon the occurrence of certain specified events)
and provides that dividends need not be paid in cash until the year 2000.
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 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.
On February 7, 1997 the Company amended certain provisions of the Credit
Agreement, as defined in the Notes to Unaudited Condensed Consolidated Financial
Statements, including the interest coverage covenant, the optional prepayment
terms and, in order to permit the granting of senior liens in connection with
the refinancing of certain industrial revenue bonds of the Company, the covenant
restricting certain liens.
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<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.
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<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.
SDW Holdings Corporation
Date: February 18, 1997 By: /s/ WILLIAM E. HEWITT
- ------------------------ ------------------------------------------
William E. Hewitt
Vice President, Treasurer and Director
(Principal Financial and Accounting Officer)
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