<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
    
 
                             WASHINGTON, D.C. 20549
                            ------------------------
 
   
                                  FORM 10-K/A
                             FINANCIAL INFORMATION*
    
 
   
           FOR THE PERIOD OCTOBER 5, 1994 THROUGH SEPTEMBER 27, 1995
    
 
   
(MARK ONE)*
    
 
[ ]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
      OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE PERIOD OCTOBER 5, 1994 THROUGH SEPTEMBER 27, 1995
 
[ ]    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 -- NOT APPLICABLE*
 
                            SDW HOLDINGS CORPORATION
   
             (Exact name of registrant as specified in its charter)
    
 
<TABLE>
<S>                                            <C>
                  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)
Registrant's telephone number, including area
                    code                           914-696-0021
</TABLE>
 
    Securities registered pursuant to Section 12(b) of the Act:
 
    NONE
 
    Securities registered pursuant to Section 12(g) of the Act:
 
    NONE
 
    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 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_ *
 
    Indicate  by check mark if disclosure  of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge, in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Not Applicable*
--------------------------------------------------------------------------------
 
   
    *  This amended  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-K. 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>
   
                  AMENDMENT TO FORM 10-K FINANCIAL INFORMATION
    
 
   
    As   indicated  in  Note  2  of  the  Notes  to  Financial  Statements,  the
accompanying financial statements of the Predecessor Corporation (as defined  in
the  Notes to  Financial Statements)  for the  twelve months  ended December 25,
1993, the nine months ended September 24, 1994 and the period from September 25,
1994  through  December  20,  1994  had  been  restated  in  the  SDW   Holdings
Corporation's  (the  "Company" or  "Holdings")  Form 10-K  Financial Information
("Form 10-K Financial  Information") for  the period December  21, 1994  through
September  27,  1995  which  had  previously  been  voluntarily  filed  with the
Securities and Exchange  Commission (the  "SEC") in January  1996 (the  "initial
restatement").  The  initial  restatement was  intended  to  reflect adjustments
principally related to  the timing  of the recognition  of certain  costs on  an
accrual  basis versus an as incurred  basis. It was subsequently determined that
the Predecessor  Corporation's  policy  prior  to  the  initial  restatement  of
accounting  for these costs on an as  inccured basis was an acceptable policy in
the application of generally accepted  accounting principles and as such,  there
was  no  requirement for  the  restatement. Accordingly,  the  audited financial
statements included  herein  have  been  restated  to  agree  with  the  audited
financial  statements of the Predecessor Corporation for the twelve months ended
December 25, 1993 and the  nine months ended September  24, 1994 and conform  to
the  presentation included  in the Registration  Statement on Form  S-4 filed by
S.D. Warren Company with the SEC and  made effective in April 1995. The  audited
financial statements for the period September 25, 1994 through December 20, 1994
have  also been restated to reflect the  effect of accounting for these costs on
an as incurred basis.
    
 
   
    In addition, the Successor Corporation (as defined in the Notes to Financial
Statements) has revised  its accounting  policy with respect  to accounting  for
certain costs relating to compliance with safety and other governmental laws and
regulations  and has  adopted a policy  of accounting  for these costs  on an as
incurred basis consistent with that of the Predecessor Corporation. As a result,
the audited  financial  statements for  the  period December  21,  1994  through
September  27, 1995 have been  restated to reflect the  effect of accounting for
these costs on an as incurred basis.
    
 
   
    Other Items of  this Form 10-K  Financial Information have  been updated  to
reflect  the effect of  the aforementioned restatements.  However, they have not
been updated  to  reflect changes  in  market conditions,  revisions  to  stated
estimates  or events that  have occurred since  the original filing  of the Form
10-K Financial Information in  January 1996. Therefore,  this amended Form  10-K
Financial  Information should be read in  conjunction with the previously issued
Form 10-Q Financial Information for the quarters ended January 3, 1996, April 3,
1996 and July 3, 1996 that were  voluntarily filed with the SEC pursuant to  the
Successor Corporation's contractual obligations.
    
 
                                     PART I
 
ITEM 1.  BUSINESS
 
    Intentionally omitted.*
 
ITEM 2.  PROPERTIES
 
    Intentionally omitted.*
 
ITEM 3.  LEGAL PROCEEDINGS
 
    Intentionally omitted.*
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
    Intentionally omitted.*
 
--------------------------------------------------------------------------------
 
   
* This amended 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-K.  The
registrant  is not required to  file reports pursuant to  Section 13 or 15(d) of
the Securities Exchange Act of 1934.
    
 
                                       1
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND
       RELATED STOCKHOLDERS MATTERS
 
    Intentionally omitted.*
 
   
ITEM 6.  SELECTED FINANCIAL DATA
    
 
   
    The following table sets forth selected statement of operations data,  other
financial  data,  operating  data  and  balance  sheet  data  for  SDW  Holdings
Corporation ("Holdings")  and the  Predecessor Corporation  (as defined  in  the
Notes to Financial Statements). Holdings and its subsidiary, S.D. Warren Company
("S.D.  Warren"  or  "Warren"),  are  referred  to  herein  collectively  as the
"Company". The selected  financial data for  fiscal year 1993,  the nine  months
ended  September 24, 1994 and the period from September 25, 1994 to December 20,
1994 are  derived from  the  combined financial  statements of  the  Predecessor
Corporation,  which have  been audited  by Deloitte  & Touche  LLP. The selected
financial data for the period from December 21, 1994 through September 27,  1995
are  derived from the consolidated financial  statements of Holdings, which have
been audited by Deloitte  & Touche LLP. The  selected financial data for  fiscal
year  1991 and fiscal year 1992 have  been prepared from selected financial data
provided to the  Company by  the Predecessor Corporation's  Parent, Scott  Paper
Company,  in connection with Holdings' acquisition of Warren. Operating data for
any period less than a full year  are not necessarily indicative of the  results
that may be expected for the full year.
    
   
<TABLE>
<CAPTION>
                                                                                                      SEPTEMBER 25,
                                TWELVE MONTHS     TWELVE MONTHS     TWELVE MONTHS     NINE MONTHS         1994
                                    ENDED             ENDED             ENDED            ENDED           THROUGH
                                DECEMBER 28,      DECEMBER 26,      DECEMBER 25,     SEPTEMBER 24,    DECEMBER 20,
                                    1991             1992(1)            1993             1994             1994
                               ---------------  -----------------  ---------------  ---------------  ---------------
                                 S.D. WARREN       S.D. WARREN       S.D. WARREN      S.D. WARREN      S.D. WARREN
                                 COMPANY AND       COMPANY AND       COMPANY AND      COMPANY AND      COMPANY AND
                               CERTAIN RELATED   CERTAIN RELATED   CERTAIN RELATED  CERTAIN RELATED  CERTAIN RELATED
                                 AFFILIATES        AFFILIATES        AFFILIATES       AFFILIATES       AFFILIATES
                                (PREDECESSOR)     (PREDECESSOR)     (PREDECESSOR)    (PREDECESSOR)    (PREDECESSOR)
                               ---------------  -----------------  ---------------  ---------------  ---------------
OPERATING DATA:                                        (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                            <C>              <C>                <C>              <C>              <C>
Sales........................     $ 1,169.7         $ 1,212.8         $ 1,143.6        $   828.8        $   313.6
Gross profit.................         144.6             182.5             168.1            106.4             49.9
Selling, general and
 administrative expense......          92.0              91.0              91.7             72.1             22.2
Restructuring................          38.0                --              66.1               --               --
Income from operations.......          14.6              91.5              10.3             34.3             27.7
Other income (expense),
 net.........................           0.1               0.1               0.1              0.1             (0.5)
Interest expense.............           9.3               9.0               8.5              6.4              2.3
Income tax provision.........           2.6              32.0               6.5             11.2              9.9
Dividends and accretion on
 Warren senior preferred
 stock.......................            --                --                --               --               --
Net income (loss)............           2.8              50.6              (4.6)            16.8             15.0
Dividends on preferred
 stock.......................            --                --                --               --               --
Net income (loss) applicable
 to common stockholders......           2.8              50.6              (4.6)            16.8             15.0
SHARE DATA:
Net earnings per common
 share.......................     $      --         $      --         $      --        $      --        $      --
Weighted average common
 shares outstanding (in
 millions)...................            --                --                --               --               --
Dividends declared per common
 share.......................            --                --                --               --               --
BALANCE SHEET DATA (AT END OF
 PERIOD)
Working capital..............     $    49.4         $    67.0         $    47.1        $   156.2        $   233.2
Total assets.................       1,699.4           1,696.8           1,711.7          1,676.9          1,737.1
Total debt (including current
 maturities).................         125.2             125.7             124.3            119.8            119.3
Warren senior preferred
 stock.......................            --                --                --               --               --
Preferred stock..............            --                --                --               --               --
Parent's equity..............       1,185.1           1,152.3           1,088.1          1,136.5          1,219.1
Stockholders' equity.........            --                --                --               --               --
 
<CAPTION>
                                DECEMBER 21,
                                    1994
                                   THROUGH
                                SEPTEMBER 27,
                                    1995
                               ---------------
                                CONSOLIDATED
                                SDW HOLDINGS
                                 CORPORATION
                               ---------------
OPERATING DATA:
<S>                            <C>
Sales........................     $ 1,155.8
Gross profit.................         269.8
Selling, general and
 administrative expense......          96.2
Restructuring................            --
Income from operations.......         173.6
Other income (expense),
 net.........................           3.2
Interest expense.............         106.0
Income tax provision.........          28.4
Dividends and accretion on
 Warren senior preferred
 stock.......................           9.1
Net income (loss)............          33.3
Dividends on preferred
 stock.......................           4.6
Net income (loss) applicable
 to common stockholders......          28.7
SHARE DATA:
Net earnings per common
 share.......................     $    0.80
Weighted average common
 shares outstanding (in
 millions)...................          35.9
Dividends declared per common
 share.......................            --
BALANCE SHEET DATA (AT END OF
 PERIOD)
Working capital..............     $   177.9
Total assets.................       1,887.3
Total debt (including current
 maturities).................       1,127.4
Warren senior preferred
 stock.......................          74.5
Preferred stock..............          42.1
Parent's equity..............            --
Stockholders' equity.........         365.1
</TABLE>
    
 
--------------------------------------------------------------------------------
 
   
(1) Includes  the  revision  in  the  estimated  useful  lives  used  to compute
    depreciation  for   certain  equipment   which  increased   net  income   by
    approximately  $26.2  million  as  well  as  the  adoption  of  Statement of
    Financial  Accounting  Standards   No.  106,   "Employers'  Accounting   for
    Postretirement  Benefits Other  Than Pensions"  which reduced  net income by
    approximately $6.1 million.
    
 
   
* This amended 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-K. The
  registrant is not required to file reports pursuant to Section 13 or 15(d)  of
  the Securities Exchange Act of 1934.
    
 
                                       2
<PAGE>
   
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
    
 
    SDW  Holdings Corporation  ("Holdings") owns  all of  the outstanding common
stock of  S.D.  Warren  Company  ("S.D. Warren",  "Warren",  or  the  "Successor
Corporation").  Holdings is a holding company with no material assets other than
its investment in  Warren. All  of 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.  The  following
discussion  relates  principally  to  the results  of  operations  and financial
condition of Warren. Accordingly, Holdings together with Warren are referred  to
herein as to the "Company".
 
    The  Company manufactures printing, publishing  and specialty papers and has
pulp  and  timberland  operations  vertically   integrated  with  some  of   its
manufacturing  facilities. The  Company is the  largest producer  of coated free
paper (free of  groundwood pulp)  in the  United States.  The Company  currently
operates four paper mills with total annual production capacity of approximately
1.5  million tons of  paper. The Company  also owns a  sheeting and distribution
facility  in  Allentown,   Pennsylvania,  with  annual   sheeting  capacity   of
approximately  90,000 tons, and owns  approximately 911,000 acres of timberlands
in the State of Maine.
 
   
    As of October 8,  1994, SDW Acquisition  Corporation ("SDW Acquisition"),  a
direct  wholly-owned subsidiary of Holdings, entered into a definitive agreement
(the "Stock Purchase Agreement")  pursuant to which, on  December 20, 1994,  SDW
Acquisition  acquired (the "Acquisition") from Scott Paper Company ("Scott") all
of the outstanding capital  stock of Warren, then  a wholly-owned subsidiary  of
Scott,  and  certain  related  affiliates of  Scott.  Immediately  following the
Acquisition, SDW Acquisition merged  with and into  Warren (the "Merger"),  with
Warren  surviving.  See  the  Notes  to  Financial  Statements  for  information
regarding the Acquisition and financing for the Acquisition.
    
 
   
    The Acquisition has resulted in a  new basis of accounting, the adoption  of
certain  accounting policies  which differ from  the accounting  policies of the
Predecessor Corporation, (as defined in the Notes to Financial Statements),  and
increases  to certain manufacturing costs (purchased  pulp and energy within the
Company's Mobile, Alabama facility) resulting from obtaining these manufacturing
resources on a third party versus affiliate basis. As a result, the  Predecessor
Corporation's  financial statements for periods prior to the Acquisition are not
comparable to the Company's.
    
 
   
    The Company  wishes to  caution readers  that this  discussion and  analysis
contains  forward-looking statements  which, at the  time made,  speak about the
future and are based  upon management's interpretation of  what it believes  are
significant  factors affecting the Company's business. The Company believes that
various factors could affect  the Company's actual results  and could cause  the
Company's  actual results for  1995 and beyond, to  differ materially from those
expressed in any forward-looking statements 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.
    
 
MARKET OVERVIEW
 
    The paper market is highly cyclical, characterized by periods of supply  and
demand  imbalance. Between 1988 and 1993, the rate of growth of demand slowed as
a  result  of  the  world-wide  recession.  Conversely,  coated  paper  capacity
increased  significantly in  North America during  such period.  In addition, in
1992, North  American  imports from  Europe  increased  as a  result  of  excess
capacity  in Europe and a devaluation of certain European currencies in relation
to the U.S.  dollar, causing North  American prices to  deteriorate. During  the
third  quarter  of calendar  year  1994, Warren's  net  selling prices  began to
improve. List price increases  of approximately $60  per ton for  the #1 and  #2
grades  and approximately $65 per ton for  the #3 grade were announced in August
1994 by Warren and other major coated paper producers, and a further list  price
increase for #3 grade of approximately $40 per ton was announced in October 1994
which  became effective in December 1994. The  Company believes that as a result
of this improved pricing environment,
 
                                       3
<PAGE>
selling price discounts for the #2 and #3 grades were also significantly reduced
during the third quarter of 1994. During the first quarter of 1995, a list price
increase of approximately  $97 per ton  from the December  1994 price level  was
achieved  for #3 grade web paper. In  April 1995, a further 10.5% price increase
for the Company's #3 grade web paper, over the average price for such paper  for
the first quarter of 1995, was achieved.
 
   
    However,  since the  third quarter of  1995, the industry  has experienced a
softening in  orders across  certain product  lines as  merchants, printers  and
other  converters have reduced inventory levels which had increased above normal
levels. The reduction  in apparent demand  has also resulted  in a weakening  in
prices,  with discounting occurring on  certain paper product grades. Management
believes that  the  underlying long-term  demand  fundamentals of  the  industry
remain  sound and that the impact of this industry-wide inventory adjustment, on
the basis that demand returns to expected levels during the early part of  1996,
will  not have  a material adverse  effect on the  Company's financial position,
results of operations  or cash flows.  However, any failure  of the industry  to
maintain its recovery in the near future, or any prolonged or severe weakness in
the market for any of the Company's products in the future, may adversely affect
the Company's financial position, results of operations and cash flows. Although
the  economy is  expected to  continue growing, and  the volume  of new capacity
currently announced by  the industry  is likely  to be  absorbed by  anticipated
demand  growth  (as the  lead time  for any  further significant  capacity would
likely be two  years or longer  from announcement), it  is unlikely that  prices
will continue to rise at the rate of the past year.
    
 
   
    The following discussion and analysis should be read in conjunction with the
Financial Statements and the Notes thereto.
    
 
RESULTS OF OPERATIONS
 
NINE MONTHS ENDED SEPTEMBER 27, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER 24,
1994
 
    The  following  discussion  compares  the  results  of  operations  for  the
Company's nine  month  period ended  September  27, 1995  with  the  Predecessor
Corporation's  nine month period ended September  24, 1994. For purposes of this
discussion, the period December 21, 1994 through September 27, 1995 is  referred
to  as the  nine month period  ended September  27, 1995 and  the "Company" also
refers to the Predecessor Corporation.
 
    SALES
 
    Sales for the  nine months ended  September 27, 1995  were $1,155.8  million
compared  to $828.8  million for  the nine months  ended September  24, 1994, an
increase  of  $327.0   million  or   39.5%.  Shipment   volume  increased   from
approximately  846,300  tons for  the nine  months ended  September 24,  1994 to
965,000 tons  for the  nine months  ended September  27, 1995  or  approximately
14.0%.  This increase  is primarily attributable  to increased  volume of coated
free paper. Average net revenue per ton increased by $218.4 or 22.3% across  all
grades  due to higher selling  prices and reduced sales  of second quality paper
resulting from improved manufacturing performance achieved during this period.
 
    COST OF GOODS SOLD
 
   
    Costs of goods sold for the nine months ended September 27, 1995 were $886.0
million compared to $722.4 million for the nine months ended September 24, 1994,
an increase of  $163.6 million or  22.6%. This increase  is attributable to  the
increase  in volume sold and increased raw  material cost for purchased pulp and
wood and  wood  chips  used to  manufacture  pulp,  partially offset  by  a  net
reduction in labor costs and increased production efficiencies and output.
    
 
    The  increase in wood and wood chip  costs was primarily attributable to the
increased demand for lumber by the  housing sector as the economy expanded.  The
increase  in pulp costs  primarily resulted from  significantly higher prices on
purchased pulp  and the  effect  of the  Company's market-based  long-term  pulp
supply contract at the Company's Mobile, Alabama facility which was entered into
with  Scott  at the  time of  the  Acquisition. Prior  to the  Acquisition, pulp
purchases for the Company's Mobile operations  were on a shared cost basis  with
other Scott operations located at the Mobile facility.
 
                                       4
<PAGE>
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
 
   
    Selling,  general  and administrative  expenses  for the  nine  months ended
September 27, 1995 increased approximately 33.4% or $24.1 million. This increase
is primarily  due to  the increase  in distribution  and administrative  related
expenses.  Distribution related expenses increased primarily  as a result of the
increase in  sales  volume. Administrative  expenses  increased primarily  as  a
result  of the costs incurred to  obtain the appropriate level of administrative
services  that  were  previously  performed  by  Scott.  Selling,  general   and
administrative  expenses as a percent of  sales remained relatively flat at 8.3%
for the nine months ended  September 27, 1995 as compared  to 8.7% for the  nine
months ended September 24, 1994.
    
 
    INCOME (LOSS) FROM OPERATIONS
 
   
    Income  from operations  for the  nine months  ended September  27, 1995 was
$173.6 million compared to $34.3 million for the nine months ended September 24,
1994. This increase  is primarily  attributable to the  substantial increase  in
gross   profit  partially  offset  by  the  increase  in  selling,  general  and
administrative expenses.
    
 
    OTHER INCOME (EXPENSE), NET
 
    Other income (expense), net for the nine months ended September 27, 1995 was
$3.2 million compared to  $0.1 million for the  nine months ended September  24,
1994.  This increase is  primarily due to  an increase in  interest income. This
increase in interest income is primarily due to interest earned on surplus  cash
balances held prior to the application of such balances towards certain business
requirements and the reduction of long-term debt.
 
    INTEREST EXPENSE AND TAXES
 
    Following   the  Acquisition,  Warren's  capitalization  and  tax  basis  of
accounting changed significantly. As  a result, the  Company's interest and  tax
expense  prior to  the Acquisition are  not comparable to  results following the
Acquisition.
 
   
    Interest expense for  the nine months  ended September 27,  1995 was  $106.0
million  compared to $6.4 million for the  nine months ended September 24, 1994.
This increase reflects the incremental interest costs for the nine months  ended
September  27,  1995  associated  with  the  financing  of  the  Acquisition, as
discussed in  the Notes  to  Financial Statements.  For  the nine  months  ended
September  27,  1995  interest  expense includes  the  amortization  of deferred
financing fees. The Company's  hedging activities as discussed  in the Notes  to
Financial  Statements did  not have  a material  effect on  the weighted average
borrowing rate or interest expense for the nine months ended September 27, 1995.
    
 
   
    Income tax expense was $28.4 million for the nine months ended September 27,
1995 compared to  $11.2 million for  the nine months  ended September 24,  1994.
This  increase is  primarily attributable to  changes in  the Company's earnings
levels.
    
 
   
    Dividends and accretion on Warren Senior Preferred Stock (as defined in  the
Notes  to Financial Statements) of  $9.1 million have been  accounted for as the
equivalent of a minority interest for financial statement presentation.
    
 
TWELVE MONTHS ENDED DECEMBER 20, 1994 COMPARED TO TWELVE MONTHS ENDED DECEMBER
25, 1993
 
    The  following  discussion  compares  the  results  of  operations  for  the
Predecessor  Corporation's approximate  twelve month  period ended  December 20,
1994 with  the twelve  month period  ended December  25, 1993.  For purposes  of
discussions  prior to December 20, 1994, the "Company" refers to the Predecessor
Corporation. The  twelve month  period ended  December 20,  1994 refers  to  the
Predecessor  Corporation's combined results for  the nine months ended September
24, 1994 and the period September 25, 1994 through December 20, 1994.
 
    SALES
 
    Sales for the twelve  months ended December 20,  1994 were $1,142.4  million
compared  to $1,143.6  million for  the twelve  months ended  December 25, 1993.
Shipment volume increased to approximately
 
                                       5
<PAGE>
1,142,000 tons for the twelve months ended December 20, 1994 from  approximately
1,131,300  tons  for the  twelve  months ended  December  25, 1993.  Average net
revenue per ton was relatively constant from period to period.
 
    COST OF GOODS SOLD
 
   
    Cost of goods sold for the twelve months ended December 20, 1994 were $986.1
million compared to  $975.5 million  for the  twelve months  ended December  25,
1993,  an  increase of  $10.6  million. This  increase  is primarily  due  to an
increase in raw  material costs  during 1994 as  compared to  the previous  year
partially  offset by  a net  reduction in  labor costs  during such  period. The
increase in raw material cost was primarily due to the increase in tons  shipped
and increased costs for wood and wood chips used to manufacture pulp.
    
 
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
 
   
    Selling,   general  and   administrative  expenses   include  marketing  and
distribution, research, administrative and  general and restructuring  expenses.
For the twelve months ended December 20, 1994 the Company's selling, general and
administrative  expenses were $94.3  million compared to  $157.8 million for the
twelve months ended  December 25, 1993,  a decrease of  $63.5 million or  40.2%.
Excluding  a  $66.1 million  restructuring charge  (see  the Notes  to Financial
Statements) and the effect  of gains on  land sales of  $4.6 million during  the
twelve months ended December 25, 1993 that were not present in the twelve months
ended  December 20, 1994,  selling general and  administrative expenses remained
relatively flat from period to period.
    
 
    INCOME (LOSS) FROM OPERATIONS
 
   
    Income from operations  for the twelve  months ended December  20, 1994  was
$62.0 million compared to $10.3 million for the twelve months ended December 25,
1993.  Excluding a $66.1 million restructuring charge and the effect of gains on
land sales of  $4.6 million during  the twelve months  ended December 25,  1993,
income  from  operations would  have  been $71.8  million  for that  period. The
decrease in income from  operations for the twelve  month period ended  December
20,  1994 to $62.0  million as compared  to $71.8 million  for the twelve months
ended December 25, 1993, adjusted for the restructuring charge and the gains  on
land  sales, is primarily  due to the  aforementioned increase in  cost of goods
sold.
    
 
LIQUIDITY AND CAPITAL RESOURCES
 
   
    The  Predecessor  Corporation  historically  participated  in  Scott's  cash
management system. Accordingly, cash received from the Predecessor Corporation's
domestic  operations  was administered  centrally  along with  the  financing of
working capital  requirements  and  capital  expenditures.  Effective  with  the
Acquisition,   the  Company   instituted  a   cash  management   program  partly
administered by  its principal  lender.  The full  administration for  cash  and
treasury management was assumed by the Company in April 1995.
    
 
NINE MONTHS ENDED SEPTEMBER 27, 1995 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
24, 1994
 
    The  following  discussion compares  the Company's  nine month  period ended
September 27, 1995 with  the Predecessor Corporation's  nine month period  ended
September 24, 1994. For purposes of this discussion, the nine month period ended
September  27, 1995 refers to the period December 21, 1994 through September 27,
1995 and the "Company" also refers to the Predecessor Corporation.
 
   
    Net cash provided  from operating  activities was $136.0  million and  $27.8
million  for the nine  months ended September  27, 1995 and  September 24, 1994,
respectively. The increase in  cash provided by operations  for the nine  months
ended  September 27, 1995 compared to the comparable period in 1994 is primarily
due to an  increase in  net income,  accounts payable  and accrued  liabilities,
offset by an increase in accounts receivable and inventory.
    
 
   
    Operating  working capital increased to $174.3 million at September 27, 1995
compared to $112.4 million at September  24, 1994. Operating working capital  is
defined  as trade accounts receivables,  other receivables and inventories, less
accounts payable, accrued and other current liabilities.
    
 
   
    The increase in accounts receivable at September 27, 1995 as compared to the
balance at September 24, 1994 is primarily due to the effect of the  receivables
that were factored by the Predecessor Corporation as of
    
 
                                       6
<PAGE>
September  24, 1994, as indicated in the  Notes to Financial Statements, and the
increase in sales. The increase in  inventory at September 27, 1995 compared  to
September  24, 1994 was primarily due to enhanced production levels, an increase
in purchasing volume, higher costs of raw materials and the effect of the change
in inventory costing method as indicated  in the Notes to Financial  Statements.
The increase in accounts payable at September 27, 1995 compared to September 24,
1994  was also primarily  attributable to the increase  in purchasing volume and
the higher costs of raw materials.
 
   
    The Company's  current  ratio,  the  ratio  of  current  assets  to  current
liabilities,  was 1.6  at September  27, 1995 compared  to 2.3  at September 24,
1994. This decrease is primarily due to  the increase in the current portion  of
long-term  debt and the decrease in the current deferred tax asset offset by the
increase in operating working capital for such period.
    
 
   
    The changes in the balances of deferred taxes, goodwill, deferred  financing
costs,  other assets, current and long-term  debt, accrued liabilities and other
long-term liabilities were primarily caused by the Acquisition (see the Notes to
Financial Statements).  Accrued  liabilities  also  increased  as  a  result  of
interest accrued on Warren's term loan facility.
    
 
   
    Net  cash used for investing activities  for the nine months ended September
27, 1995 was  $1,489.6 million  compared to $46.4  million for  the nine  months
September  24, 1994. Net cash  used in investing activities  for the nine months
ended September 27, 1995 includes the effect of the cash outflows related to the
Acquisition of  approximately $1,455.9  million.  This amount  is net  of  $43.6
million  the Company received  from Scott pursuant to  a post closing adjustment
mechanism in the  Stock Purchase Agreement  and includes the  cash outflows  for
related  transaction  fees  of approximately  $19.2  million (see  the  Notes to
Financial Statements).
    
 
   
    Capital expenditures for the nine months ended September 27, 1995 were $33.7
million compared to $32.3 million for the nine months ended September 24,  1994.
Capital  spending for the nine months ended September 27, 1995 and September 24,
1994  were  primarily  for  improvements  to  the  Company's  manufacturing  and
distribution  facilities. Capital spending  for the nine  months ended September
24, 1994 included expenditures of approximately $9.0 million related to the  new
sheeting  and distribution  facility located  in Allentown,  Pennsylvania, which
began operations in the second quarter of fiscal 1994.
    
 
    Estimated capital expenditures  are expected to  approximate $100.0  million
during  fiscal year  1996. In  addition, due to  a wide  variety of increasingly
stringent environmental  laws and  regulations,  including compliance  with  the
cluster  rules (see ENVIRONMENTAL  AND SAFETY MATTERS),  the Company anticipates
that capital expenditures  related to  environmental compliance  by the  Company
will  be approximately $85.0 million to  $95.0 million through fiscal year 1999,
assuming the cluster rules are adopted. The Company believes that cash generated
by operations and  amounts available  under Warren's  revolving credit  facility
will  be  sufficient  to  meet its  ongoing  operating  and  capital expenditure
requirements.
 
   
    Net cash  provided  by  financing  activities  for  the  nine  months  ended
September  27, 1995 was $1,340.8 million compared  to $21.2 million for the nine
months ended September 24, 1994. Cash  provided by financing activities for  the
nine  months ended September  27, 1995 includes proceeds  from long-term debt of
$1,105.7 million  which  is  net  of  approximately  $59.7  million  of  related
financing  fees. The  related financing fees  have been recorded  as a long-term
deferred asset and are  being amortized over  the life of  the debt. During  the
nine  months  ended September  27, 1995,  the Company  repaid $162.1  million of
amounts primarily borrowed under the Revolving Credit Facility (see the Notes to
Financial Statements).  In addition,  Holdings received  net proceeds  from  the
issuance  of preferred  and common  stock of  $37.5 million  and $294.3 million,
respectively, all  of  which was  distributed  to Warren.  In  addition,  Warren
received  net  proceeds  of approximately  $65.4  million from  the  issuance of
preferred stock. Cash provided by financing activities for the nine months ended
September 27, 1995 was primarily utilized for the Acquisition.
    
 
TWELVE MONTHS ENDED DECEMBER 20, 1994 COMPARED TO THE TWELVE MONTHS ENDED
DECEMBER 25, 1993
 
    The following discussion compares the Predecessor Corporation's  approximate
twelve  month period ended December 20, 1994  with the twelve month period ended
December 25, 1993. For purposes of this
 
                                       7
<PAGE>
   
discussion, "Company" refers  to the Predecessor  Corporation. The twelve  month
period  ended December 20, 1994 refers to the Predecessor Corporation's combined
results for the nine  months ended September 24,  1994 and the period  September
25, 1994 through December 20, 1994.
    
 
   
    The  Company's net cash  provided by operating  activities was $81.5 million
for the twelve months ended December 20, 1994 compared to $130.3 million for the
twelve months  ended  December 25,  1993.  This  decrease is  primarily  due  to
increased  receivables,  a reduction  in payables  and  spending related  to the
restructuring announced in the fourth quarter of fiscal year 1993.
    
 
   
    Net cash used by investing activities  for the twelve months ended  December
20, 1994 was $60.9 million compared to $73.7 million for the twelve months ended
December  25,  1993.  This  decrease  is  primarily  attributable  to  decreased
investments in plant assets and  timber resources. Capital expenditures for  the
twelve  months  ended December  20, 1994  were $46.8  million compared  to $68.9
million for  the  twelve  months  ended December  25,  1993.  This  decrease  is
primarily  due to  spending related  to the  sheeting and  distribution facility
located in Allentown, Pennsylvania, which began operations in the quarter  ended
June 25, 1994.
    
 
   
    Net  cash  provided  by financing  activities  for the  twelve  months ended
December 20, 1994 was $52.3 million compared  to a use of cash of $55.8  million
for  the twelve months ended December 25,  1993. The $52.3 million net cash flow
for the twelve  months ended December  20, 1994 primarily  reflects net  capital
infusions  of $57.0 million the Predecessor Corporation received from Scott. For
the twelve months ended December 25, 1993, Scott made net capital withdrawals of
$54.1 million.
    
 
OTHER ITEMS
 
    DEBT AND PREFERRED STOCK
 
   
    In  connection  with  the   Acquisition,  the  Company's  indebtedness   was
significantly  increased, resulting in significant  debt service obligations. At
September 27, 1995, the Company's  long-term debt was $1,048.8 million  compared
to  $116.8 million at September 24, 1994, an increase of $932.0 million. Current
maturities of long-term debt increased from  $3.0 million at September 24,  1994
to $78.6 million at September 27, 1995. The excess cash balance at September 27,
1995  was primarily used to meet Warren's credit facility obligations during the
first quarter of fiscal 1996. See the Notes to Financial Statements.
    
 
   
    Warren has a  $250.0 million  revolving credit facility  to finance  working
capital  needs. At September 27, 1995, Warren  did not have any borrowings under
the facility, resulting in an unused borrowing capacity of $229.4 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 of 0.5% per
annum on  the average  daily  unused commitment  available under  the  revolving
credit facility. See the Notes to Financial Statements.
    
 
   
    In addition, Warren has a Letter of Credit Facility (as defined in the Notes
to  Financial  Statements) to  support certain  of  its obligations.  Warren had
$170.5 million  of letters  of credit  outstanding under  its Letter  of  Credit
Facility  at September 27, 1995. Warren pays a commission of 2.5% on outstanding
letters of credit and an  issuance fee of 0.25% per  annum on letters of  credit
issued. See the Notes to Financial Statements.
    
 
   
    Warren's  Credit Agreement (as defined in the Notes to Financial Statements)
contains restrictive covenants which limit  the Company with respect to  certain
matters including, among other things, the ability to incur debt, pay dividends,
make   acquisitions,  sell  assets,  merge,  grant  or  incur  liens,  guarantee
obligations, make  investments  or  loans,  make  capital  expenditures,  create
subsidiaries or change its line of business. The Credit Agreement also restricts
Warren  from prepaying certain of its  indebtedness. Under the Credit Agreement,
Warren is required  to satisfy  certain financial covenants  which will  require
Warren  to  maintain specified  financial ratios,  including a  minimum interest
coverage ratio, a minimum debt service ratio and a net worth test (see the Notes
to Financial Statements). As a result  of extending the filing date of  Warren's
Annual  Report on Form 10-K  from December 26, 1995  to January 10, 1996, Warren
was unable to satisfy  specific financial reporting  covenants under the  Credit
Agreement. As a result, Warren obtained a waiver from the lenders which extended
the  requirement to  distribute such  financial information  through January 17,
1996, at which time management was in compliance with such covenants.
    
 
                                       8
<PAGE>
   
    In addition, Warren  is required  by the terms  of the  Credit Agreement  to
enter  into  fixed  rate interest  protection  agreements  on a  portion  of its
outstanding debt. At September 27, 1995,  $205.0 million of debt was covered  by
such interest rate protection agreements. See the Notes to Financial Statements.
    
 
   
    The  Company does not anticipate paying  cash dividends on the Warren Senior
Preferred Stock  (as  defined in  the  Notes  to Financial  Statements)  or  the
Preferred  Stock (as defined in the Notes to Financial Statements) or the Common
Stock (as defined in the Notes to Financial Statements) for any period ending on
or prior to December 15, 1999. The Company intends to retain future earnings, if
any, for use in its business and  does not anticipate paying any cash  dividends
on such preferred stock prior to such date. In addition, the terms of the Credit
Agreement  and the indenture (the "Indenture") relating to the Notes (as defined
in the Notes to Financial Statements) limit the amount of cash dividends  Warren
may  pay with respect to  such preferred stock and  other equity securities both
before and after that date. See the Notes to Financial Statements.
    
 
    FINANCIAL INSTRUMENTS
 
   
    The Company's  financial  instruments consist  primarily  of cash  and  cash
equivalents,  accounts receivable, accounts  payable and debt.  In addition, the
Company uses interest rate caps  and swaps, which are  required by the terms  of
the  Credit Agreement, as a means of managing interest rate risk associated with
the current debt balances. The Company adopted Statement of Financial Accounting
Standards No. 119 ("FAS 119") "Disclosure about Derivative Financial Instruments
and Fair Value  of Financial Instruments"  in 1995. See  the Notes to  Financial
Statements.
    
 
    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  pursuing efforts  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  the mill's  wastewater treatment  permit. The  lawsuit challenges the
permit's  effluent  limits   imposed  by  local   ordinance  as  arbitrary   and
unreasonable.  In  the  meantime,  the mill  also  has  applied  for alternative
effluent limits. Although the Company believes that it will be successful in its
various administrative  and  judicial challenges  to  those limits  and  in  any
negotiations  of  such  limits with  environmental  regulatory  authorities, the
imposition of  currently proposed  limits 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 may occur in 1996  and
compliance  with  the  rules may  be  required  beginning in  1998.  The Company
believes that  compliance  with the  cluster  rules, as  proposed,  may  require
aggregate  capital expenditures of approximately $76.0 million through 1999. The
 
                                       9
<PAGE>
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  $12.0
million,  of which  approximately $5.0  million will  be spent  between 1996 and
1997.
 
    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 could 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.
 
   
    Warren 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  will not be  material. Moreover, in accordance  with the Stock Purchase
Agreement, Warren'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 agreement, 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 must comply with a number of federal and state regulations  that
govern  health and safety in the workplace, the most significant of which is the
Federal Occupational Safety  and Health  Act ("OSHA"). Pursuant  to a  voluntary
OSHA  program piloted in the State of Maine in 1993, the Predecessor Corporation
performed a self-assessment audit with respect to OSHA mandates at its  Somerset
and  Westbrook mills and  submitted a compliance plan  to address certain health
and safety matters. The Company anticipates that the total cost of  implementing
the  compliance plan  will be approximately  $19.0 million. As  of September 27,
1995, approximately $14.4 million of the total estimated $19.0 million had  been
expended.  The Company expects that the majority  of the remaining costs will be
expended during fiscal years 1996 and  1997. The Company recognizes these  costs
as they are incurred.
    
 
   
    The  Company currently has a five year demolition project in progress at its
Westbrook facility for health and safety reasons. Total costs of the project are
estimated to be approximately $9.0 million, of which approximately $4.5  million
had  been spent as of September 27,  1995. 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.
 
    None of these matters, individually or in the aggregate, is expected to have
a material  adverse  effect on  the  Company's financial  position,  results  of
operations or cash flows.
 
                                       10
<PAGE>
    RESTRUCTURING
 
    During  the fourth quarter of fiscal  year 1993, the Predecessor Corporation
recorded a charge of $66.1 million, primarily for restructuring and productivity
improvement programs.  The  charge  included the  estimated  effect  of  further
workforce  reductions,  as  well  as actions  to  consolidate  and  simplify the
Predecessor Corporation's coated papers business. The remaining reserve  balance
as of September 24, 1994 was fully utilized by the Predecessor Corporation prior
to the date of the Acquisition.
 
    LONG-TERM CONTRACTS
 
    A  substantial portion  of Warren'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. See the Notes to Financial Statements.
 
    To properly reflect  the fair market  value of the  acquired Power  Purchase
Agreements  as of the Acquisition date, the Company established a deferred asset
of approximately $32.3  million, in accordance  with APB No.  16. 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 nine  months ended
September 27,  1995, amortization  expense related  to this  asset  approximated
$10.8 million.
 
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
Holdings 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 registration rights  granted by Holdings) that  are
likely  to require cash expenditures by  Holdings. The Company believes that the
Credit Agreement, the  Indenture and  the Warren Senior  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.
    
 
                                       11
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                            SDW HOLDINGS CORPORATION
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<CAPTION>
                                                                                                               PAGES
                                                                                                             ---------
 
<S>                                                                                                          <C>
Independent Auditors' Report...............................................................................         13
 
Financial Statements of SDW Holdings Corporation
 
  Statements of Operations for the twelve months ended December 25, 1993, the nine months ended September
   24, 1994, the period September 25, 1994 through December 20, 1994 and the period December 21, 1994
   through September 27, 1995..............................................................................         14
 
  Balance Sheets as of September 24, 1994 and September 27, 1995...........................................         15
 
  Statements of Cash Flows for the twelve months ended December 25, 1993, the nine months ended September
   24, 1994, the period September 25, 1994 through December 20, 1994 and the period December 21, 1994
   through September 27, 1995..............................................................................         16
 
  Statements of Changes in Parent's Equity for the twelve months ended December 25, 1993, the nine months
   ended September 24, 1994 and the period September 25, 1994 through December 20, 1994....................         17
 
  Statement of Changes in Stockholders' Equity for the period December 21, 1994 through September 27,
   1995....................................................................................................         18
 
  Notes to Financial Statements............................................................................         19
 
Financial Statement Schedules
 
    I -- Condensed Financial Information of Parent.........................................................         45
 
    II -- Valuation and Qualifying Accounts................................................................         48
</TABLE>
    
 
                                       12
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors of SDW Holdings Corporation and subsidiaries:
 
    We  have audited the consolidated balance  sheet of SDW Holdings Corporation
and subsidiaries  (the "Company")  as  of September  27,  1995 and  the  related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the period December 21, 1994 (commencing with the acquisition) through
September  27, 1995.  We have  also audited the  combined balance  sheet of S.D.
Warren Company and certain related affiliates (the "Predecessor Corporation") as
of September 24, 1994 and the related combined statements of operations, changes
in parent's equity, and  cash flows for the  twelve month period ended  December
25,  1993, the  nine month period  ended September  24, 1994 and  for the period
September 25,  1994 through  December 20,  1994. Our  audits also  included  the
financial  statement schedules listed  in the Index.  These financial statements
and financial  statement  schedules  are the  responsibility  of  the  Company's
management.  Our  responsibility is  to express  an  opinion on  these financial
statements based on our audits.
 
    We conducted  our  audits in  accordance  with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the  amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles used  and  significant estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    As discussed in Note 1 to the financial statements, S.D. Warren Company  and
certain  related  affiliates  were  acquired effective  December  20,  1994. The
transaction was accounted for  using the purchase  method of accounting  whereby
the  purchase price was allocated to the assets acquired and liabilities assumed
based on their respective  fair values. Accordingly, the  balance sheet and  the
statements  of  operations, changes  in parent's  equity and  cash flows  of the
Predecessor Corporation for the  periods referred to in  the first paragraph  of
this report are not comparable with those presented for the Company.
 
   
    In  our opinion, such  consolidated financial statements  present fairly, in
all material respects, the financial position of the Company as of September 27,
1995 and the results  of their operations  and their cash  flows for the  period
December  21, 1994 (commencing with the  acquisition) through September 27, 1995
in conformity  with  generally  accepted accounting  principles.  Also,  in  our
opinion,  the  combined  financial  statements  of  the  Predecessor Corporation
present fairly,  in  all  material  respects,  the  financial  position  of  the
Predecessor  Corporation  at  September  24,  1994  and  the  results  of  their
operations, and their cash flows for the twelve month period ended December  25,
1993,  the  nine  month period  ended  September  24, 1994  and  for  the period
September 25,  1994  through December  20,  1994 in  conformity  with  generally
accepted  accounting principles. Also, in  our opinion, such financial statement
schedules when considered in relation to the basic financial statements taken as
a whole,  present fairly  in all  material respects  the information  set  forth
therein.
    
 
   
    As  discussed  in  Note  2 to  the  financial  statements,  the accompanying
financial statements and financial statement schedules have been restated.
    
 
DELOITTE & TOUCHE LLP
 
   
Boston, Massachusetts
September 11, 1996
    
 
                                       13
<PAGE>
                            SDW HOLDINGS CORPORATION
                            STATEMENTS OF OPERATIONS
                      (IN MILLIONS, EXCEPT PER SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                         RESTATED             RESTATED                RESTATED                 RESTATED
                                       TWELVE MONTHS        NINE MONTHS         PERIOD SEPTEMBER 25,      PERIOD DECEMBER 21,
                                           ENDED               ENDED                1994 THROUGH             1994 THROUGH
                                     DECEMBER 25, 1993   SEPTEMBER 24, 1994       DECEMBER 20, 1994       SEPTEMBER 27, 1995
                                     -----------------   ------------------   -------------------------   -------------------
                                        S.D. WARREN         S.D. WARREN
                                        COMPANY AND         COMPANY AND        S.D. WARREN COMPANY AND
                                      CERTAIN RELATED     CERTAIN RELATED          CERTAIN RELATED           SDW HOLDINGS
                                        AFFILIATES           AFFILIATES              AFFILIATES               CORPORATION
                                       (PREDECESSOR)       (PREDECESSOR)            (PREDECESSOR)          AND SUBSIDIARIES
                                     -----------------   ------------------   -------------------------   -------------------
<S>                                  <C>                 <C>                  <C>                         <C>
Sales..............................      $1,143.6              $828.8                  $313.6                  $1,155.8
Cost of goods sold.................         975.5               722.4                   263.7                     886.0
                                         --------              ------                  ------                  --------
Gross profit.......................         168.1               106.4                    49.9                     269.8
Selling, general and administrative
 expense...........................          91.7                72.1                    22.2                      96.2
Restructuring......................          66.1             --                    --                         --
                                         --------              ------                  ------                  --------
Income from operations.............          10.3                34.3                    27.7                     173.6
Other income (expense), net........           0.1                 0.1                    (0.5)                      3.2
Interest expense...................           8.5                 6.4                     2.3                     106.0
                                         --------              ------                  ------                  --------
Income before income taxes and
 other items.......................           1.9                28.0                    24.9                      70.8
Income tax expense.................           6.5                11.2                     9.9                      28.4
Dividends and accretion on Warren
 senior preferred stock............       --                  --                    --                              9.1
                                         --------              ------                  ------                  --------
Net income (loss)..................          (4.6)               16.8                    15.0                      33.3
Dividends on preferred stock.......       --                  --                    --                              4.6
                                         --------              ------                  ------                  --------
Net income (loss) applicable to
 common stockholders...............      $   (4.6)             $ 16.8                  $ 15.0                  $   28.7
                                         --------              ------                  ------                  --------
                                         --------              ------                  ------                  --------
Net earnings per common share......                                                                            $   0.80
                                                                                                               --------
                                                                                                               --------
Weighted average number of shares
 outstanding.......................                                                                                35.9
                                                                                                               --------
                                                                                                               --------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       14
<PAGE>
                            SDW HOLDINGS CORPORATION
                                 BALANCE SHEETS
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                                                    RESTATED         RESTATED
                                                                  SEPTEMBER 24,    SEPTEMBER 27,
                                                                      1994             1995
                                                                 ---------------  ---------------
                                                                   S.D. WARREN
                                                                     COMPANY
                                                                   AND CERTAIN     SDW HOLDINGS
                                                                     RELATED        CORPORATION
                                                                   AFFILIATES           AND
                                                                  (PREDECESSOR)    SUBSIDIARIES
                                                                 ---------------  ---------------
<S>                                                              <C>              <C>
                            ASSETS
Current Assets:
  Cash and cash equivalents....................................     $     4.7        $    62.2
  Trade accounts receivable, net...............................          69.8            129.4
  Other receivables............................................          21.7             24.2
  Inventories..................................................         135.7            226.5
  Deferred income taxes........................................          38.5              8.9
  Other current assets.........................................           3.6             11.1
                                                                 ---------------  ---------------
      Total current assets.....................................         274.0            462.3
Plant assets, net..............................................       1,341.7          1,150.7
Timber resources, at cost less timber harvested................          28.1             98.4
Goodwill, net..................................................        --                 98.1
Deferred financing fees, net...................................        --                 53.1
Other assets, net..............................................          33.1             24.7
                                                                 ---------------  ---------------
      Total assets.............................................     $ 1,676.9        $ 1,887.3
                                                                 ---------------  ---------------
                                                                 ---------------  ---------------
 
             LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt.........................  $        3.0     $       78.6
  Accounts payable.............................................          73.0            112.2
  Accrued and other current liabilities........................          41.8             93.6
                                                                 ---------------  ---------------
      Total current liabilities................................         117.8            284.4
                                                                 ---------------  ---------------
Long-term debt:
  Term loans...................................................       --                 553.8
  Senior subordinated notes....................................       --                 375.0
  Other........................................................         116.8            120.0
                                                                 ---------------  ---------------
                                                                        116.8          1,048.8
                                                                 ---------------  ---------------
Deferred income taxes..........................................         211.9             21.2
                                                                 ---------------  ---------------
Other liabilities..............................................          93.9             93.3
                                                                 ---------------  ---------------
      Total liabilities........................................         540.4          1,447.7
                                                                 ---------------  ---------------
Commitments and contingencies (Note 16)
Warren Series B redeemable exchangeable preferred stock
 (liquidation value, $83.5 million)............................       --                  74.5
                                                                 ---------------  ---------------
Stockholders' equity:
  Preferred stock (liquidation value, $42.1 million)...........       --                  42.1
  Common stock ($0.01 par value; 100 million shares authorized;
   30.7 million shares issued and outstanding at September 27,
   1995).......................................................       --                   0.3
  Capital in excess of par value...............................       --                 294.0
  Retained earnings............................................       --                  28.7
  Parent's equity..............................................       1,136.5          --
                                                                 ---------------  ---------------
      Total stockholders' equity...............................       1,136.5            365.1
                                                                 ---------------  ---------------
      Total liabilities and stockholders' equity...............  $    1,676.9     $    1,887.3
                                                                 ---------------  ---------------
                                                                 ---------------  ---------------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       15
<PAGE>
                            SDW HOLDINGS CORPORATION
                            STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                         RESTATED             RESTATED
                                       TWELVE MONTHS        NINE MONTHS               RESTATED
                                           ENDED               ENDED            PERIOD SEPTEMBER 25,            RESTATED
                                     DECEMBER 25, 1993   SEPTEMBER 24, 1994         1994 THROUGH          PERIOD DECEMBER 21,
                                     -----------------   ------------------       DECEMBER 20, 1994           1994 THROUGH
                                        S.D. WARREN         S.D. WARREN       -------------------------    SEPTEMBER 27, 1995
                                        COMPANY AND         COMPANY AND        S.D. WARREN COMPANY AND    --------------------
                                      CERTAIN RELATED     CERTAIN RELATED          CERTAIN RELATED            SDW HOLDINGS
                                        AFFILIATES           AFFILIATES              AFFILIATES               CORPORATION
                                       (PREDECESSOR)       (PREDECESSOR)            (PREDECESSOR)           AND SUBSIDIARIES
                                     -----------------   ------------------   -------------------------   --------------------
<S>                                  <C>                 <C>                  <C>                         <C>
Cash Flows from Operating
 Activities:
  Net income (loss)................      $   (4.6)             $ 16.8                  $ 15.0                   $   33.3
  Adjustments to reconcile net
   income (loss) to net cash
   provided by operating
   activities:
    Depreciation, cost of timber
     harvested and amortization....          93.1                71.6                    28.8                       89.8
    Deferred income taxes..........           1.0                 8.4                    15.8                       12.3
    Gains on asset sales...........          (4.6)            --                    --                          --
    Dividends and accretion on
     Warren preferred stock........       --                  --                    --                               9.1
  Changes in assets and liabilities
   net of the effect of the
   Acquisition:
    Trade accounts receivables,
     net...........................           2.8                (9.8)                   (1.7)                     (23.0)
    Inventories....................         (13.4)              (13.0)                    5.4                      (57.6)
    Accounts payable, accrued and
     other current liabilities.....         (17.7)              (19.3)                   18.6                       66.0
    Accruals for restructuring
     programs......................          65.3               (28.4)                  (12.7)                  --
    Other assets and liabilities...           8.4                 1.5                   (15.5)                       6.1
                                           ------              ------                  ------                   --------
      Net cash provided by
       operating activities........         130.3                27.8                    53.7                      136.0
                                           ------              ------                  ------                   --------
Cash Flows from Investing
 Activities:
  Acquisition, net of related
   costs...........................       --                  --                    --                          (1,455.9)
  Investments in plant assets and
   timber resources................         (68.9)              (32.3)                  (14.5)                     (33.7)
  Proceeds from asset sales........           4.7             --                    --                          --
  Other investing activities.......          (9.5)              (14.1)              --                          --
                                           ------              ------                  ------                   --------
      Net cash used in investing
       activities..................         (73.7)              (46.4)                  (14.5)                  (1,489.6)
                                           ------              ------                  ------                   --------
Cash Flows from Financing
 Activities:
  Proceeds from long-term debt.....          29.8                 0.9               --                           1,105.7
  Repayments of long-term debt.....         (31.2)               (5.4)                   (0.5)                    (162.1)
  Proceeds from issuance of common
   stock...........................       --                  --                    --                             294.3
  Proceeds from issuance of Warren
   Series B preferred stock, net of
   expenses........................       --                  --                    --                              65.4
  Proceeds from issuance of
   preferred stock.................       --                  --                    --                              37.5
  Predecessor Corporation's parent
   company capital (withdrawals)
   infusions, net..................         (54.1)               25.4                    31.6                   --
  Other financing activities.......          (0.3)                0.3               --                          --
                                           ------              ------                  ------                   --------
      Net cash provided by (used
       in) financing activities....         (55.8)               21.2                    31.1                    1,340.8
                                           ------              ------                  ------                   --------
Net change in cash and cash
 equivalents.......................           0.8                 2.6                    70.3                      (12.8)
Cash and cash equivalents, at
 beginning of period...............           1.3                 2.1                     4.7                       75.0
                                           ------              ------                  ------                   --------
Cash and cash equivalents, at end
 of period.........................      $    2.1              $  4.7                  $ 75.0                   $   62.2
                                           ------              ------                  ------                   --------
                                           ------              ------                  ------                   --------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       16
<PAGE>
                            SDW HOLDINGS CORPORATION
                    STATEMENTS OF CHANGES IN PARENT'S EQUITY
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                                                                                        PARENT'S
                                                                                                                         EQUITY
                                                                                                                       ----------
<S>                                                                                                                    <C>
Balance, December 27, 1992 (Restated)................................................................................  $  1,152.3
Net loss.............................................................................................................        (4.6)
Foreign currency translation adjustment..............................................................................        (2.1)
Capital withdrawal, net..............................................................................................       (54.1)
Minimum pension liability adjustment.................................................................................        (3.4)
                                                                                                                       ----------
Balance, December 25, 1993 (Restated)................................................................................     1,088.1
Net income...........................................................................................................        16.8
Foreign currency translation adjustment..............................................................................         1.2
Capital infusion, net................................................................................................        25.4
Minimum pension liability adjustment.................................................................................         5.0
                                                                                                                       ----------
Balance, September 24, 1994 (Restated)...............................................................................     1,136.5
Net income...........................................................................................................        15.0
Foreign currency translation adjustment..............................................................................         1.0
Capital infusion, net................................................................................................        66.6
                                                                                                                       ----------
Balance, December 20, 1994 Prior to acquisition (Restated)...........................................................  $  1,219.1
                                                                                                                       ----------
                                                                                                                       ----------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       17
<PAGE>
                            SDW HOLDINGS CORPORATION
                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                                      CAPITAL IN
                                                    COMMON   COMMON   EXCESS OF    PREFERRED   RETAINED
                                                    SHARES   STOCK    PAR VALUE      STOCK     EARNINGS   TOTAL
                                                    ------   ------   ----------   ---------   --------   ------
<S>                                                 <C>      <C>      <C>          <C>         <C>        <C>
Balance, December 21, 1994........................   --      $--        $--          $--        $--       $ --
  Issuance of common stock and warrants...........   30.7      0.3       294.0       --          --        294.3
  Issuance of preferred stock.....................            --         --           37.5       --         37.5
  Net income......................................            --         --          --          33.3       33.3
  Dividends accrued on preferred stock............   --       --         --            4.6       (4.6)      --
                                                    ------   ------   ----------   ---------   --------   ------
Balance, September 27, 1995 (Restated)............   30.7    $ 0.3      $294.0       $42.1      $28.7     $365.1
                                                    ------   ------   ----------   ---------   --------   ------
                                                    ------   ------   ----------   ---------   --------   ------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       18
<PAGE>
                            SDW HOLDINGS CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 -- BUSINESS, FORMATION AND ACQUISITION
 
    BUSINESS
 
   
    SDW  Holdings Corporation ("Holdings"), a holding company that was organized
and incorporated in  Delaware on October  5, 1994, owns  all of the  outstanding
common stock of S.D. Warren Company ("S.D. Warren" or "Warren"). Holdings has no
material  assets other than its  investment in Warren. All  of 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  its  subsidiary Warren,  are referred  to  herein
collectively as the "Company".
    
 
    The  Company manufactures printing, publishing  and specialty papers and has
pulp and  timberland  operations  vertically  integrated  with  certain  of  its
manufacturing  facilities. The  Company currently  operates four  paper mills, a
sheeting and  distribution  facility and  owns  approximately 911,000  acres  of
timberlands in the State of Maine.
 
    FORMATION AND ACQUISITION
 
    As  of October 8,  1994, SDW Acquisition  Corporation ("SDW Acquisition"), a
direct wholly owned subsidiary of Holdings, entered into a definitive  agreement
(the  "Stock Purchase Agreement")  pursuant to which, on  December 20, 1994, SDW
Acquisition acquired (the "Acquisition") from Scott Paper Company ("Scott")  all
of  the outstanding capital stock  of Warren, then a  wholly owned subsidiary of
Scott, and  certain related  affiliates  of Scott  (referred  to herein  as  the
"Predecessor   Corporation").   Immediately  following   the   Acquisition,  SDW
Acquisition merged  with  and  into  Warren (the  "Merger"),  with  Warren  (the
"Successor  Corporation") surviving. Prior to the date of the Acquisition, there
was no  significant  activity, revenues  received  or expenditures  incurred  by
either Holdings or SDW Acquisition.
 
    The  Acquisition was accounted for as a purchase, applying the provisions of
Accounting Principles Board Opinion ("APB") No.  16. The final purchase cost  is
subject  to ongoing  negotiations with Scott  in accordance  with procedures set
forth in the  agreement pursuant to  which the Acquisition  was effected and  is
expected to be finalized either through negotiated agreement or arbitration. The
final  purchase  cost  is  not  expected to  be  materially  different  from the
estimates currently  included  in  the  Company's  financial  statements.  On  a
preliminary  basis,  the total  estimated  purchase cost  of  approximately $1.9
billion, including  the effect  of  liabilities assumed,  was allocated  to  the
assets acquired based on their respective fair values as follows (in millions):
 
   
<TABLE>
<S>                                                                <C>
Plant assets.....................................................  $ 1,186.0
Timber resources.................................................       98.6
Intangible assets:
  Patents........................................................       23.0
  Goodwill.......................................................      100.6
Financing fees and other assets..................................       62.8
Current assets, net realizable value in the case of inventories,
 receivables and prepaid expenses................................      436.7
                                                                   ---------
                                                                   $ 1,907.7
                                                                   ---------
                                                                   ---------
</TABLE>
    
 
    Liabilities  assumed  in the  Acquisition,  based on  their  respective fair
market values,  were  treated  as  non-cash activity  for  presentation  in  the
Statement of Cash Flows. Liabilities assumed are as follows (in millions):
 
   
<TABLE>
<S>                                                                  <C>
Current liabilities................................................  $   142.6
Long-term debt.....................................................      121.9
Other long-term liabilities........................................       80.9
                                                                     ---------
                                                                     $   345.4
                                                                     ---------
                                                                     ---------
</TABLE>
    
 
                                       19
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- BUSINESS, FORMATION AND ACQUISITION (CONTINUED)
   
    To  effect  the Acquisition,  SDW Acquisition  issued  $75.0 million  of 14%
Series A Senior Exchangeable Preferred Stock due 2006 (the "Old Senior Preferred
Stock") and $375.0 million  of 12% Series A  Senior Subordinated Notes due  2004
(the  "Series  A  Notes")  and  received  $331.8  million  from  Holdings  as  a
contribution to  capital.  Holdings funded  the  $331.8 million  contributed  to
Warren  from the proceeds  Holdings received from the  issuance of the preferred
stock, common stock  and warrants (as  discussed in  Notes 21 and  22). The  Old
Senior  Preferred Stock and the Series A Notes were subject to an exchange offer
discussed in Notes  12 and  20. The remaining  purchase price  was financed,  in
part,  through the credit facilities discussed in Note 12. Indebtedness incurred
by SDW Acquisition to  finance the Acquisition was  assumed by Warren  including
preferred  stock issued  by SDW Acquisition  which was  converted into preferred
stock of Warren having identical terms.
    
 
    Subsequent to  the Acquisition,  the Company  and Scott  jointly elected  to
treat  the stock purchase as an asset purchase pursuant to Internal Revenue Code
Section 338 (h) (10).
 
    PRO FORMA INFORMATION (UNAUDITED)
 
    The following table sets forth pro  forma information on the Acquisition  of
the  Predecessor Corporation as though it had  occurred on December 26, 1993 and
September 25, 1994, and presents consolidated statements of operations data  for
the  nine months ended September  24, 1994 and for  the year ended September 27,
1995.
 
   
Unaudited Pro Forma Statements of Operations Data (in millions, except per share
data):
    
 
   
<TABLE>
<CAPTION>
                                                     NINE MONTHS        YEAR
                                                        ENDED           ENDED
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Net revenues......................................     $828.8         $1,469.4
                                                       ------       -------------
                                                       ------       -------------
Operating income..................................       28.6            202.9
                                                       ------       -------------
                                                       ------       -------------
Net income (loss).................................      (53.0)            29.2
                                                       ------       -------------
                                                       ------       -------------
Net income (loss) applicable to common
 stockholders.....................................      (57.4)            23.1
                                                       ------       -------------
                                                       ------       -------------
Net income (loss) per common share*...............     $(1.87)        $   0.64
                                                       ------       -------------
                                                       ------       -------------
</TABLE>
    
 
    * Excludes common stock equivalents in  the nine months ended September  24,
     1994 as their inclusion would be anti-dilutive.
 
NOTE 2 -- RESTATEMENTS
   
    The  financial  statements of  the  Predecessor Corporation  for  the twelve
months ended December 25, 1993, the nine months ended September 24, 1994 and the
period from  September  25, 1994  through  December  20, 1994  included  in  the
Company's  January  1996  voluntary  filing  with  the  Securities  and Exchange
Commission (the "SEC")  on Form 10-K  for the period  December 21, 1994  through
September  27, 1995 had  been restated (the  "initial restatement"). The initial
restatement was  to reflect  adjustments principally  related to  the timing  of
recognizing certain costs on an accrual basis versus an as incurred basis. These
costs  related primarily to  environmental and safety  remediation. In addition,
the Company had recorded adjustments to various operating expenses, amortization
of deferred  start-up  and  training  costs,  various  employee  benefit  costs,
inventory valuation and deferred taxes.
    
 
   
    Subsequent  to  the initial  restatement, management  of the  Company, after
discussions with the Staff of the SEC, reconsidered certain adjustments made  in
the  initial restatement. The Predecessor Corporation's policy of accounting for
these items, primarily safety  remediation costs, on an  as incurred basis  that
lead to
    
 
                                       20
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 2 -- RESTATEMENTS (CONTINUED)
    
   
the  initial restatement was found to be an acceptable policy in the application
of generally accepted accounting principles. As such, the initial restatement of
previously issued financial statements was not required.
    
 
   
    Management of the Company concluded  that the remaining adjustments made  in
the  initial restatement were not material in the aggregate and these items have
also been  restated. Accordingly,  the accompanying  financial statements  agree
with  the audited  financial statements of  the Predecessor  Corporation for the
twelve months ended December  25, 1993 and the  nine months ended September  24,
1994  included in the  Company's filing made with  the SEC on  Form S-4 in April
1995. The audited financial statements for the period September 25, 1994 through
December 20, 1994 have  also been restated to  reflect the effect of  accounting
for these costs on an as incurred basis.
    
 
   
    As  a result  of the above,  the Successor Corporation  has reconsidered its
accounting policy  with respect  to  accounting for  certain costs  relating  to
compliance  with  safety and  other governmental  laws  and regulations  and has
adopted a  policy  of  accounting  for  these costs  on  an  as  incurred  basis
consistent  with that of the Predecessor Corporation. Accordingly, the financial
statements for the period ended September 27, 1995 have also been restated.
    
 
   
    Parent's equity of  $1,136.9 million as  of December 26,  1992 as  initially
reported  in the  Company's Form  10-K, was increased  by $15.4  million, net of
related tax benefits, to $1,152.3 as a result of the restatement. The effects of
the restatement are as follows (in millions):
    
 
   
<TABLE>
<CAPTION>
                              TWELVE MONTHS         NINE MONTHS         THREE MONTHS        NINE MONTHS
                                  ENDED                ENDED               ENDED               ENDED
                            DECEMBER 25, 1993    SEPTEMBER 24, 1994  DECEMBER 20, 1994   SEPTEMBER 27, 1995
                            ------------------   ------------------  ------------------  ------------------
 <S>                        <C>                  <C>                 <C>                 <C>
 Income (loss) before
  income taxes and other
  items:
   As previously
    reported..............       $  (23.3)            $       22.4        $       30.0        $       78.2
   As restated............            1.9                     28.0                24.9                70.8
 Net income (loss):
   As previously
    reported..............       $  (19.4)            $       12.7        $       18.0        $       37.7
   As restated............           (4.6)                    16.8                15.0                33.3
 Parent's equity:
   As previously
    reported..............       $1,049.9             $    1,094.0        $    1,195.2        $ --
   As restated............        1,088.1                  1,136.5             1,219.1          --
 Stockholders' equity:
   As previously
    reported..............       $--                  $ --                $ --                $      369.5
   As restated............       --                     --                  --                       365.1
</TABLE>
    
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    The accompanying consolidated financial statements of the Company have  been
prepared  on the  accrual basis  of accounting and  include the  accounts of the
Company and its various subsidiaries. All significant intercompany accounts  and
transactions have been eliminated.
 
    As the Acquisition resulted in a new basis of accounting and the adoption of
certain  accounting  policies which  differ  from the  Predecessor Corporation's
accounting  policies,  the  Company's  financial  statements  for  the   periods
subsequent  to  the  Acquisition  date are  not  comparable  to  the Predecessor
Corporation's financial statements for the periods prior to the Acquisition.
 
                                       21
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    The following presents the significant  accounting policies of the  Company.
Except  as  discussed in  Note  4, the  significant  accounting policies  of the
Predecessor Corporation are comparable to the Company.
 
    FISCAL YEAR
 
   
    The Company and its subsidiaries' fiscal year ends on the last Wednesday  in
September until otherwise determined by Holdings' Board of Directors.
    
 
    CASH AND CASH EQUIVALENTS
 
    Cash  and cash  equivalents consist  primarily of  highly liquid investments
with insignificant interest rate risk and original maturities of three months or
less at the date  of acquisition. Similar  investments with original  maturities
beyond   three  months  are  considered  short-term  marketable  securities.  At
September 24,  1994  and  September  27, 1995  the  Company  had  no  short-term
marketable securities.
 
    OTHER RECEIVABLES
 
    Other  receivables primarily represent  amounts due from  the sale of energy
produced by the Company's cogeneration facilities.
 
    INVENTORIES
 
    Inventories at September 27, 1995 are valued at the lower of cost or market,
using the first-in,  first-out (FIFO)  cost method.  Inventories of  maintenance
parts and other supplies are based on purchase cost.
 
    PLANT ASSETS
 
    Plant  assets are recorded  at cost. As  of the date  of the Acquisition, in
accordance with APB No. 16, the Company revalued the plant assets of the Company
to fair market  value and  revised the estimated  average useful  lives used  to
compute  depreciation for most of its plant  and equipment to a range from three
to twenty years. For financial accounting purposes, depreciation is  principally
calculated  by the straight-line  method over the estimated  useful lives of the
assets.
 
    Expenditures for renewals and betterments which increase the useful life  or
capacity  of plant  assets are  capitalized. On  retirements or  sales of assets
which have not been fully depreciated, the cost of plant assets is removed  from
the  asset account. The  Company records gains  and losses on  the retirement or
sale of plant assets when realized.
 
    Interest expense is  capitalized on major  construction projects,  including
timber  resources to the  extent that such  timber has not  yet matured. For the
nine months ended September  24, 1994 and the  period December 21, 1994  through
September  27, 1995  (the "nine months"  ended September 27,  1995), the Company
capitalized  interest   of  approximately   $1.4  million   and  $0.9   million,
respectively.  No interest was capitalized for  the twelve months ended December
25, 1993 or the period September 25, 1994 through December 20, 1994 (the  "three
months" ended December 20, 1994).
 
    TIMBER RESOURCES
 
    Timber  resources are recorded at cost,  which includes original costs, road
construction costs,  and  reforestation  costs, such  as  site  preparation  and
planting  costs. As of the  date of the Acquisition,  in accordance with APB No.
16, the Company  revalued its timber  resources to fair  market value.  Property
taxes,  surveying, fire control and other forest management expenses are charged
to expense as incurred.
 
    GOODWILL
 
    Goodwill, which  resulted  from  the Acquisition,  is  being  amortized  for
financial statement purposes on a straight-line basis over 25 years. Pursuant to
Statement  of  Financial Accounting  Standards ("FAS")  No.  121, on  an ongoing
basis, the carrying value of goodwill at the balance sheet date is evaluated  on
the basis of
 
                                       22
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
   
whether  anticipated operating cash  flows generated by  the acquired businesses
will recover the  recorded asset  balance over  the estimated  useful life.  The
goodwill  balance at September 27, 1995  was approximately $98.1 million, net of
approximately $3.1 million of accumulated amortization.
    
 
    DEFERRED FINANCING FEES
 
    Deferred financing  fees,  primarily resulting  from  the financing  of  the
Acquisition  are being amortized over  the average life of  the related debt and
are recorded net of  accumulated amortization of  approximately $7.2 million  at
September 27, 1995.
 
    OTHER ASSETS
 
    Other  assets include intangible assets,  primarily patents, arising as part
of the purchase price allocation, of $21.5 million at September 27, 1995.  These
intangible  assets  are being  amortized over  their  estimated useful  lives of
approximately  eleven  years.   Intangibles  are  stated   net  of   accumulated
amortization of approximately $1.5 million at September 27, 1995.
 
    FINANCIAL INSTRUMENTS
 
   
    The Financial Accounting Standards Board has issued FAS No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments."
This  statement requires  the disclosure  of the  fair value  of most derivative
financial instruments and  amends FAS No.  107. The Company  uses interest  rate
swap  agreements ("Swaps") and interest rate  cap agreements ("Caps") as a means
of managing interest-rate risk associated with debt balances. These  instruments
are  matched  with either  fixed or  variable rate  debt and  are recorded  on a
settlement basis as an adjustment to interest expense. Premiums paid to purchase
Caps are amortized as  an adjustment to  interest expense over  the life of  the
contract.  Cash flows from  Swaps and Caps  are classified in  the Statements of
Cash Flows  in the  same  category as  the  items being  hedged  or on  a  basis
consistent  with the nature of  the investment. Derivative financial instruments
are not held for trading purposes. The Company adopted FAS No. 119 during 1995.
    
 
    INCOME TAXES
 
    The tax provisions reflect the application  of FAS No. 109, "Accounting  for
Income  Taxes" for  all periods  presented. The  standard requires  an asset and
liability approach to  computing deferred income  taxes. This approach  requires
recognition  of deferred tax liabilities and  assets for the expected future tax
consequences of events that  have been included in  the financial statements  or
tax  returns. Under this approach, deferred income taxes are determined based on
the difference  between the  financial statement  and tax  basis of  assets  and
liabilities  using  enacted  tax rates  in  effect  for the  year  in  which the
differences are expected to reverse.  Valuation allowances are established  when
necessary to reduce deferred tax assets to the amounts expected to be realized.
 
    WORKERS' COMPENSATION INSURANCE
 
   
    The  Company is primarily self-insured  for workers' compensation insurance.
The self insurance claim liability for workers' compensation is based on  claims
reported and actuarial estimates of adverse developments and claims incurred but
not  reported. The Company's workers' compensation liability is discounted as it
is several years  before the claims  related to  a particular year  are paid  in
full.  The liability has been actuarially determined as the Company's obligation
and the timing of payments associated therewith are reasonably estimateable. The
present value of such claims was determined using discount rates of 7.0%, 8.25%,
5.5% and 5.5% for  the twelve months  ended December 25,  1993, the nine  months
ended  September 24, 1994, the three months ended December 20, 1994 and the nine
months ended  September  27, 1995,  respectively.  The current  portion  of  the
liability  of $9.0 million and $5.6 million  at September 24, 1994 and September
27, 1995, respectively, is  included in accrued  and other current  liabilities.
The  noncurrent portion of $23.3 million and $35.0 million at September 24, 1994
and September 27, 1995, respectively, is included in other liabilities.
    
 
                                       23
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ENVIRONMENTAL EXPENDITURES
 
    Environmental expenditures that pertain to  current operations or relate  to
future  revenues  are  expensed  or capitalized  consistent  with  the Company's
capitalization policy.  Expenditures  that result  from  the remediation  of  an
existing  condition caused by past operations, that do not contribute to current
or future revenues, are expensed.  Environmental accruals are recorded based  on
current  interpretations  of  environmental  laws  and  regulations  when  it is
probable that a liability has been incurred and the amount of such liability can
be reasonably estimated. Amounts accrued are  not discounted and do not  include
third-party  recoveries. Liabilities are recognized for remedial activities when
the clean-up is probable and the cost can be reasonably estimated. All available
information is considered including the results of remedial
investigation/feasibility studies  (RI/FS).  In  evaluating  any  disposal  site
environmental  exposure, an assessment is made  of the Company's potential share
of the remediation costs by  reference to the known  or estimated volume of  the
Company's  waste that  was sent  to the  site and  the range  of costs  to treat
similar waste at other sites if a RI/FS is not available.
 
    OTHER INCOME (EXPENSE), NET
 
    Other income (expense),  net, represents  interest income on  cash and  cash
equivalents and other nonoperating income and expense items.
 
    EARNINGS PER COMMON SHARE AND OTHER EQUITY MATTERS
 
    Income  per common share of Holdings  is computed using the weighted average
number of  common  shares outstanding  during  the period  and  dilutive  common
equivalent  shares. Warrants  exercisable for  approximately 5.2  million common
shares of Holdings are included as common stock equivalents for the nine  months
ended September 27, 1995. The Company's net income has been reduced by preferred
stock dividends to arrive at net income applicable to the common stockholders of
Holdings.
 
    During April 1995, warrants exercisable for approximately 2.0 million shares
of common stock of Holdings were exercised.
 
    CASH PAID FOR INCOME TAXES
 
    Cash  paid for income taxes for the nine months ended September 27, 1995 was
$20.6  million.  In  periods  prior   to  December  21,  1994  the   Predecessor
Corporation's income taxes were paid by Scott.
 
    CASH PAID FOR INTEREST
 
    Cash paid for interest during the twelve months ended December 25, 1993, the
nine  months ended September 24, 1994, the  three months ended December 20, 1994
and the nine  months ended September  27, 1995 was  $9.9 million, $5.0  million,
$2.9 million and $75.6 million, respectively.
 
NOTE 4 -- BASIS OF PRESENTATION AND ACCOUNTING POLICIES -- PREDECESSOR
CORPORATION
    BASIS OF PRESENTATION
 
    The  combined financial statements of the Predecessor Corporation consist of
Scott's wholly  owned  subsidiary  S.D.  Warren Company  and  its  wholly  owned
subsidiaries,  as  well as  the  net assets  and  results of  operations  of the
printing, publishing, and  specialty papers businesses  in Bornem, Belgium  (the
"Belgium  Affiliate") and a  mill facility located in  Mobile, Alabama that were
owned by Scott. All significant transactions between combined entities have been
eliminated.
 
    To facilitate prompt  reporting of the  Predecessor Corporation's  financial
results,  the financial statements of the  international operation were based on
the twelve months ended November 30, 1993 for fiscal year 1993, August 31,  1994
for the nine months ended September 24, 1994 and December 20, 1994 for the three
months ended December 20, 1994.
 
                                       24
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4 -- BASIS OF PRESENTATION AND ACCOUNTING POLICIES -- PREDECESSOR
CORPORATION (CONTINUED)
    The combined financial statements include allocations of costs for services,
including  accounting and  tax, treasury  and cash  management, data processing,
legal and environmental, facility and risk management, human resources and labor
relations, and government and  public affairs. These  costs are allocated  based
upon  a  variety  of  methods,  including:  specific  identification,  based  on
estimates of  time  and services  provided;  relative identification,  based  on
relevant criteria that establishes the Predecessor Corporation's relationship to
the   entire  pool  of  beneficiaries   and  formula  driven,  not  specifically
identifiable to the Predecessor Corporation but incurred for the benefit of  all
Scott affiliates.
 
    Management   believes  the  allocations  reflected   in  the  Statements  of
Operations, while reasonable, may not  represent the cost of similar  activities
on a separate entity basis.
 
    The  Mobile,  Alabama  facility  is  located  adjacent  to  a  Scott  tissue
manufacturing facility and  as such had  historically purchased pulp,  utilities
and  other  services  from  Scott based  on  shared  cost  arrangements. Amounts
purchased were $101.5 million,  $71.0 million and $18.4  million for the  twelve
months ended December 25, 1993, the nine months ended September 24, 1994 and the
three months ended December 20, 1994, respectively.
 
    PREDECESSOR CORPORATION ACCOUNTING POLICIES
 
    The  Predecessor Corporation had accounting policies similar to those of the
Company with the following significant exceptions:
 
    Inventory cost was determined using the last-in, first-out (LIFO) method.
 
    For certain  major capital  assets, the  Predecessor Corporation  calculated
depreciation  on the units-of-production method  during the learning curve phase
of the project. On retirements or sales of plant assets which had not been fully
depreciated, the Predecessor Corporation charged gains and losses to the related
depreciation reserve account.  The Predecessor  Corporation capitalized  certain
pre-operating  costs on  any single  capital project  for which  such costs were
expected to exceed  $3.0 million. The  capitalized costs were  amortized over  a
five year period.
 
    Income taxes for the Predecessor Corporation, through December 20, 1994 were
included  in the U.S. consolidated  federal income tax return  of Scott and on a
separate company basis for state tax purposes. For periods prior to December 21,
1994 the financial statements include a charge in lieu of tax which approximates
the federal tax provision assuming the Predecessor Corporation filed a  separate
tax return.
 
    Assets  and liabilities of the  Predecessor Corporation's foreign operations
were translated into U.S.  dollars using year-end  exchange rates. Revenues  and
expenses  of foreign operations were translated at the average exchange rates in
effect  during  the  year.   Adjustments  resulting  from  financial   statement
translations were included as a separate component of parent's equity. Gains and
losses resulting from foreign currency transactions were included in net income.
 
   
NOTE 5 -- ACCOUNTS RECEIVABLE
    
 
   
<TABLE>
<CAPTION>
                                                            (IN MILLIONS)
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Trade accounts receivable.........................      $76.1          $135.0
Allowance for doubtful accounts...................       (6.3)           (5.6)
                                                        -----          ------
                                                        $69.8          $129.4
                                                        -----          ------
                                                        -----          ------
</TABLE>
    
 
    The  Company had  sales to customers  outside of the  United States ("Export
Sales") of $67.2 million, $60.0 million, $24.7 million and $90.5 million for the
twelve months ended December 25, 1993, the nine
 
                                       25
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 5 -- ACCOUNTS RECEIVABLE (CONTINUED)
    
months ended September 24,  1994, the three months  ended December 20, 1994  and
the  nine  months  ended  September 27,  1995,  respectively.  Export  Sales are
primarily to  Canada,  Europe  and the  Far  East.  Export Sales  prior  to  the
Acquisition  were handled  by the  Belgium Affiliate.  During 1995,  the Belgium
Affiliate was closed  and its property  and equipment sold.  Effective with  the
closure  of the Belgium Affiliate, the Company's sales outside North America are
primarily handled by Sappi Limited ("Sappi") (see Note 23). Sappi is the largest
investor in the Company.
 
   
    Sales to four customers approximated 60.3%, 58.1%, 59.1% and 61.7% of  sales
for  the twelve months ended December 25,  1993, the nine months ended September
24, 1994, the three  months ended December  20, 1994 and  the nine months  ended
September  27, 1995, respectively. Sales  to such customers, which individually,
except as  indicated,  exceeded 10%  of  the total  sales,  are indicated  as  a
percentage of total sales below:
    
 
   
<TABLE>
<CAPTION>
            TWELVE MONTHS        NINE MONTHS           THREE MONTHS           NINE MONTHS
                ENDED               ENDED                 ENDED                  ENDED
          DECEMBER 25, 1993   SEPTEMBER 24, 1994    DECEMBER 20, 1994     SEPTEMBER 27, 1995
          -----------------   ------------------   --------------------   -------------------
     <S>  <C>                 <C>                  <C>                    <C>
       1         21.8%               19.4%                 25.9%                  25.3%
       2         14.2                15.5               *                         14.1
       3         13.2                12.9                  12.9                   14.6
       4         11.1                10.3                  12.3                *
</TABLE>
    
 
------------------------
   
*   Less than 10% of total sales.
    
 
    Aggregate  trade receivables from these  customers, which individually, with
one exception in 1995, exceed 10%  of total receivables, were $58.3 million  and
$65.8  million as of September 24, 1994 and September 27, 1995, respectively. No
other trade receivables  were in excess  of 10%.  Each of these  customers is  a
merchant that resells the Company's paper products to a wide range of end users.
The  loss of any of these customers could  have a material adverse effect on the
Company's business and results of operations.
 
    Prior to  the Acquisition,  the  Predecessor Corporation  participated  with
Scott  in an agreement to sell a percentage ownership interest in a defined pool
of  customer  receivables.  Under  terms  of  the  agreement,  the   Predecessor
Corporation  retained  substantially the  same  risk of  credit  loss as  if the
receivables had  not  been  sold. Generally,  collections  on  receivables  were
automatically  reinvested in new receivables  unless either party terminated the
agreement. Proceeds from  the initial  sale of  receivables in  1991 were  $35.0
million  and this level was maintained for each period through December 7, 1994.
The third party  financing agreement  was canceled on  December 7,  1994 and  is
reflected  as a  $35.0 million non-cash  financing activity in  the Statement of
Cash Flows. Fees for factored receivables were recorded as interest expense  and
were  based on the  purchaser's level of investment  and borrowing costs. During
the twelve months ended December 25,  1993, the nine months ended September  24,
1994  and  the  three  months  ended December  20,  1994,  such  fees aggregated
approximately $1.6 million, $1.2 million and $0.4 million, respectively.
 
                                       26
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 6 -- INVENTORIES (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
 
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Finished products.................................     $ 41.5          $ 89.8
Work in process...................................       31.3            51.0
Pulp, logs and pulpwood...........................       13.2            33.2
Maintenance parts and other supplies..............       49.7            52.5
                                                       ------          ------
                                                       $135.7          $226.5
                                                       ------          ------
                                                       ------          ------
Excess of replacement cost over LIFO valued
 inventories......................................     $ 48.7          $--
                                                       ------          ------
                                                       ------          ------
</TABLE>
    
 
   
NOTE 7 -- PLANT ASSETS
    
 
   
<TABLE>
<CAPTION>
                                                                          (IN MILLIONS)
                                                                      SEPTEMBER    SEPTEMBER
                                                                         24,          27,
                                                                        1994         1995
                                                                     -----------  -----------
<S>                                                                  <C>          <C>
Plant assets, at cost:
  Land and buildings...............................................   $   288.5    $   170.1
  Plant and equipment..............................................     2,202.6      1,045.6
                                                                     -----------  -----------
                                                                        2,491.1      1,215.7
Accumulated depreciation...........................................    (1,149.4)       (65.0)
                                                                     -----------  -----------
                                                                      $ 1,341.7    $ 1,150.7
                                                                     -----------  -----------
                                                                     -----------  -----------
</TABLE>
    
 
    As of the  Acquisition, the  Company revalued  plant assets  to fair  market
value, based upon independent appraisals, and revised the estimated useful lives
used  to calculate  depreciation for  most plant  assets, and  as a  result, the
Company's plant asset balances  as of September 27,  1995 are not comparable  to
September 24, 1994.
 
    Plant  and equipment includes  assets acquired under  capital leases of $8.0
million and  $2.0  million  at  September  24,  1994  and  September  27,  1995,
respectively.  Related allowances  for depreciation  were $5.7  million and $1.0
million, respectively.
 
    Expenditures  for  research  and  development  are  charged  to  expense  as
incurred.  Research and development costs were $15.3 million, $9.5 million, $3.0
million and $10.7  million for the  twelve months ended  December 25, 1993,  the
nine  months ended September 24, 1994, the  three months ended December 20, 1994
and the nine months ended September 27, 1995, respectively.
 
NOTE 8 -- DEPRECIATION & COST OF TIMBER HARVESTED (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
 
                                                    TWELVE MONTHS    NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                        ENDED           ENDED          ENDED           ENDED
                                                    DECEMBER 25,    SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993            1994            1994           1995
                                                    -------------   -------------   ------------   -------------
<S>                                                 <C>             <C>             <C>            <C>
Depreciation of plant assets......................      $91.9           $69.9          $27.3           $65.0
Cost of timber harvested and amortization of
 logging roads....................................        0.8             0.5            0.2             1.8
                                                        -----           -----          -----           -----
                                                        $92.7           $70.4          $27.5           $66.8
                                                        -----           -----          -----           -----
                                                        -----           -----          -----           -----
</TABLE>
    
 
                                       27
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 9 -- INCOME TAXES
    
   
    The domestic and foreign components of  income before taxes and other  items
are (in millions):
    
 
   
<TABLE>
<CAPTION>
 
                                                    TWELVE MONTHS    NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                        ENDED           ENDED          ENDED           ENDED
                                                    DECEMBER 25,    SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993            1994            1994           1995
                                                    -------------   -------------   ------------   -------------
<S>                                                 <C>             <C>             <C>            <C>
Domestic..........................................     $  5.1           $24.8          $22.4           $68.4
Foreign...........................................       (3.2)            3.2            2.5             2.4
                                                       ------           -----          -----           -----
                                                       $  1.9           $28.0          $24.9           $70.8
                                                       ------           -----          -----           -----
                                                       ------           -----          -----           -----
</TABLE>
    
 
   
    The components of the tax provisions are as follows (in millions):
    
 
   
<TABLE>
<CAPTION>
 
                                                    TWELVE MONTHS    NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                        ENDED           ENDED          ENDED           ENDED
                                                    DECEMBER 25,    SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993            1994            1994           1995
                                                    -------------   -------------   ------------   -------------
<S>                                                 <C>             <C>             <C>            <C>
Current:
  Federal.........................................     $  6.7           $ 2.6          $(5.7)          $15.1
  Foreign.........................................       (1.2)            1.2            1.0             0.1
  State and local.................................     --                (1.0)          (1.2)            0.9
                                                       ------           -----          -----           -----
    Total current.................................        5.5             2.8           (5.9)           16.1
                                                       ------           -----          -----           -----
Deferred:
  Federal.........................................        0.8             5.8           13.0             8.1
  Foreign.........................................       (0.2)         --              --             --
  State and local.................................        0.4             2.6            2.8             4.2
                                                       ------           -----          -----           -----
    Total deferred................................        1.0             8.4           15.8            12.3
                                                       ------           -----          -----           -----
                                                       $  6.5           $11.2          $ 9.9           $28.4
                                                       ------           -----          -----           -----
                                                       ------           -----          -----           -----
</TABLE>
    
 
   
    The components of the deferred tax provisions are as follows (in millions):
    
 
   
<TABLE>
<CAPTION>
 
                                                       TWELVE
                                                       MONTHS       NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                       ENDED           ENDED          ENDED           ENDED
                                                    DECEMBER 25,   SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993           1994            1994           1995
                                                    ------------   -------------   ------------   -------------
<S>                                                 <C>            <C>             <C>            <C>
Restructuring reserve.............................     $(22.5)        $ 22.9          $ 9.9           $(0.3)
Inventory.........................................        0.1         --                0.1             5.3
Plant assets......................................       30.2            9.3          (17.0)           16.4
General reserves..................................       (3.6)         (16.6)          28.6             0.2
AMT credit carryforwards..........................       (8.4)          (2.5)          (0.8)           (9.3)
Tax loss carryforwards............................       (0.2)          (4.7)          (5.0)         --
Effect of tax rate change.........................        5.4         --              --             --
Valuation allowance                                    --             --              --             --
                                                       ------         ------          -----           -----
Deferred tax provision............................     $  1.0         $  8.4          $15.8           $12.3
                                                       ------         ------          -----           -----
                                                       ------         ------          -----           -----
</TABLE>
    
 
                                       28
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 9 -- INCOME TAXES (CONTINUED)
    
   
    The  components of the deferred tax  assets and (liabilities) are as follows
(in millions):
    
 
   
<TABLE>
<CAPTION>
 
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Current:
Deferred tax assets:
  Restructuring reserves..........................     $  17.5         $  0.3
  General reserves................................        19.5            7.9
  Inventory.......................................         1.5            1.3
                                                    -------------      ------
    Total current deferred tax assets.............        38.5            9.5
                                                    -------------      ------
Deferred tax liabilities:
  Inventory.......................................      --             --
  General reserves................................      --               (0.6)
                                                    -------------      ------
    Total current deferred tax liabilities........      --               (0.6)
                                                    -------------      ------
Net current deferred tax (liability) asset........        38.5            8.9
                                                    -------------      ------
Noncurrent:
Deferred tax assets:
  Alternative minimum tax credit carryforwards....        52.4            9.3
  Tax loss carryforwards..........................         2.4         --
  General reserves................................        36.5           21.3
  Valuation allowance.............................        (0.3)        --
                                                    -------------      ------
    Total non-current deferred tax assets.........        91.0           30.6
                                                    -------------      ------
Deferred tax liabilities:
  Property, plant and equipment...................      (296.6)         (13.4)
  Other...........................................        (6.3)         (38.4)
                                                    -------------      ------
    Total non-current deferred tax liability......      (302.9)         (51.8)
                                                    -------------      ------
Net noncurrent deferred tax liability.............      (211.9)         (21.2)
                                                    -------------      ------
    Net deferred tax liability....................     $(173.4)        $(12.3)
                                                    -------------      ------
                                                    -------------      ------
</TABLE>
    
 
    The differences between the U.S. statutory income tax rate and the Company's
effective income tax rate are:
 
   
<TABLE>
<CAPTION>
 
                                                       TWELVE
                                                       MONTHS       NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                       ENDED           ENDED          ENDED           ENDED
                                                    DECEMBER 25,   SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993           1994            1994           1995
                                                    ------------   -------------   ------------   -------------
<S>                                                 <C>            <C>             <C>            <C>
U.S. statutory income tax rate....................        35.0%        35.0%          35.0%           35.0%
State income taxes, net of federal benefit........        14.4          3.8            4.2             4.9
International.....................................         3.6          0.4            0.3             0.1
Effect of tax rate increase on deferred taxes.....       292.3        --             --              --
Other factors.....................................       (3.2)          0.8            0.3             0.1
                                                        ------          ---            ---             ---
Effective tax rate................................       342.1%        40.0%          39.8%           40.1%
                                                        ------          ---            ---             ---
                                                        ------          ---            ---             ---
</TABLE>
    
 
    As of September 27, 1995, the  Company had available an alternative  minimum
tax  credit carryforward  for tax return  purposes of $9.3  million. This credit
carries forward to future taxable years indefinitely.
 
                                       29
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10 -- ACCRUED AND OTHER CURRENT LIABILITIES (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
 
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Accrued salaries, wages and employee benefits.....      $17.8          $ 49.9
Accrued interest..................................     --                23.8
Accrued workers' compensation.....................        9.0             5.6
Restructuring reserve.............................       12.7          --
Other accrued expenses............................        2.3            14.3
                                                        -----          ------
                                                        $41.8          $ 93.6
                                                        -----          ------
                                                        -----          ------
</TABLE>
    
 
NOTE 11 -- RESTRUCTURING
    During the fourth quarter of  fiscal year 1993, the Predecessor  Corporation
recorded a charge of $66.1 million, primarily for restructuring and productivity
improvement  programs.  The  charge  included  the  estimated  effect  of future
workforce reductions,  as  well  as  actions to  consolidate  and  simplify  the
Predecessor  Corporation's coated papers business. The remaining reserve balance
of approximately $12.7 million  as of September 24,  1994 was fully utilized  by
the Predecessor Corporation prior to the date of the Acquisition.
 
   
NOTE 12 -- LONG-TERM DEBT
    
 
   
<TABLE>
<CAPTION>
                                                            (IN MILLIONS)
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Credit Agreement:
  Term Loan, Tranche A............................     $--            $  305.0
  Term Loan, Tranche B............................     --                325.0
Series B Senior Subordinated Notes................     --                375.0
Revenue Bonds.....................................      116.7            121.3
Capital Leases....................................        3.1              1.1
                                                       ------       -------------
                                                        119.8          1,127.4
Current maturities of long-term debt..............        3.0             78.6
                                                       ------       -------------
Long-term debt....................................     $116.8         $1,048.8
                                                       ------       -------------
                                                       ------       -------------
</TABLE>
    
 
    CREDIT AGREEMENT
 
    In  connection with  the Acquisition,  Holdings and  Warren entered  into an
agreement (the "Credit Agreement") with Chemical Bank and 43 other domestic  and
international  lenders on December  20, 1994, which provided  for a $1.1 billion
senior secured  credit  facility  consisting  of $630.0  million  in  term  loan
facilities,  a  $250.0  million  revolving  credit  facility  ("Revolving Credit
Facility") and a  $220.0 million letter  of credit facility  ("Letter of  Credit
Facility")  to support certain debt assumed as part of the Acquisition. The term
loan facilities consist of a  Tranche A facility and  a Tranche B facility.  The
Credit Agreement extends through December 2002.
 
    The  interest  rates  under  the Credit  Agreement  are  determined,  at the
election of Warren, at either (a) a reference rate (the highest of (i) the prime
rate announced by Chemical Bank, (ii) the secondary market rate for three  month
certificates  of deposit (adjusted  for reserves) plus 1%  and (iii) the federal
funds rate in effect from time to time plus 0.5%) plus 1.5% to 2.0% or (b) LIBOR
plus 2.5%  to 3.0%.  The  applicable interest  rates  for the  Revolving  Credit
Facility  and Tranche A term loans are  tied to certain financial ratios and can
be reduced if specified ratios are achieved. At September 27, 1995, the interest
rates on  the  Tranche  A  and  Tranche B  term  loans  were  8.38%  and  8.82%,
respectively.
 
                                       30
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
    
    Borrowings under the Credit Agreement are guaranteed by Holdings and each of
its  U.S.  subsidiaries,  and  such borrowings  and  guarantees  are  secured by
security interests (subject  to certain other  permitted liens) in  (a) all  the
capital  stock of Warren and each of its U.S. subsidiaries and 65% of the common
stock and 100% of the  preferred stock of each  foreign subsidiary (if any)  and
(b)  all  assets  (subject  to  certain limitations)  owned  by  Warren  and its
subsidiaries.
 
    The Company's long-term  debt agreements contain  covenants which limit  the
Company  with  respect to  certain matters  including,  among other  things, the
ability to incur  debt, pay  dividends, make acquisitions,  sell assets,  merge,
grant  or incur  liens, guarantee obligations,  make investments  or loans, make
capital expenditures,  create  subsidiaries  or change  its  line  of  business.
Dividend  payments by  Warren are limited  to those amounts  necessary to enable
Holdings to pay certain obligations  and maintain minimum cash balances.  Warren
is also restricted from prepaying certain of its indebtedness and is required to
satisfy  certain financial covenants which  require Warren to maintain specified
financial ratios and comply  with certain financial  tests, including a  minimum
interest coverage ratio, a minimum debt service ratio and a net worth test. Such
covenants  are not considered  by the Company  to be of  a restrictive nature in
conducting its business activities. As a result of extending the filing date  of
Warren's  Annual Report on Form 10-K from December 26, 1995 to January 10, 1996,
Warren was unable to  satisfy specific financial  reporting covenants under  the
Credit  Agreement. As a result, Warren obtained  a waiver from the lenders which
extended the  requirement  to  distribute  such  financial  information  through
January  17,  1996,  at  which  time  management  was  in  compliance  with such
covenants.
 
    Under the terms of  the Credit Agreement, Warren  is required to enter  into
interest  rate protection agreements. At September  27, 1995, Warren had entered
into two swap  agreements, under  which the interest  rate has  been fixed  with
respect  to $75.0 million of notional principal amount at rates between 7.43% to
9.95%, and  two cap  agreements, pursuant  to which  another $130.0  million  of
notional  principal amount has  been capped at  rates between 8.0%  to 9.5%. Net
receipts or  payments under  the  agreements are  recognized as  adjustments  to
interest  expense. The swap  and cap agreements expire  at varying dates between
December 1997  and  January  2000.  At  September  27,  1995,  the  Company  has
unrealized gains of $0.2 million on its interest rate caps and unrealized losses
of $3.2 million on its interest rate swaps.
 
    TERM LOANS
 
    On  the Acquisition date, Warren borrowed $305.0 million under the Tranche A
term loan facility and  $325.0 million under the  Tranche B term loan  facility.
The term loan facilities continued to be fully drawn at September 27, 1995.
 
    The  Tranche A loan  is payable in  semi-annual installments commencing June
30, 1996 with the last installment payable  on December 31, 2001. The Tranche  B
Loan  is payable  in semi-annual  installments commencing  June 30,  1996 with a
balloon payment of $258.0 million in the year 2002.
 
    Warren is required to prepay the term  loan facilities with (i) 100% of  the
net  proceeds of certain asset  sales, (ii) 100% of  the net proceeds of certain
incurrences of indebtedness and (iii) 50% of the net proceeds from issuances  of
equity after December 20, 1994 by Holdings or any of its subsidiaries. Warren is
also  required to prepay the term loan facilities annually in an amount equal to
75% of the Excess Cash Flow (as defined) of Warren and its subsidiaries for  the
prior  fiscal year, except that Warren will only be required to prepay an amount
equal to 50% of such Excess Cash Flow if (a) the aggregate outstanding principal
amount of the term  loan facilities is  less than $250  million and (b)  certain
financial  ratios are achieved. Subsequent to  September 27, 1995, Warren made a
payment of approximately $74.9 million in compliance with this Excess Cash  Flow
prepayment  requirement. Amounts  paid in compliance  with the  Excess Cash Flow
requirement fulfill 100% of the payment  otherwise required to be paid in  June,
1996.  In addition, additional amounts reduce future semi-annual installments on
a pro rata basis.
 
                                       31
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
    
    REVOLVING CREDIT FACILITY
 
    Under the Revolving  Credit Facility, Warren  has a borrowing  limit in  the
amount  of  $250.0 million.  A portion  of the  revolving credit  commitments is
available to Warren as a  swing line commitment in  the amount of $25.0  million
and  a letter of credit commitment in  the amount of $75.0 million. At September
27, 1995, $20.6 million of the  available credit line was utilized to  guarantee
the  issuance of letters of  credit and $229.4 million  of the facility remained
available. Warren pays a quarterly commitment fee equal to 0.5% per annum on the
unused portion of the Revolving Credit Facility.
 
    LETTER OF CREDIT FACILITY
 
    In accordance  with the  agreement  pursuant to  which the  Acquisition  was
effected,  letters of credit in an aggregate  face amount of $220.0 million were
issued in favor  of Scott for  its ongoing obligations  under nine separate  tax
exempt bond financings and the financing of the Biomass Cogeneration Facility in
Westbrook,  Maine. Warren  assumed responsibility for  Scott's obligations under
the  assumed  financings.  At  September  27,  1995,  such  letters  of   credit
outstanding  aggregated approximately $170.5 million.  The decrease to $170.5 at
September 27, 1995 is  primarily due to the  remarketing of certain  obligations
which had previously been guaranteed by Scott (see REVENUE BONDS, below).
 
    Warren pays a commission of 2.5% per annum on outstanding letters of credit.
After  December 20, 1995, the commission will  be equal to the Applicable Margin
for LIBOR loans (2.5%, subject to  reduction). In addition, Warren also pays  an
issuance fee of 0.25% per annum on letters of credit issued.
 
    SERIES B SENIOR SUBORDINATED NOTES
 
    In  connection with  the Acquisition, Warren  issued Series  A Notes bearing
interest at  a  rate  of 12%  payable  semiannually.  The Series  A  Notes  were
redeemable at the option of Warren, in whole or in part, at any time on or after
December 15, 1999 at a premium declining to par in 2002.
 
   
    On  May 31, 1995, Warren consummated an  exchange offer pursuant to which it
offered to (1) exchange the existing Series A Notes for an equivalent amount  of
12%  Series  B Senior  Subordinated Notes  due  2004 (the  "Series B  Notes" and
together with the Series  A Notes, the  "Notes") having substantially  identical
terms  and (2) exchange the Old Senior  Preferred Stock for an equivalent amount
of its existing 14% Series B  Senior Exchangeable Preferred Stock due 2006  (the
"Warren  Senior  Preferred Stock")  having  substantially identical  terms. Such
exchange transactions were contemplated in the  original issues of the Series  A
Notes   and  the  Old  Senior  Preferred  Stock  (collectively,  the  "Exchanged
Securities"), and accordingly,  the deferred financing  costs for the  Exchanged
Securities  were  not written  off  upon exchange.  Capitalized  financing costs
related to the exchange offer were not material.
    
 
    The Series B  Notes are  unsecured, subordinated obligations  of Warren  and
rank  i) junior in right  of payment to all existing  and future Senior Debt (as
defined for purposes of  the Notes), including obligations  of Warren under  the
Credit Agreement and ii) senior in right of payment to or pari passu in right of
payment with all existing and future subordinated indebtedness.
 
    REVENUE BONDS
 
    Warren  assumed $119.3  million of  revenue bonds  from Scott.  Such debt is
comprised of  nine  separate tax-exempt  municipal  bond issues  (the  "Issues")
relating  to certain environmental and solid waste disposal projects. The issues
have  various  maturities  ranging  from  1996  through  2022.  Warren   assumed
responsibility for Scott's obligations under the Issues but with respect to each
Issue  (other  than  the Issue  which  was  remarketed on  August  21,  1995, as
described below) Scott  remains either  contingently liable as  a guarantor,  or
directly  liable  as the  original obligor.  Interest rates  on these  issues at
September 24, 1994 and September 27, 1995 ranged from 3.3% to 9.4% and 5.75%  to
9.375%,  respectively.  Bonds in  an amount  of  $44.0 million  bearing variable
interest rates were remarketed on August 21, 1995 as fixed interest rate  bonds.
 
                                       32
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
    
Warren  became the sole  obligor under the  bonds and a  $49.5 million letter of
credit issued in favor  of Scott was  canceled. The trustee  for each Issue  has
been  granted or assigned  the issuer's rights  under a sale,  lease purchase or
loan agreement,  as the  case may  be, between  the relevant  issuer and  Warren
relating  to each  respective project and,  in respect  of two of  the Issues, a
security interest in the project financed thereby.
 
    FUTURE MATURITIES OF LONG-TERM DEBT
 
    Scheduled maturities of long-term debt, including capital leases and sinking
fund payments, at September 27, 1995 are as follows (in millions):
 
<TABLE>
<CAPTION>
1996..............................  $    78.6
<S>                                 <C>
1997..............................       46.4
1998..............................       59.0
1999..............................       54.3
2000..............................       60.6
Thereafter........................      828.5
                                    ---------
                                    $ 1,127.4
                                    ---------
                                    ---------
</TABLE>
 
   
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
    
    The  Company's  financial  instruments  consist  mainly  of  cash  and  cash
equivalents,  receivables, accounts payable, and  debt. In addition, the Company
uses interest rate caps and  swaps, which were required  under the terms of  the
Credit  Agreement, as  a means  of managing  interest rate  risk associated with
outstanding debt. Summarized below  are the carrying values  and fair values  of
the  Company's  financial  instruments.  The  carrying  amounts  for  cash, cash
equivalents,  receivables  and  payables  approximate  fair  value  due  to  the
short-term  nature  of these  instruments.  Accordingly, these  items  have been
excluded from the table below.
 
   
<TABLE>
<CAPTION>
                                                               (IN MILLIONS)
                                                      SEPTEMBER 24,      SEPTEMBER 27,
                                                          1994               1995
                                                    -----------------  -----------------
                                                    CARRYING    FAIR   CARRYING    FAIR
                                                     AMOUNT    VALUE    AMOUNT    VALUE
                                                    --------   ------  --------   ------
<S>                                                 <C>        <C>     <C>        <C>
Balance Sheet Financial Instruments:
  Term Loans, Tranche A and B.....................   $--       $ --     $630.0    $630.0
  Notes...........................................    --         --      375.0     414.9
  Revenue Bonds and Capital Leases................    119.8     126.0    122.4     119.1
</TABLE>
    
 
    The fair value of the Notes, Revenue Bonds and Capital Leases was  estimated
by the Company based upon discussions with its investment bankers. The principal
amount  of the  Tranche A  and B  Term Loans  approximate market  since they are
variable rate instruments which reprice monthly.
 
   
    The Company's off-balance sheet financial instruments include the  Revolving
Credit Facility, the Letter of Credit Facility and interest rate caps and swaps.
At  September 27, 1995, the total carrying amount of these financial instruments
was $1.6 million and unrealized losses thereon approximated $3.0 million.
    
 
    The fair value of interest rate swaps and caps is the estimated amount  that
the  Company  would  pay or  receive  to  terminate the  swap  agreement  at the
reporting date,  taking into  account  current interest  rates and  the  current
credit-worthiness  of the swap  counterparties. The fair  value of the Revolving
Credit Facility and the Letter of Credit Facility are based upon fees  currently
charged  for  similar  agreements or  on  the  estimated cost  to  terminate the
obligation at the reporting date.
 
    As of September 24, 1994,  the Predecessor Corporation entered into  forward
foreign  exchange  contracts  with  a Scott  owned  affiliate  to  hedge foreign
currency intercompany transactions and balances for
 
                                       33
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    
periods consistent with its  committed exposures. The Predecessor  Corporation's
forward  exchange contracts, which  had a gross  notional value of approximately
$7.5 million  at  September 24,  1994,  matured during  1994  and 1995  with  no
material gain or loss recorded.
 
    A  significant portion  of the Company's  sales and  accounts receivable are
from four major  customers. None  of the Company's  other financial  instruments
represent a concentration of credit risk because the Company has dealings with a
variety  of  major banks  and customers  worldwide. None  of the  Company's off-
balance sheet financial instruments  would result in a  significant loss to  the
Company  if the  other party  failed to  perform according  to the  terms of its
agreement, as any such loss would generally be limited to the unrealized gain in
any contract.
 
NOTE 14 -- LEASES
    The Company  leases  office  and  warehouse space  and  various  office  and
manufacturing  equipment  under  operating  leases.  Unexpired  lease  terms for
operating leases  range from  one  to six  years.  Most leases  contain  renewal
options  and options  to purchase  such equipment  at fair  market value. Rental
expense relating to these  leases was $9.0 million,  $4.9 million, $0.8  million
and  $2.4 million for the twelve months ended December 25, 1993, the nine months
ended September 24, 1994, the three months ended December 20, 1994 and the  nine
months ended September 27, 1995, respectively.
 
    Additionally,  the Company has  other commitments, which  expire in 2008, to
operate a biomass cogeneration  facility adjacent to its  Westbrook mill and  to
purchase   its  steam  and  electricity  output  on  a  take-or-pay  basis  (the
"Cogeneration Obligation"). Under the Cogeneration Obligation, the Company  paid
approximately  $7.0 million each for the  twelve months ended December 25, 1993,
the nine months ended September 24, 1994 and the nine months ended September 27,
1995. No payments were made during the three months ended December 20, 1994.
 
    The future minimum obligations under leases and other commitments having  an
initial  or remaining noncancelable term  in excess of one  year as of September
27, 1995 are as follows (in millions):
 
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER,                                          OPERATING LEASES   OTHER COMMITMENTS
--------------------------------------------------  ----------------   -----------------
<S>                                                 <C>                <C>
1996..............................................        $3.3              $  7.0
1997..............................................         2.0                 7.5
1998..............................................         1.5                 7.8
1999..............................................         1.3                 7.3
2000..............................................         1.3                 7.4
Thereafter........................................         0.4                71.2
                                                           ---              ------
                                                          $9.8              $108.2
                                                           ---              ------
                                                           ---              ------
</TABLE>
 
    Certain lease obligations and the Cogeneration Obligation contain  scheduled
payment  increases. The  Company is  recognizing expenses  associated with these
contracts on a straight-line basis over the related contract's terms.
 
NOTE 15 -- 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.
 
                                       34
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (Continued)
 
NOTE 15 -- ENVIRONMENTAL AND SAFETY MATTERS (CONTINUED)
 
   
    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  pursuing efforts  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  the mill's  wastewater treatment  permit. The  lawsuit challenges the
permit's  effluent  limits   imposed  by  local   ordinance  as  arbitrary   and
unreasonable.  In  the  meantime,  the mill  also  has  applied  for alternative
effluent limits. Although the Company believes that it will be successful in its
various administrative  and  judicial challenges  to  those limits  and  in  any
negotiations  of  such  limits with  environmental  regulatory  authorities, the
imposition of  currently proposed  limits 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 may occur in 1996  and
compliance  with  the  rules may  be  required  beginning in  1998.  The Company
believes that  compliance  with the  cluster  rules, as  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  $12.0
million,  of which  approximately $5.0  million will  be spent  between 1996 and
1997.
 
    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.
 
    Warren 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
 
                                       35
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15 -- ENVIRONMENTAL AND SAFETY MATTERS (CONTINUED)
exposure for  these  matters is  not  material. Moreover,  as  a result  of  the
Acquisition,  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 must comply with a number of federal and state regulations that
govern health and safety in the workplace, the most significant of which is  the
Federal  Occupational Safety  and Health Act  ("OSHA"). Pursuant  to a voluntary
OSHA program piloted in the State of Maine in 1993, the Predecessor  Corporation
performed  a self-assessment audit with respect to OSHA mandates at its Somerset
and Westbrook mills and  submitted a compliance plan  to address certain  health
and  safety matters. The Company anticipates that the total cost of implementing
the compliance plan  will be approximately  $19.0 million. As  of September  27,
1995,  approximately $14.4 million of the total estimated $19.0 million had been
expended. The Company expects that the  majority of the remaining costs will  be
expended  during fiscal years 1996 and  1997. The Company recognizes these costs
as they are incurred.
    
 
   
    The Company currently has a five year demolition project in progress at  its
Westbrook facility for health and safety reasons. Total costs of the project are
estimated  to be approximately $9.0 million, of which approximately $4.5 million
had been spent as of September ,27  1995. 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.
 
    None of these matters, individually or in the aggregate, is expected to have
a  material  adverse  effect on  the  Company's financial  position,  results of
operations or cash flows.
 
NOTE 16 -- COMMITMENTS AND CONTINGENCIES
    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, primarily because of the lower  delivery
costs 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.
 
                                       36
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 16 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
    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  properly reflect  the fair market  value of the  acquired Power Purchase
Agreements as of the Acquisition date, the Company established a deferred  asset
of  approximately $32.3  million, in accordance  with APB No.  16. 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 nine  months  ended
September  27,  1995, amortization  expense related  to this  asset approximated
$10.8 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.
 
NOTE 17 -- RETIREMENT BENEFITS
 
    PENSION PLANS
 
    Prior  to the Acquisition, employees  participated in two (Warren sponsored)
hourly pension plans and a salaried pension plan and two Scott sponsored  hourly
pension  plans. The assets and related benefit obligations of employees electing
retirement prior to the Acquisition were transferred from Warren sponsored plans
to Scott plans prior to December 20,  1994 and remain assets and obligations  of
Scott.  During 1994 the assets and  obligations relating to S.D. Warren's active
employees were  allocated  to four  newly  formed  pension plans  based  on  the
requirements  of Section 414(l) of the Internal Revenue Code and the regulations
thereunder. Management  and  the  Plan's trustees  believe  such  allocation  is
reasonable.
 
    The four defined-benefit, trusteed pension plans provide retirement benefits
for  substantially  all  employees.  Benefits provided  are  primarily  based on
employees' years  of  service and  compensation.  The Company's  funding  policy
complies  with  the requirements  of Federal  law  and regulations.  Plan assets
consist of equity securities, bonds and short-term investments.
 
                                       37
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 17 -- RETIREMENT BENEFITS (CONTINUED)
    The funded  status of  Warren-sponsored  pension plans  is shown  below  (in
millions):
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
    Actuarial present value of benefit obligation:
      Vested......................................     $115.2          $ 71.3
      Nonvested...................................        5.3            18.0
                                                       ------          ------
        Accumulated benefit obligation............      120.5            89.3
    Additional obligation for future salary
     increases....................................        2.0            27.2
                                                       ------          ------
    Projected benefit obligation..................      122.5           116.5
    Plan assets at fair value.....................      105.3           102.5
                                                       ------          ------
    Projected benefit obligation in excess of plan
     assets.......................................      (17.2)          (14.0)
    Unrecognized amounts
      Transition obligation.......................        5.0          --
      Prior service cost..........................        8.1          --
      Unrecognized net gain.......................       (1.7)           (8.5)
                                                       ------          ------
    Accrued pension cost..........................       (5.8)          (22.5)
    Adjustment for minimum liability..............      (10.4)         --
                                                       ------          ------
    Net pension liability (amount is included in
     other long-term liabilities).................     $(16.2)         $(22.5)
                                                       ------          ------
                                                       ------          ------
</TABLE>
 
    The  net  pension  cost for  Warren  sponsored plans  include  the following
components (in millions):
 
   
<TABLE>
<CAPTION>
                                                                    NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                     YEAR ENDED        ENDED          ENDED           ENDED
                                                    DECEMBER 25,   SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993           1994            1994           1995
                                                    ------------   -------------   ------------   -------------
<S>                                                 <C>            <C>             <C>            <C>
Service cost-benefits earned during the period....     $  1.5          $ 1.5          $ 0.4          $  4.5
Interest cost on projected benefit obligation.....        8.4            6.5            2.1             6.9
Actual return on plan assets......................      (18.9)          (0.8)           2.7           (10.4)
Net deferral......................................       10.7           (5.4)          (4.7)            4.2
                                                       ------          -----          -----          ------
Net pension cost..................................     $  1.7          $ 1.8          $ 0.5          $  5.2
                                                       ------          -----          -----          ------
                                                       ------          -----          -----          ------
</TABLE>
    
 
    Pension expense allocated  to the  Predecessor Corporation  relating to  its
participation in the Scott plans was $5.5 million, $5.7 million and $1.9 million
for  the year ended December 25, 1993,  the nine months ended September 24, 1994
and the three months ended December 20, 1994, respectively.
 
    The projected benefit  obligation at  September 24, 1994  and September  27,
1995  was  determined  using  an  assumed  discount  rate  of  8.25%  and  8.0%,
respectively, and an assumed long-term rate of compensation increase of 5.5% and
5.25% respectively. The assumed rate of return on plan assets (on an  annualized
basis) was 10.5%, 10.5%, 10.5% and 9.0% for the twelve months ended December 25,
1993,  the nine months ended September 24, 1994, the three months ended December
20, 1994 and the nine months ended September 27, 1995, respectively.
 
    SAVINGS PLAN
 
    The Predecessor Corporation's  contributions to various  savings plans  were
based  on employee contributions and compensation and totaled $5.5 million, $3.8
million and $0.6 million for the twelve months ended December 25, 1993, the nine
months ended September 24,  1994 and the three  months ended December 20,  1994,
respectively.  Warren currently sponsors two  401(k) deferred contribution plans
covering
 
                                       38
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 17 -- RETIREMENT BENEFITS (CONTINUED)
substantially all Warren's employees  pursuant to which  Warren is obligated  to
match,   up  to   specified  amounts,  employee   contributions.  The  Company's
contributions to these  plans totaled  $3.8 million  for the  nine months  ended
September 27, 1995.
 
NOTE 18 -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
    FAS  No. 106, "Employers' Accounting  for Postretirement Benefits Other than
Pensions" requires the  accrual of postretirement  benefits other than  pensions
(such  as health  care benefits)  during the  years of  employee service. Warren
sponsors a defined  benefit postretirement  plan that provides  health care  and
life  insurance benefits to eligible  retired employees. Employees are generally
eligible for benefits upon  retirement and completion of  a specified number  of
years of service. Obligations relating to employees electing retirement prior to
December  20, 1994 were  not assumed by Warren  at Acquisition. Such obligations
remain the obligations of Scott.
 
    The following schedule provides the plan's funded status and obligations (in
millions):
 
<TABLE>
<CAPTION>
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
    Accumulated postretirement benefit obligations
     (APBO):
      Retirees....................................     $  65.3         $--
      Active Participants.........................        38.6           25.7
                                                    -------------      ------
      Total APBO..................................       103.9           25.7
    Plan assets at fair value.....................      --             --
                                                    -------------      ------
    APBO in excess of plan assets.................      (103.9)         (25.7)
      Unrecognized transition obligation..........        63.9         --
      Unrecognized net actuarial gain.............       (13.1)          (1.8)
                                                    -------------      ------
    Net postretirement liability..................     $ (53.1)        $(27.5)
                                                    -------------      ------
                                                    -------------      ------
</TABLE>
 
    Components of the net periodic postretirement benefit expense are as follows
(in millions):
 
   
<TABLE>
<CAPTION>
                                                                    NINE MONTHS    THREE MONTHS    NINE MONTHS
                                                     YEAR ENDED        ENDED          ENDED           ENDED
                                                    DECEMBER 25,   SEPTEMBER 24,   DECEMBER 20,   SEPTEMBER 27,
                                                        1993           1994            1994           1995
                                                    ------------   -------------   ------------   -------------
<S>                                                 <C>            <C>             <C>            <C>
Service cost......................................     $ 3.2           $ 2.7           $0.9           $2.0
Interest cost on APBO.............................       7.9             5.0            1.7            1.6
Net amortization and deferral.....................       6.0             4.0            1.3          --
                                                       -----           -----            ---            ---
Net postretirement benefit cost...................     $17.1           $11.7           $3.9           $3.6
                                                       -----           -----            ---            ---
                                                       -----           -----            ---            ---
</TABLE>
    
 
    The discount rates used to  estimate the accumulated benefit obligations  as
of  September 24, 1994 and September 27,  1995 were 8.25% and 8.0% respectively.
The health care cost trend rates used to value APBO were 12.4%, 10.5%, 10.5% and
9.0% at December 25, 1993, September  24, 1994, December 20, 1994 and  September
27,  1995, respectively, decreasing gradually to an ultimate rate of 5.0% in the
year 2007. A one-percentage point increase in the assumed health care trend rate
for each future year would increase the APBO by approximately 8.7% at  September
27,  1995 and would  increase the sum  of the benefits  earned and interest cost
components of net postretirement benefit cost for 1995 by approximately 14.7%
 
    Effective  December  26,  1993,  Scott  adopted  FAS  No.  112,  "Employers'
Accounting  for Postemployment  Benefits." This  standard requires  employers to
recognize and when necessary, accrue for the estimated cost of benefits provided
to former  or inactive  employees after  employment but  before retirement.  The
effect on the Company of adopting this statement was not material.
 
                                       39
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 19 -- OTHER LIABILITIES (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                    SEPTEMBER 24,   SEPTEMBER 27,
                                                        1994            1995
                                                    -------------   -------------
<S>                                                 <C>             <C>
Accrued workers' compensation.....................      $23.3           $35.0
Accrued pension and other postretirement
benefits..........................................       62.3            50.0
Other accrued liabilities.........................        8.3             8.3
                                                        -----           -----
                                                        $93.9           $93.3
                                                        -----           -----
                                                        -----           -----
</TABLE>
    
 
NOTE 20 -- WARREN REDEEMABLE EXCHANGEABLE PREFERRED STOCK
   
    Warren  has  authorized  10.0  million  shares  of  redeemable  exchangeable
preferred stock  from which  Warren's  Board of  Directors designated  a  series
consisting  of 3.0 million shares of Old  Senior Preferred Stock. The Old Senior
Preferred Stock was issued in connection with the financing of the  Acquisition.
The  Old Senior Preferred Stock was  exchanged for Warren Senior Preferred Stock
on May 31, 1995.
    
 
   
    The Warren Senior Preferred Stock has a liquidation preference of $25.00 per
share (aggregate  liquidation  preference  is $75.0  million,  plus  accumulated
dividends).  The Warren Senior Preferred Stock  was recorded at the net proceeds
of $65.4 million received from the issuance after deducting stock issuance costs
and excluding approximately $6.9 million paid by the purchasers to Holdings  for
class  A warrants which were issued in conjunction with the Old Senior Preferred
Stock. The excess of the liquidation preference over the carrying value is being
accreted by periodic charges  to retained earnings over  the life of the  issue.
The  Warren Senior Preferred Stock has been accounted for as the equivalent of a
minority interest for the purposes of the Company's financial statements.
    
 
   
    Dividends are cumulative and accrue quarterly at a rate of 14% per annum  of
(a)  the liquidation preference amount and (b)  the amount of accrued but unpaid
dividends from prior dividend accrual periods ending on or prior to December 15,
1999 ("Accumulated Dividends"). Warren does not  expect to pay dividends on  the
Warren  Senior Preferred  Stock in  cash for  any period  ending on  or prior to
December 15, 1999. Cumulative  dividends on Warren  Senior Preferred Stock  that
have  not been paid at  September 27, 1995 are $8.5  million and are included in
the carrying amount of the Warren Senior Preferred Stock as indicated below  (in
millions):
    
 
<TABLE>
<S>                                                 <C>
Issuance on December 21, 1994 for cash (at fair
 value on date of issuance).......................  $65.4
Accretion to redemption value.....................    0.6
Dividends on preferred stock......................    8.5
                                                    -----
Balance, September 27, 1995.......................  $74.5
                                                    -----
                                                    -----
</TABLE>
 
    REDEMPTION
 
   
    The  Warren Senior Preferred Stock is redeemable at the option of Warren, in
whole or in part, at  any time on or after  December 15, 2001 at the  redemption
prices  (expressed as a percentage of the  Specified Amount) with respect to the
Warren Senior  Preferred Stock  set  forth below  plus  all accrued  and  unpaid
liquidated  damages and dividends (excluding any Accumulated Dividends), if any,
if redeemed during the twelve month period beginning on December 15 of the years
indicated below:
    
 
<TABLE>
<CAPTION>
YEAR                                                                                        PERCENTAGE
------------------------------------------------------------------------------------------  -----------
<S>                                                                                         <C>
2001......................................................................................      104.2%
2002......................................................................................      102.8%
2003......................................................................................      101.4%
2004......................................................................................      100.0%
</TABLE>
 
                                       40
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 20 -- WARREN REDEEMABLE EXCHANGEABLE PREFERRED STOCK (CONTINUED)
   
    "Specified Amount" on any specific date with respect to any share of  Warren
Senior  Preferred Stock  means the  sum of  (i) the  liquidation preference with
respect to such share  and (ii) the Accumulated  Dividends with respect to  such
share.
    
 
   
    In  the event that Holdings consummates one  or more public offerings of its
common stock on or before December 15,  1997, Warren may, at its option,  redeem
the  Warren Senior Preferred  Stock with the proceeds  therefrom at a redemption
price equal  to  113% of  the  Specified Amount,  plus  all accrued  and  unpaid
liquidated  damages and dividends (excluding any Accumulated Dividends), if any,
through the redemption date; provided, that at least $50.0 million in  aggregate
Specified   Amount  of   Warren  Senior  Preferred   Stock  remains  outstanding
immediately following such redemption.
    
 
   
    Warren is required to redeem the  Warren Senior Preferred Stock on  December
15,  2006  at the  Specified  Amount plus  all  accrued and  unpaid  damages and
dividends (excluding any Accumulated Dividends).
    
 
   
    At any scheduled dividend payment date, Warren may, at its option,  exchange
all  of the shares of the Warren Senior Preferred Stock then outstanding for the
Warren's 14% Series B Subordinated Exchange Debentures due 2006.
    
 
   
    In the event  of a  Change of  Control, as  defined, the  holders of  Warren
Senior  Preferred Stock will have the right to require Warren to repurchase such
Warren Senior Preferred Stock, in whole or in part, at a price equal to 101%  of
the  Specified Amount  thereof, plus accrued  and unpaid  liquidated damages and
dividends (excluding any Accumulated Dividends).
    
 
   
    Holders of  the Warren  Senior Preferred  Stock have  limited voting  rights
customary  for  preferred  stock including  the  right to  elect  two additional
directors upon certain events  such as Warren failing  to pay dividends in  cash
for more than six consecutive dividend accrual periods ending after December 15,
1999.
    
 
NOTE 21 -- PREFERRED STOCK
    Holdings  has authorized  5.0 million shares  of preferred  stock from which
Holdings' Board  of Directors  designated  a series  consisting of  1.5  million
shares  of 15% Senior Exchangeable Preferred  Stock (the "Preferred Stock"). The
Preferred Stock was issued in connection with the financing of the  Acquisition.
The Preferred Stock has a liquidation preference of $25.00 per share.
 
    Dividends  are cumulative and accrue quarterly at a rate of 15% per annum of
(a) the liquidation preference amount and  (b) the amount of accrued but  unpaid
dividends from prior dividend accrual periods ending on or prior to December 15,
1999 ("Accumulated Dividends"), except that if any shares of Preferred Stock are
outstanding  after December 15, 2006, such rate will increase by 0.25% per annum
for each quarterly period after such date up to a maximum rate of 20% per annum.
The Company does not expect to pay dividends on the Preferred Stock in cash  for
any  period ending on or prior to December 15, 1999. Cumulative dividends on the
Preferred Stock that have not been paid  at September 27, 1995 are $4.6  million
and  are included  in the  carrying amount of  the Preferred  Stock as indicated
below (in millions):
 
<TABLE>
<S>                                                                                                             <C>
Issuance on December 21, 1994 for cash........................................................................  $37.5
Dividends on preferred stock..................................................................................    4.6
                                                                                                                -----
Balance, September 27, 1995...................................................................................  $42.1
                                                                                                                -----
                                                                                                                -----
</TABLE>
 
    REDEMPTION
 
    The Preferred Stock is redeemable at the option of Holdings, in whole or  in
part, at any time at a redemption price of 100% of the Specified Amount plus all
accrued and unpaid dividends (excluding Accumulated Dividends).
 
                                       41
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 21 -- PREFERRED STOCK (CONTINUED)
    "Specified  Amount"  on  any specific  date  with  respect to  any  share of
Preferred Stock means the sum of (i) the liquidation preference with respect  to
such share and (ii) the Accumulated Dividends with respect to such share.
 
    In  the event that  the Company consummates  certain specified transactions,
Holdings will be required  to redeem the Preferred  Stock at a redemption  price
equal  to 100% of  the Specified Amount,  plus all accrued  and unpaid dividends
(excluding Accumulated Dividends).
 
    At any scheduled  dividend payment  date, the  Company may,  at its  option,
exchange  all of the shares of the Preferred Stock then outstanding for Holdings
15% Subordinated Exchange Debentures Due 2011.
 
    In the event of a  Change of Control, as  defined, the holders of  Preferred
Stock will have the right to require Holdings to repurchase such Preferred Stock
at  a price  equal to  101% of  the Specified  Amount thereof,  plus accrued and
unpaid dividends (excluding Accumulated Dividends).
 
    Holders of the  Preferred Stock  have limited voting  rights, customary  for
preferred stock, including the right to approve certain issuances of securities,
mergers,  consolidations  and  sales  of  assets  and  the  right  to  elect two
additional directors  upon  certain  events  such as  Holdings  failing  to  pay
dividends  in cash for more than six consecutive dividend accrual periods ending
after December 15, 1999.
 
    REGISTRATION
 
    Holdings has agreed to use reasonable efforts to cause a shelf  registration
statement  relating to the Preferred Stock to  be declared effective by the SEC.
Holdings has  also  agreed  to keep  such  registration  statement  continuously
effective  for  three  years  from  the  effective  date  of  such  registration
statement, subject to certain exceptions.
 
NOTE 22 -- COMMON STOCK
    The authorized common  stock of  Holdings (the "Common  Stock") consists  of
100.0  million shares, par value $0.01, of  which 30.7 million shares are issued
and outstanding.
 
   
    In connection  with the  acquisition, Holdings  issued 6.3  million Class  B
warrants (the "Class B Warrants") each exercisable for one share of Common Stock
at $0.01 per share. On April 7, 1995, approximately 2.0 million Class B Warrants
were  exercised by Sappi. Holdings has agreed to use its reasonable best efforts
to cause a shelf registration statement relating  to the Class B Warrants to  be
filed no later than January 31, 1996 and to cause such registration statement to
be  declared effective by the Commission no later than 90 days after such filing
date. Holdings  has agreed  to use  its  reasonable best  efforts to  keep  such
registration statement continuously effective through December 20, 1997, subject
to certain exceptions.
    
 
   
    In connection with the issuance of the Senior Preferred Stock by Warren, 3.0
million  Class A warrants  (the "Class A Warrants")  exercisable for 0.9 million
shares of  Common  Stock were  issued  at $0.01  per  share. Proceeds  from  the
issuance  of the Class A Warrants  were approximately $6.9 million. Holdings has
agreed to use its best efforts to cause a shelf registration statement  relating
to  the Class A Warrants to be filed no later than January 31, 1996 and to cause
such registration statement to be declared effective by the Commission no  later
than 90 days after such filing date. If Holdings fails to file such registration
statement  by January 31, 1996 or fails  to have it declared effective within 90
days thereafter or fails to keep  such registration effective, Holdings will  be
obligated  to pay liquidated damages  in an amount equal  to $.0025 per week per
Class A Warrant (or number of shares of common stock issuable upon exercise of a
Class A Warrant), increasing by $.0025  after each subsequent 90 day period,  up
to  a maximum amount of $.0125 per week per Class A Warrant. Holdings has agreed
to  use  its  reasonable  best  efforts  to  keep  such  registration  statement
continuously effective through December 20, 1997, subject to certain exceptions.
    
 
   
    The  Class  A Warrants  and Class  B  Warrants are  exercisable at  any time
through December 15, 2006.
    
 
                                       42
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 22 -- COMMON STOCK (CONTINUED)
    The Company has  reserved 5.2 million  shares of Common  Stock for  issuance
upon exercise of such warrants.
 
NOTE 23 -- RELATED PARTY TRANSACTIONS
   
    Pursuant  to the limitations  on restricted payments  outlined in the Credit
Agreement, the indenture relating to the  Notes and the Warren Senior  Preferred
Stock, Warren may make cash payments to Holdings, including, among other things,
(i)  amounts under a tax sharing agreement to be entered into between Warren and
Holdings  necessary  to  enable  Holdings   to  pay  Warren's  taxes  and   (ii)
administrative fees to Holdings and amounts to cover various specified costs and
expenses  of Holdings. The associated administrative  fee charged by Holdings to
Warren for  the nine  months ended  September 27,  1995 was  approximately  $0.8
million.
    
 
    Warren   has  contracted  through  a   management  services  agreement  (the
"Management Services  Agreement") and  central  cost allocation  agreement  (the
"Central  Cost  Allocation Agreement")  with  two subsidiaries  of  Sappi, Sappi
Trading AG (referred to as "SIM" as it is in the process of changing its name to
Sappi International Management AG) and Sappi Management Services Limited ("SMS")
to provide management  advisory services.  The aggregate  fee to  be charged  to
Warren  by SIM and SMS is  limited to an annual amount  of $1.0 million. For the
nine months ended September 27, 1995,  Warren incurred such a management fee  of
approximately $0.8 million.
 
    The  Management Services Agreement with SIM establishes an agreement whereby
SIM provides  strategic  and  corporate planning  advice,  financial  and  legal
services  and services  relating to public  affairs and  human resources. Warren
agrees to pay  a service  fee to  SIM which  is determined  based upon  Warren's
proportionate  share  in  the aggregate  amount  of  costs which  SIM  incurs in
providing services to the  entire number of group  companies which have  entered
into  agreements of this nature with SIM, plus a profit mark-up of 10%. Warren's
proportionate share is based upon the  time spent on Warren services divided  by
total  time  spent  by  SIM  on total  group  company  services.  This agreement
commenced on January 1, 1995 and  is effective until terminated by either  party
with six months written notice.
 
    The  Central  Cost  Allocation  Agreement  with  SMS  provides  for  general
technical  and  administrative  support  services  to  supplement  the  services
provided  by  SIM. Warren  has  agreed to  pay  a service  fee  to SMS  which is
determined based upon Warren's  proportionate share in  the aggregate amount  of
costs  which SMS  incurs in  providing services  to the  entire number  of group
companies which have  entered into agreements  of this nature  with SMS, plus  a
profit  mark-up  of 10%.  Warren's proportionate  share  is based  upon Warren's
inventory turnover divided by total  inventory turnover of SMS group  companies.
This agreement commenced on January 1, 1995 and is effective for one year unless
terminated by either party with six months written notice.
 
   
    Warren  has  also  entered  into  a  cross  licensing  agreement  with Sappi
Deutschland, the worldwide holding  company for all  European and U.S.  business
operations  of the Sappi Group and Hannover Papier AG ("Hannover"), a subsidiary
of Sappi. Pursuant to this agreement,  Warren and Hannover have agreed to  enter
into  specific written agreements to share  paper processing techniques and have
also agreed to enter  into specific distribution  agreements whereby Warren  has
agreed  to use its distribution  network in the United  States to facilitate and
increase Hannover's  exports. Sappi  Deutschland will  facilitate the  licensing
process.  No specific agreements have been  entered into in connection with this
cross licensing agreement as of September 27, 1995.
    
 
   
    During fiscal  1995,  Warren sold  products  to certain  Sappi  subsidiaries
(Sappi   Europe,  SA  and  Specialty  Pulp  Services)  at  market  rates.  These
subsidiaries then sold Warren's product  to external customers and remitted  the
proceeds from such sales to Warren, net of a sales commission. Warren sold $33.0
million  of products to subsidiaries of Sappi and expensed fees of approximately
$1.1 million relating to these sales for
    
 
                                       43
<PAGE>
                            SDW HOLDINGS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 23 -- RELATED PARTY TRANSACTIONS (CONTINUED)
the nine months ended September 27, 1995. Trade accounts receivable at September
27, 1995 includes approximately  $12.4 million due  from subsidiaries of  Sappi.
Warren   is  in  the  process  of  formalizing  a  written  agreement  for  this
relationship.
 
   
NOTE 24 -- SUBSEQUENT EVENTS (UNAUDITED)
    
   
    In April  1996, Warren  amended  its Credit  Agreement and  changed  certain
provisions  relating to restrictive covenants including, among other things, the
ability to incur  additional debt,  pay dividends  and sell  certain assets.  In
addition,  certain  provisions  relating to  interest  rates,  fees, collateral,
prepayments and affirmative covenants were amended.
    
 
   
    On April 23,  1996, in  conjunction with  the amendment  to Warren's  Credit
Agreement, Warren entered into a five year agreement which provides for the sale
of  all of  Warren's trade accounts  receivable, net of  all related allowances,
through a bankruptcy  remote subsidiary  to an  unrelated financial  institution
(the  "A/R  Facility").  The  cash  proceeds from  the  sale  are  based  upon a
computation of eligible trade accounts receivable and the subsidiary retains  an
undivided  interest in the remaining  "ineligible" trade accounts receivable. As
collections reduce the trade  accounts receivable sold, participating  interests
in  new trade accounts receivable  are sold. The proceeds  from the A/R Facility
along with $10.0 million of  available cash on hand  were used to prepay  $100.0
million of the term loans under Warren's amended Credit Agreement. Approximately
$3.3  million of financing  fees that had previously  been deferred were written
off as a result of this prepayment.
    
 
   
    In November 1996, a ballot initiative in  the State of Maine will include  a
binding referendum measure that, if approved by voters, will impose restrictions
on  the harvesting of timberlands in unincorporated areas in the State of Maine,
which includes all  of the Company's  timberlands. Although the  outcome of  the
proposed  referendum  cannot  be predicted  with  any certainty,  the  effect of
complying with  the  provisions of  the  referendum,  if approved,  may  have  a
material  adverse  effect  on  the  Company's  financial  condition,  results of
operations and cash flows.
    
 
                                       44
<PAGE>
                                                                      SCHEDULE I
 
                            SDW HOLDINGS CORPORATION
                   CONDENSED FINANCIAL INFORMATION OF PARENT
                       CONDENSED STATEMENT OF OPERATIONS
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                          RESTATED
                                                     PERIOD DECEMBER 21,
                                                        1994 THROUGH
                                                    SEPTEMBER 27, 1995(1)
                                                    ---------------------
<S>                                                 <C>
Administrative expense(2).........................          $(0.5)
Equity in earnings of S.D. Warren Company, net of
 dividends and accretion on S.D. Warren preferred
 stock and income tax expense of $9.1 and $28.2,
 respectively.....................................           33.0
                                                            -----
Income before income taxes........................           33.5
Income tax expense................................            0.2
                                                            -----
Net income........................................          $33.3
                                                            -----
                                                            -----
</TABLE>
    
 
(1) SDW Holdings Corporation's operations did not commence until the  completion
    of the acquisition of S.D. Warren Company.
 
(2) Administrative expense includes $0.8 income of advisory fees from Warren.
 
                                       45
<PAGE>
                                                                      SCHEDULE I
 
                            SDW HOLDINGS CORPORATION
                   CONDENSED FINANCIAL INFORMATION OF PARENT
                            CONDENSED BALANCE SHEET
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                        RESTATED
                                                      SEPTEMBER 27,
                                                          1995
                                                    -----------------
<S>                                                 <C>
Assets:
  Due from S.D. Warren Company....................       $  0.8
  Investment in S.D. Warren Company...............        364.8
                                                         ------
    Total Assets..................................       $365.6
                                                         ------
                                                         ------
Liabilities and Stockholders' Equity:
  Current liabilities -- Accrued and other current
   liabilities....................................       $  0.5
                                                         ------
  Stockholders' Equity:
  Preferred stock (liquidation value $42.1
   million).......................................         42.1
  Common Stock....................................          0.3
  Capital in excess of par........................        294.0
  Retained earnings...............................         28.7
                                                         ------
    Total Stockholders' Equity....................        365.1
                                                         ------
    Total Liabilities and Stockholders' Equity....       $365.6
                                                         ------
                                                         ------
</TABLE>
    
 
                                       46
<PAGE>
                                                                      SCHEDULE I
 
                            SDW HOLDINGS CORPORATION
                   CONDENSED FINANCIAL INFORMATION OF PARENT
                            STATEMENT OF CASH FLOWS
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                                                                    RESTATED
                                                                                               PERIOD DECEMBER 21,
                                                                                                  1994 THROUGH
                                                                                                  SEPTEMBER 27,
                                                                                                     1995(1)
                                                                                               -------------------
<S>                                                                                            <C>
Cash Provided by Operating Activities:
  Net Income.................................................................................       $    33.3
  Adjustment to reconcile net income to net cash provided by operating activities:
   Equity in earnings of S.D. Warren Company.................................................           (33.0)
  Change in working capital..................................................................            (0.3)
                                                                                                      -------
    Net cash provided by operations..........................................................             0.0
                                                                                                      -------
Cash flow utilized by investing activities:
  Investment in S.D. Warren Company..........................................................          (331.8)
Cash flow from financing activities:
  Net proceeds from sale of common and preferred stock.......................................           331.8
                                                                                                      -------
Net change in cash and cash equivalents......................................................             0.0
                                                                                                      -------
Cash and cash equivalents at beginning and end of period.....................................       $     0.0
                                                                                                      -------
                                                                                                      -------
</TABLE>
    
 
------------------------
   
(1)  SDW Holdings Corporation's operations did not commence until the completion
    of the acquisition of S.D. Warren Company.
    
 
                                       47
<PAGE>
                                                                     SCHEDULE II
 
                            SDW HOLDINGS CORPORATION
                       VALUATION AND QUALIFYING ACCOUNTS
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
                                                                 BALANCE AT     CHARGED TO     DEDUCTIONS    BALANCE AT
                                                                BEGINNING OF     COSTS AND    (PRINCIPALLY     END OF
                                                                   PERIOD        EXPENSES      WRITE-OFFS)     PERIOD
                                                                -------------  -------------  -------------  -----------
<S>                                                             <C>            <C>            <C>            <C>
Allowance for doubtful accounts:
  Nine months ended September 27, 1995........................    $     5.4      $     0.2      $  --         $     5.6
  Three months ended December 20, 1994........................          6.3         --                0.9           5.4
  Nine months ended September 24, 1994........................          5.4            0.9         --               6.3
  Twelve months ended December 25, 1993.......................          4.7            0.7         --               5.4
 
Allowance for inventory obsolescence (Restated):
  Nine months ended September 27, 1995........................    $  --          $     4.1      $  --         $     4.1
  Three months ended December 20, 1994........................          2.1            0.5         --               2.6
  Nine months ended September 24, 1994........................          2.3            0.6            0.8           2.1
  Twelve months ended December 25, 1993.......................          2.6         --                0.3           2.3
 
Reserve for restructuring:
  Three months ended December 20, 1994........................    $    12.7      $  --          $    12.7     $  --
  Nine months ended September 24, 1994........................         91.7         --               79.0          12.7
  Twelve months ended December 25, 1993.......................         26.4           66.1            0.8          91.7
</TABLE>
    
 
                                       48
<PAGE>
ITEM 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE
 
   
    Deloitte & Touche LLP  were appointed independent  auditors to SDW  Holdings
Corporation,  prior to the Acquisition of the Predecessor Corporation. Coopers &
Lybrand L.L.P. served as independent accountants to the Predecessor  Corporation
prior  to the  Acquisition and  upon completion  of the  Acquisition, Deloitte &
Touche LLP replaced  Coopers &  Lybrand L.L.P.  as independent  auditors to  SDW
Holdings  Corporation and its subsidiaries.  There were no disagreements between
the  Predecessor  Corporation  and  Coopers  &  Lybrand  L.L.P.  on  matters  of
accounting  and financial  disclosure in  the two  years and  subsequent interim
period preceding their replacement by Deloitte & Touche LLP.
    
 
   
    During 1995, Coopers & Lybrand L.L.P.  informed the Company that they  would
not  consent  to  the  use  of their  report  on  the  Predecessor Corporation's
financial statements in certain anticipated registration statements to be  filed
with  the Securities and  Exchange Commission. As a  result, the Company engaged
Deloitte  &  Touche  LLP  to  reaudit  the  Predecessor  Corporation   financial
statements included in Item 8 of this filing of Form 10-K Financial Information.
    
 
                                       49
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    Intentionally Omitted.*
 
ITEM 11.  EXECUTIVE COMPENSATION
 
    Intentionally Omitted.*
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    Intentionally Omitted.*
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Intentionally Omitted*
 
--------------------------------------------------------------------------------
 
   
*  This  amended  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-K. The  registrant is not  required to  file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
    
 
                                       50
<PAGE>
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
 
    (a) (1) FINANCIAL  STATEMENTS. The financial statements  listed under Item 8
            are filed as a part of this Annual Report.
 
        (2) FINANCIAL  STATEMENT SCHEDULES.  FINANCIAL STATEMENT  SCHEDULE I  --
           CONDENSED  FINANCIAL  INFORMATION OF  PARENT AND  FINANCIAL STATEMENT
           SCHEDULE II--VALUATION AND  QUALIFYING ACCOUNTS LISTED  UNDER ITEM  8
           ARE FILED AS PART OF THIS ANNUAL REPORT.
 
   
        (3) EXHIBITS.
    
 
   
            27.0  FINANCIAL DATA SCHEDULE
    
 
   
                  All other exhibits have been intentionally omitted.*
    
 
    (b) REPORTS  ON FORM 8-K.  The Company did  not file any  Current Reports on
        Form 8-K during the  last quarter of the  period covered by this  Annual
        Report.
 
--------------------------------------------------------------------------------
 
   
*  This  amended  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-K. The  registrant is not  required to  file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
    
 
                                       51
<PAGE>
                                   SIGNATURES
 
   
SDW Holdings Corporation has duly caused this amended report to be signed on its
behalf by the undersigned thereunto duly authorized.*
    
 
                                          SDW HOLDINGS CORPORATION
 
   
 Date: September 11, 1996           By: /s/ WILLIAM E. HEWITT
                                    -------------------------------------------
                                    William E. Hewitt
                                       VICE PRESIDENT, TREASURER, AND DIRECTOR
                                       (PRINCIPAL FINANCIAL AND ACCOUNTING
                                       OFFICER)
 
    
 
--------------------------------------------------------------------------------
 
   
*  This  amended  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-K. The  registrant is not  required to  file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
    
 
                                       52