<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
   
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
    
 
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
   
                                  FORM 10-K/A
    
 
(MARK ONE)
    [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
          OF THE SECURITIES EXCHANGE ACT OF 1934
 
    FOR THE PERIOD DECEMBER 21, 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 33-88496
 
                              S.D. WARREN COMPANY
   
             (Exact name of registrant as specified in its charter)
    
 
<TABLE>
<S>                                            <C>
                PENNSYLVANIA                        23-2366983
       (State or other jurisdiction of           (I.R.S. Employer
       incorporation or organization)           Identification No.)
 
       225 FRANKLIN STREET, BOSTON, MA                 02110
  (Address of principal executive offices)          (Zip Code)
 
Registrant's telephone number, including area     (617) 423-7300
                    code
</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 _X*_ No ____
    
 
    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. _X_
 
   
    The  number of shares of Common Stock  outstanding as of August 31, 1996 was
100 shares.
    
--------------------------------------------------------------------------------
 
   
    * As of  September 27, 1995,  the registrant  has not been  subject to  such
filing requirements.
    
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
   
                             AMENDMENT TO FORM 10-K
    
 
   
    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 S.D. Warren  Company's
(the  "Company" or "Warren")  Annual Report on  Form 10-K ("Form  10-K") for the
period December 21, 1994  through September 27, 1995  which had previously  been
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  incurred 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 Warren's Registration Statement on Form
S-4 filed 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 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 in January 1996.  Therefore,
this  amended Form 10-K 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
 
    GENERAL
 
    S.D.   Warren  Company  ("S.D.  Warren",  "Warren",  the  "Company"  or  the
"Successor Corporation") manufactures printing, publishing and specialty  papers
and  has pulp and  timberland operations vertically integrated  with some of its
manufacturing facilities. Warren 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.
 
   
    The Company  was  founded in  1854  and  grew through  internal  growth  and
acquisitions until it was acquired by the Scott Paper Company ("Scott") in 1967.
Scott  invested significant  resources in  S.D. Warren,  including approximately
$1.0 billion from 1988 through 1994, to upgrade, expand and rebuild many of  the
Warren  facilities. As  of October  8, 1994,  SDW Acquisition  Corporation ("SDW
Acquisition"), a  direct wholly-owned  subsidiary  of SDW  Holdings  Corporation
("Holdings"),   entered  into  a  definitive   agreement  (the  "Stock  Purchase
Agreement") pursuant to which,  on December 20,  1994, SDW Acquisition  acquired
(the  "Acquisition") from Scott all of  the outstanding capital stock of Warren.
Immediately following  the Acquisition,  SDW Acquisition  merged with  and  into
Warren (the "Merger"), with Warren surviving.
    
 
                                       1
<PAGE>
   
    The  largest investor in Holdings is Sappi Limited ("Sappi"). Sappi, a South
African company, is  the largest forest  products company in  Africa, the  third
largest  producer of coated free paper in  Europe and one of the world's leading
pulp, paper and  timber exporters. Sappi  owns and operates  a number of  timber
processing  plants and eight  mills in Southern  Africa. Outside Africa, Sappi's
operations include four fine paper mills in the United Kingdom and two mills  in
Germany  which  produce  coated and  uncoated  free paper  and  specialty paper.
Following  the  Acquisition,  Sappi  became   the  largest  coated  free   paper
manufacturer  in the world. The other  shareholders of Holdings are DLJ Merchant
Banking Partners, L.P. and certain of  its affiliates ("DLJMB") and UBS  Capital
Corporation  ("UBSCC").  As  a  result  of the  Merger,  Holdings  owns  all the
outstanding common stock  of S.D. Warren.  See "Item 12.  Security Ownership  of
Certain   Beneficial  Owners  and  Management"  for  information  regarding  the
ownership of Holdings and the Notes  to the Company's Financial Statements  (the
"Financial  Statements") for information regarding the Acquisition and financing
for the Acquisition.
    
 
PRINCIPAL PRODUCTS
 
    The paper industry is generally divided into the printing and writing market
segment and  the  packaging market  segment.  The printing  and  writing  market
segment  is divided  into newsprint  and fine  paper, which  includes coated and
uncoated paper.  The  Company's  principal products  include  coated,  uncoated,
specialty  and technical papers.  The following table  illustrates the Company's
major markets, expressed as a percentage  of sales, for the twelve months  ended
December  25,  1993,  the  nine  months ended  September  24,  1994,  the period
September 25, 1994 through December 20, 1994 (the "three months" ended  December
20, 1994) and the period December 21, 1994 through September 27, 1995 (the "nine
months" ended September 27, 1995):
 
<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>
Coated paper...............................           71.4%           70.9%           73.9%            70.6%
Uncoated paper.............................           17.8            17.9            18.5             13.6
Specialty paper............................            5.0             5.0             4.8             10.2
Technical paper and other..................            5.8             6.2             2.8              5.6
                                                     -----           -----           -----            -----
  Total....................................          100.0%          100.0%          100.0%           100.0%
                                                     -----           -----           -----            -----
                                                     -----           -----           -----            -----
</TABLE>
 
    The  coated paper market is divided into  two types of products: coated free
paper and coated  groundwood paper. Coated  papers are primarily  differentiated
into  five product grades of decreasing quality and brightness, ranging from #1,
which is  premium,  to  #5,  the  lowest  in  quality  and  price.  The  Company
principally  competes  in the  coated  free paper  market  which is  composed of
product grades #1  through #3, and  a limited amount  of #4 and  #5. The  coated
groundwood  market is composed  of the #4  and #5 product  grades. Each grade is
manufactured in a range of basis weights, which is the measurement of a  paper's
weight  for a given sheet size, as well as differentiated by finish which can be
either gloss,  dull  or  matte. The  appearance  of  coated paper  can  also  be
significantly  altered by  finishing techniques,  such as  varnishing, which can
impart a dull or shiny property to a sheet. The coated paper market, in addition
to being segmented by product grade,  is divided into products which are  coated
on  one side and products which are coated  on both sides. Paper which is coated
on one side is used in special applications such as consumer product and mailing
label applications. The majority of  coated paper production is two-sided  which
permits quality printing on both sides of the paper.
 
    Coated  paper is  used in corporate  communications, advertising, brochures,
magazine covers and  upscale magazines, catalogues,  direct mail promotions  and
educational  text books.  Uncoated paper is  used by  commercial printers, quick
printers, large in-house  copy/printing end-users  and small  business and  home
applications. Specialty and technical papers are used in business form printing,
coated  fabric  converters,  pressure-sensitive laminators,  label  printers and
other niche market applications.
 
    The market for coated paper has historically experienced price  fluctuations
which  are driven by production supply, end-user demand and, to a lesser degree,
the availability and relative price of imported
 
                                       2
<PAGE>
   
products. The growth in the supply of  coated paper is driven by the opening  of
new  coated paper manufacturing facilities,  each of which can  take up to three
years to  construct. See  Management's  Discussion and  Analysis of  Results  of
Operations  and  Financial  Condition for  information  regarding  recent market
trends.
    
 
COMPETITION
 
    The markets for coated free products are highly competitive with a number of
major companies competing in each market. The Company competes mainly with  U.S.
and  Canadian producers of coated free paper,  and, to a lesser degree, European
producers. The Company's  principal competitors  in the coated  free market  are
Champion  International Corporation,  Westvaco Corporation,  Consolidated Papers
Inc., The  Mead  Corporation,  Simpson  Paper Co.,  Repap  Wisconsin,  Inc.  and
Potlatch Corporation. Competition is primarily on the basis of quality, service,
price  and breadth of product line, as  well as product innovation and sales and
distribution  support.  Certain  of  the  Company's  competitors  have   greater
financial  resources than the Company  and certain of the  mills operated by its
competitors may be lower cost producers of pulp and coated paper than certain of
the mills operated by the Company.
 
    Several factors contribute  to the  Company's competitive  strengths in  the
coated   free  paper  market,  including  high  product  quality,  technological
innovation, high  brand  recognition  and a  strong  distribution  network.  The
Company  has a leading market share in the #1 and #3 grades of coated free paper
in North America and is among the leaders with respect to the #2 grade.
 
DISTRIBUTION
 
    Warren, unlike most  of its competition,  has made a  strategic decision  to
sell  all of its  coated products through the  merchant distribution system. The
Company believes this policy increases the focus of the merchant sales force  on
the  sale  of  Warren  products.  Warren  was  the  first  to  develop  merchant
distribution  for  branded  coated  paper.  In  1917,  the  Company  formed   an
association  of paper merchants  that became the  Warren Merchant's Association.
Today, Warren's sales  force sells  coated paper to  approximately 288  merchant
distributing  locations. Merchants are authorized  to distribute Warren products
by geographic area and  handle competitors' lines to  cover all segments of  the
market.  The Company believes it has created a loyal group of merchant customers
because Warren's sales  force focuses  on generating end-user  demand, which  is
then  serviced  by the  merchant  distributors, and  does  not compete  with the
merchants to make sales.
 
    Merchants perform numerous functions, including sales, credit,  warehousing,
local  distribution  and promotional  activities. They  purchase the  paper from
Warren and resell it, marking up the purchase price from Warren to a competitive
market price. The product is delivered to the customer either directly from  the
mill,  a  Warren  distribution  center or  from  the  merchant's  warehouse. The
merchant handles credit review and payment collection and pays Warren's  invoice
without regard to final collection from the end-user customer.
 
    Warren  sells uncoated  paper in North  America through the  same network of
merchant distributors  that  it uses  for  coated paper,  with  some  exceptions
(approximately  225 merchant locations sell uncoated paper, versus the 288 which
sell coated  paper). Warren  also distributes  uncoated paper  through  original
equipment  manufacturers,  catalogues and  merchant stores  and is  beginning to
develop additional  distribution  channels,  such  as  warehouse  clubs,  office
superstores and telemarketing.
 
    Warren sells both specialty and technical paper in North America directly to
the  customer base through the relevant  sales force and ships products directly
from the mill to the customer.
 
EXPORT SALES
 
    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 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. The Company's  sales outside  North America  are handled  by divisions  of
Sappi (see the Notes to Financial Statements).
 
                                       3
<PAGE>
CUSTOMERS
 
   
    For  the nine months ended September  27, 1995, the Company's customers that
individually  accounted  for  greater  than  10%  of  sales  were  Resource  Net
International  (a division  of International  Paper Company);  Lindenmeyer Paper
Company (owned  by Central  National-Gottesman Inc.);  and Unisource  Worldwide,
Inc.  (a subsidiary of Alco Standard Corporation).  Each of these customers is a
merchant that resells the Company's paper products to a wide range of end users.
As indicated in  the Notes to  Financial Statements,  the loss of  any of  these
customers  could have  a material adverse  effect on the  Company's business and
results of operations.
    
 
BACKLOG AND SEASONALITY
 
    Backlog as of September 24, 1994 and September 27, 1995 was not significant.
The Company had approximately  one to four weeks  of backlog depending upon  the
product and basis weights.
 
    The  Company's operations are not significantly affected by seasonality. The
first and third  quarters of  the calendar  year tend  to be  stronger than  the
second and fourth quarters.
 
PATENTS, TRADEMARKS AND LICENSES
 
    S.D.  Warren is widely recognized for  its product quality and technological
innovation in the development  and manufacture of coated  free paper, which  has
allowed Warren to sustain the franchise value of its name brand products such as
SOMERSET-REGISTERED TRADEMARK-, LUSTRO-REGISTERED TRADEMARK-,
WARRENFLO-REGISTERED TRADEMARK- AND PATINA-REGISTERED TRADEMARK-.
 
    Although Warren owns or licenses a number of patents and patent applications
that  are important to its business, they are not material to the conduct of the
Company's business as a whole. Warren believes that its position in each of  its
markets  depends  primarily  on such  factors  as customer  service,  prompt and
accurate delivery and diversity of products rather than on patent protection.
 
    Warren has a  long history of  product innovations. It  was the first  paper
company  to develop both  one and two-sided  coated paper, the  first to develop
dull and matte  coated paper, the  first to develop  high bulk-to-weight  coated
paper  and the first  to develop lightweight  coated free web.  In addition, the
Company  has  a  number  of  proprietary  technologies,  including  the  on-line
finishing   technology  and  its  ULTRACAST-REGISTERED  TRADEMARK-  electronbeam
technology. Warren's on-line finishing technology  is used in its production  of
coated  paper as well  as in its  production of specialty  papers. The Company's
ULTRACAST-REGISTERED TRADEMARK- technology is  utilized in specialty papers  and
the  Company  plans to  extend this  technology  into a  broader line  of unique
products and new market segments.
 
RESEARCH AND DEVELOPMENT
 
    The Company's research and development efforts continue to focus on creating
new and improved  products as well  as developing more  efficient processes  for
producing  them. The Company's research facility is located in Westbrook, Maine,
and employs approximately 150 people who work closely with marketing, sales  and
manufacturing  personnel as  well as  Warren customers  to respond  to needs for
technological improvements and to meet market opportunities.
 
    The Company spent  approximately $15.3 million,  $9.5 million, $3.0  million
and  $10.7 million on research and  development activities 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.
 
SUPPLY REQUIREMENTS
 
    The principal  supply  requirements for  the  manufacture of  the  Company's
products  are wood, pulp, energy and other supplies. Warren believes that it has
adequate sources of these and other raw materials and supplies necessary for the
manufacture of pulp and  coated paper for the  foreseeable future. In the  event
that  any of the Company's suppliers is  unable to meet its demands, the Company
believes that adequate  alternative suppliers or  substitute materials would  be
available at comparable prices.
 
                                       4
<PAGE>
    WOOD AND PULP
 
    In  Fiscal  1995, the  Company manufactured  approximately  65% of  its pulp
requirements.  This   vertical   integration  reduces   Warren's   exposure   to
fluctuations  in the market price for pulp. All three of Warren's northern mills
are integrated with respect to hardwood pulp production and Somerset, Maine also
has softwood pulping capability. The  Mobile, Alabama facility receives most  of
its  pulp requirements from an adjacent pulp  mill owned by Scott. In connection
with the Acquisition, the Company entered into a long-term pulp supply agreement
with Scott  to  supply  the Company's  Mobile  paper  mill with  its  wood  pulp
requirements  (subject to minimum and maximum amounts) at prices generally based
upon market prices,  less a discount  to reflect transportation  and other  cost
savings.  Scott had previously  announced its intention to  sell the Mobile pulp
mill, but any sale is apparently on hold due to the recent merger between  Scott
and  Kimberly-Clark Corporation. The buyer of this facility will be bound by the
terms of the  above-mentioned agreement.  Additional pulp  requirements for  the
remaining  mills are purchased in the open market.  In the event that any of the
Company's pulp suppliers are unable to meet its demands, the Company believes it
could obtain adequate supplies to meet its future pulp requirements.
 
    The Company owns approximately 911,000 gross acres of timberlands in  Maine,
789,400  of which are  net forested acres. Approximately  433,700 of these acres
produce softwood timber, such as spruce, fir, hemlock and white pine and 355,700
acres produce  hardwood timber,  such as  beech, birch  and maple.  The  Company
believes  it can  harvest approximately 13,100  acres per year  on a sustainable
basis.
 
    Warren currently offers recycled  products in all  coated and some  uncoated
grade  lines. The  Company uses  reprocessed fibers  produced from  its existing
operations and purchases post consumer waste from several different suppliers to
meet market requirements for recycled products.
 
    ENERGY REQUIREMENTS
 
    Warren's energy  requirements are  satisfied  through wood  and  by-products
derived from the Company's pulping process (approximately 54% of the total units
of  energy), coal (approximately 16%),  oil (approximately 16%), purchased steam
from the Mobile utility complex (approximately 7%) and natural gas,  electricity
and other (approximately 7%).
 
    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. See Management's Discussion and Analysis of
Results  of  Operations  and  Financial Condition  and  the  Notes  to Financial
Statements.
 
    Muskegon  cogenerates  electricity  and  uses   the  total  output  in   its
operations.  The electric utility  that supplies the  Muskegon mill with standby
power has filed a request with the  state to raise its rates for standby  power.
The Company has in the past successfully challenged such proposed rate increases
and intends to challenge this increase.
 
    In  the past, Scott operated the Mobile facility (including the Warren paper
mill, a pulp mill, a tissue mill and an energy facility) on an integrated basis.
Prior to the Acquisition, Scott sold its energy facility at Mobile and the buyer
entered into a  long-term agreement with  Warren to provide  electric power  and
steam to the paper mill.
 
    OTHER SUPPLIES
 
    The  Company also requires substantial quantities  of other supplies such as
coating clay, latex, starch and TiO(2).  All of these materials are supplied  by
various suppliers.
 
                                       5
<PAGE>
EMPLOYEES AND LABOR RELATIONS
 
   
    As of September 27, 1995, the Company had 4,271 employees. Approximately 69%
of  employees are  represented by six  international unions  under ten different
contracts. Prior to the Acquisition, employees at the Company's Mobile  facility
were  employed under contracts with Scott. The Company negotiated new collective
bargaining agreements with  the Mobile  employees which were  executed upon  the
consummation   of  the  Acquisition.  In  addition,  during  1995,  the  Company
negotiated  an  initial  labor  agreement  with  employees  at  its   Allentown,
Pennsylvania  facility.  The  Company's  contract,  covering  approximately  750
employees, at the  Somerset facility  expired September 30,  1995. The  Somerset
employees  are continuing to work under the  terms of the expired agreement. The
Company anticipates reaching agreement on a  new contract and does not expect  a
work stoppage to occur. However, in the event an agreement cannot be reached and
a  prolonged work stoppage that  results in a curtailment  of output ensues, the
Company's financial  position, results  of operations  and cash  flows could  be
adversely  affected.  Other  than  the Somerset  contract,  there  are  no labor
agreements subject to renegotiation until  1997. The Company has experienced  no
work  stoppage  in  the U.S.  in  the past  eight  years and  believes  that its
relationship with its employees is good.
    
 
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, Westbrook 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.
 
                                       6
<PAGE>
    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.
 
    The Company has been identified as a potentially responsible party under the
Federal Comprehensive Environmental Response, Compensation and Liability Act  of
1980,  as amended ("CERCLA" or "Superfund"), or analogous state law, for cleanup
of contamination at seven sites. Based  upon the Company's understanding of  the
total  amount of liability at each site, its calculation of its percentage share
in each proceeding, and  the number of potentially  responsible parties at  each
site,  the  Company presently  believes that  its  aggregate exposure  for these
matters will not be  material. Moreover, in accordance  with the Stock  Purchase
Agreement  pursuant to  which the Company  was acquired by  Sappi, the Company's
former parent,  Scott,  agreed to  indemnify  and  defend the  Company  for  and
against,  among other things, the full amount  of any damages or costs resulting
from the off-site disposal of hazardous  substances occurring prior to the  date
of  closing, including all damages and costs related to these seven sites. Since
the date of  closing of  the acquisition  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  Company 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.
 
ITEM 2.  PROPERTIES
 
    Warren's principal executive offices  are located in Boston,  Massachusetts.
The  Company  believes  that  its  property  and  equipment  are  generally well
maintained, in good operating condition and adequate for its present needs.  The
inability  to  renew any  short-term leases  would not  have a  material adverse
effect on the Company's financial position or results of operations.
 
                                       7
<PAGE>
    The following table sets  forth the location and  use of Warren's  principal
facilities,  which  are owned  in  fee unless  otherwise  indicated. All  of the
Company's properties are  pledged as  collateral for  the Company's  outstanding
indebtedness (see the Notes to Financial Statements).
 
   
<TABLE>
<CAPTION>
         LOCATION                                                   USE
---------------------------  ----------------------------------------------------------------------------------
<S>                          <C>
Skowhegan, Maine             Manufacturing facility for the manufacture of coated paper and softwood and
(Somerset Mill)              hardwood pulp.
Muskegon, Michigan           Manufacturing facility for the manufacture of coated paper and hardwood pulp and a
                             warehouse (a).
Mobile, Alabama              Manufacturing facility for the manufacture of uncoated paper and specialty paper,
                             a warehouse, a warehouse/distribution center (b) and offices (c).
Westbrook, Maine             Manufacturing facility for the manufacture of specialty paper, high bulk coated
                             paper and hardwood pulp. A research and development facility is also located at
                             this site.
Allentown, Pennsylvania      Coated paper sheeting facility and distribution center.
</TABLE>
    
 
------------------------
   
(a) Subject to a lease expiring in September 1996.
    
 
   
(b) Subject to a lease expiring in December 2014.
    
 
   
(c) Subject to a lease expiring in December 2019.
    
 
TIMBERLANDS
 
    The  Company owns approximately 911,000 gross acres of timberlands in Maine,
789,400 of which are  net forested acres. Approximately  433,700 of these  acres
produce softwood timber, such as spruce, fir, hemlock and white pine and 355,700
acres  produce  hardwood timber  such  as beech,  birch  and maple.  The Company
believes it can  harvest approximately 13,100  acres per year  on a  sustainable
basis.
 
CAPACITY
 
    The Company currently operates four mills and a sheeting facility with total
annual  production  capacity of  approximately 1.5  million  tons of  paper. The
Company's manufacturing facilities  were fully utilized  during the nine  months
ended September 27, 1995.
 
ITEM 3.  LEGAL PROCEEDINGS
 
    The   Company   is   involved  in   various   lawsuits,   environmental  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  management,  after  consulting with  legal  counsel,  based  on the
Company's financial position and  the information available  to date, that  they
will  not have a material effect on the Company's financial position, results of
operations or cash flows.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
 
    None during the fourth quarter of fiscal 1995.
 
                                       8
<PAGE>
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
    There is no established  public trading market for  the common stock of  the
Company  or of  its parent, Holdings.  The common  stock of the  Company and its
parent has not been traded or sold publicly and accordingly no information  with
respect to sales practices or quotations is available.
 
   
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 S.D. Warren  Company
(the  "Company" or "Warren") and the  Predecessor Corporation (as defined in the
Notes to  Financial Statements).  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 the
Company 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 the acquisition  of Warren.  Operating
data  for any  period less  than a  year are  not necessarily  indicative of the
results that may be expected for the full year.
    
   
<TABLE>
<CAPTION>
                                              TWELVE MONTHS        TWELVE MONTHS        TWELVE MONTHS        NINE MONTHS
                                                  ENDED                ENDED                ENDED               ENDED
                                            DECEMBER 28, 1991  DECEMBER 26, 1992(1)   DECEMBER 25, 1993  SEPTEMBER 24, 1994
                                            -----------------  ---------------------  -----------------  -------------------
<S>                                         <C>                <C>                    <C>                <C>
 
<CAPTION>
                                               S.D. WARREN          S.D. WARREN          S.D. WARREN         S.D. WARREN
                                               COMPANY AND          COMPANY AND          COMPANY AND         COMPANY AND
                                             CERTAIN RELATED      CERTAIN RELATED      CERTAIN RELATED     CERTAIN RELATED
                                               AFFILIATES           AFFILIATES           AFFILIATES          AFFILIATES
                                              (PREDECESSOR)        (PREDECESSOR)        (PREDECESSOR)       (PREDECESSOR)
                                            -----------------  ---------------------  -----------------  -------------------
OPERATING DATA:                                                   (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                         <C>                <C>                    <C>                <C>
Sales.....................................      $ 1,169.7            $ 1,212.8            $ 1,143.6           $   828.8
Gross profit..............................          144.6                182.5                168.1               106.4
Selling, general and administrative
 expense..................................           92.0                 91.0                 91.7                72.1
Restructuring.............................           38.0                   --                 66.1                  --
Income from operations....................           14.6                 91.5                 10.3                34.3
Other income (expense), net...............            0.1                  0.1                  0.1                 0.1
Interest expense..........................            9.3                  9.0                  8.5                 6.4
Income tax provision......................            2.6                 32.0                  6.5                11.2
Net income (loss).........................            2.8                 50.6                 (4.6    )           16.8
Dividends and accretion on preferred
 stock....................................             --                   --                   --                  --
Net income (loss) applicable to common
 stockholders.............................            2.8                 50.6                 (4.6    )           16.8
SHARE DATA:
Net earnings per common share (in
 millions)................................  $          --      $            --        $          --      $           --
Weighted average common shares
 outstanding..............................             --                   --                   --                  --
Dividends declared per common share.......             --                   --                   --                  --
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital...........................  $        49.4      $          67.0        $        47.1      $        156.2
Total assets..............................        1,699.4              1,696.8              1,711.7             1,676.9
Total debt (including current
 maturities)..............................          125.2                125.7                124.3               119.8
Preferred stock...........................             --                   --                   --                  --
Parent's equity...........................        1,185.1              1,152.3              1,088.1             1,136.5
Stockholder's equity......................             --                   --                   --                  --
 
<CAPTION>
                                              SEPTEMBER 25,
                                                  1994          DECEMBER 21, 1994
                                                 THROUGH             THROUGH
                                            DECEMBER 20, 1994  SEPTEMBER 27, 1995
                                            -----------------  -------------------
<S>                                         <C>                <C>
                                               S.D. WARREN
                                               COMPANY AND         S.D. WARREN
                                             CERTAIN RELATED         COMPANY
                                               AFFILIATES              AND
                                              (PREDECESSOR)       SUBSIDIARIES
                                            -----------------  -------------------
OPERATING DATA:
<S>                                         <C>                <C>
Sales.....................................      $   313.6           $ 1,155.8
Gross profit..............................           49.9               269.8
Selling, general and administrative
 expense..................................           22.2                96.7
Restructuring.............................             --                  --
Income from operations....................           27.7               173.1
Other income (expense), net...............           (0.5)                3.2
Interest expense..........................            2.3               106.0
Income tax provision......................            9.9                28.2
Net income (loss).........................           15.0                42.1
Dividends and accretion on preferred
 stock....................................             --                 9.1
Net income (loss) applicable to common
 stockholders.............................           15.0                33.0
SHARE DATA:
Net earnings per common share (in
 millions)................................  $          --      $         0.33
Weighted average common shares
 outstanding..............................             --                 100
Dividends declared per common share.......             --                  --
BALANCE SHEET DATA (AT END OF PERIOD)
Working capital...........................  $       233.2      $        177.6
Total assets..............................        1,737.1             1,887.6
Total debt (including current
 maturities)..............................          119.3             1,127.4
Preferred stock...........................             --                74.5
Parent's equity...........................        1,219.1                  --
Stockholder's equity......................             --               364.8
</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.
    
 
                                       9
<PAGE>
   
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
    
 
    S.D.  Warren  Company  ("S.D.  Warren",  "Warren",  the  "Company",  or  the
"Successor Corporation") manufactures printing, publishing and specialty  papers
and  has pulp and  timberland operations vertically integrated  with some of its
manufacturing facilities. Warren 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 SDW Holdings Corporation ("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.
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.  Warren believes that  as a result  of
this  improved pricing  environment, 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
    
 
                                       10
<PAGE>
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
Successor  Corporation'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.  The
"Company" refers to both the Predecessor and Successor Corporations.
 
    SALES
 
    The  Company's  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
 
   
    The Company's 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.
 
    SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
 
   
    Selling, general  and  administrative expenses  for  the nine  months  ended
September 27, 1995 increased approximately 34.1% or $24.6 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  8.4%
for  the nine months ended  September 27, 1995 as compared  to 8.7% for the nine
months ended September 24, 1994.
    
 
                                       11
<PAGE>
    INCOME (LOSS) FROM OPERATIONS
 
   
    The Company's income from operations for the nine months ended September 27,
1995 was $173.1  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, Warren's interest and tax expense
prior   to  the  Acquisition  are  not   comparable  to  results  following  the
Acquisition.
 
   
    The Company's 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.
    
 
   
    The Company's income tax expense was $28.2 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.
    
 
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  relating to  the twelve month  period ended December  20, 1994, the
"Company" 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 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 costs 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
    
 
                                       12
<PAGE>
   
twelve months ended  December 25, 1993,  a decrease of  $63.5 million or  40.2%.
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 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  Company historically  participated in  Scott's cash  management system.
Accordingly,  cash  received   from  the  Company'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 Successor  Corporation'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.
 
   
    The Company's 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 inventories.
    
 
   
    The Company's  operating  working capital  increased  to $174.0  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 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 the Company's term loan facility.
    
 
                                       13
<PAGE>
   
    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  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  its 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, the Company  received net proceeds from the
issuance of preferred  and common  stock of  $65.4 million  and $331.8  million,
respectively.  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  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.
    
 
                                       14
<PAGE>
   
    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 $1048.8 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 the Company's credit facility obligations during
the first quarter of fiscal 1996. See the Notes to Financial Statements.
    
 
   
    The Company  has  a $250.0  million  revolving credit  facility  to  finance
working  capital needs.  At September  27, 1995,  the Company  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.  The Company  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, the Company has a Letter of Credit Facility (as defined in the
Notes to  Financial  Statements) to  support  certain of  its  obligations.  The
Company  had $170.5 million of letters of credit outstanding under its Letter of
Credit Facility at September 27, 1995. The Company 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.
    
 
   
    The 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
the Company  from  prepaying  certain  of its  indebtedness.  Under  the  Credit
Agreement,  the Company is required to satisfy certain financial covenants which
will require the  Company 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 the Annual  Report on Form  10-K from December 26,  1995 to January  10,
1996,  the Company was unable to  satisfy specific financial reporting covenants
under the Credit Agreement. As a result, the Company 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.
    
 
   
    In addition, the Company 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 Senior
Preferred 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 the  Senior 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 the Company may pay with respect to the Senior Preferred Stock
and  other equity securities both  before and after that  date. See the Notes to
Financial Statements.
 
                                       15
<PAGE>
    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
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
 
                                       16
<PAGE>
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.
 
    The Company has been identified as a potentially responsible party under the
Federal  Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for  cleanup
of  contamination at seven sites. Based  upon the Company's understanding of the
total amount of liability at each site, its calculation of its percentage  share
in  each proceeding, and  the number of potentially  responsible parties at each
site, the  Company presently  believes  that its  aggregate exposure  for  these
matters  will  not  be  material. Moreover,  in  accordance  with  the agreement
pursuant to  which the  Company  was acquired  by  Sappi, the  Company's  former
parent, Scott, agreed to indemnify and defend the Company for and against, among
other  things,  the full  amount  of any  damages  or costs  resulting  from the
off-site disposal  of  hazardous  substances  occurring prior  to  the  date  of
closing, including all damages and costs related to these seven sites. Since the
date  of closing of  the acquisition 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  Company 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.
 
    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  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
 
                                       17
<PAGE>
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
 
    The  Company expects that it  may make certain cash  payments to Holdings or
other affiliates during fiscal 1996 to the  extent cash is available and to  the
extent  it is permitted  to do so under  the terms of  the Credit Agreement, the
Indenture and  the  terms of  the  Senior  Preferred Stock.  Such  payments  may
include,  among other things,  (i) amounts under  a tax sharing  agreement to be
entered into between the  Company and Holdings necessary  to enable Holdings  to
pay  the Company's  taxes, (ii) administrative  fees to Holdings  and amounts to
cover specified costs and expenses of Holdings and (iii) an annual advisory  fee
for  management advisory services, limited to  $1.0 million, to Sappi and/or its
affiliates. To the extent the Company  continues to make such payments, it  will
do  so only  to the extent  such payments are  permitted under the  terms of the
Credit Agreement, the Indenture and the terms of the Senior Preferred Stock.
 
    Because Holdings has no  material assets other  than the outstanding  common
stock  of the Company (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 the Company) are  currently conducted through the Company and
its subsidiaries, Holdings' ability  to meet its  cash obligations is  dependent
upon  the earnings of the  Company 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  the Company and guarantees in respect of indebtedness of the Company and its
subsidiaries)  and  Holding's  15%  Senior  Exchangeable  Preferred  Stock  (the
"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 in  respect of 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 Senior
Preferred Stock permit the Company 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 the Company  meets certain conditions.  Among
such  conditions are  that the Company  maintain specified  financial ratios and
comply with certain financial tests.
 
                                       18
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                              S.D. WARREN COMPANY
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<CAPTION>
                                                                                                               PAGES
                                                                                                             ---------
 
<S>                                                                                                          <C>
Independent Auditors' Report...............................................................................         20
 
Financial Statements of S.D Warren Company
 
  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..............................................................................         21
 
  Balance Sheets as of September 24, 1994 and September 27, 1995...........................................         22
 
  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..............................................................................         23
 
  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....................         24
 
  Statement of Changes in Stockholder's Equity for the period December 21, 1994 through September 27,
   1995....................................................................................................         25
 
  Notes to Financial Statements............................................................................         26
 
Financial Statement Schedule
 
    II -- Valuation and Qualifying Accounts................................................................         50
</TABLE>
    
 
                                       19
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
To the Board of Directors of S.D. Warren Company and subsidiaries:
 
    We  have audited the  consolidated balance sheet of  S.D. Warren Company and
subsidiaries  (the  "Company")  as  of  September  27,  1995  and  the   related
consolidated statements of operations, changes in stockholder's 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 schedule listed in the Index. These financial statements and
financial statement schedule 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 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  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
schedule, when considered in relation to the basic financial statements taken as
a whole, presents  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 schedule have been restated.
    
 
DELOITTE & TOUCHE LLP
 
   
Boston, Massachusetts
September 11, 1996
    
 
                                       20
<PAGE>
                              S.D. WARREN COMPANY
                            STATEMENTS OF OPERATIONS
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
   
<TABLE>
<CAPTION>
 
                             RESTATED          RESTATED
                           TWELVE MONTHS      NINE MONTHS
                               ENDED             ENDED               RESTATED
                           DECEMBER 25,      SEPTEMBER 24,     PERIOD SEPTEMBER 25,         RESTATED
                               1993              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      S.D. WARREN COMPANY
                            AFFILIATES        AFFILIATES            AFFILIATES          AND SUBSIDIARIES
                           (PREDECESSOR)     (PREDECESSOR)         (PREDECESSOR)           (SUCCESSOR)
                          ---------------  -----------------  -----------------------  -------------------
<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                   96.7
Restructuring...........          66.1            --                    --                     --
                          ---------------         ------                ------               --------
Income from
 operations.............          10.3              34.3                  27.7                  173.1
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..................           1.9              28.0                  24.9                   70.3
Income tax expense......           6.5              11.2                   9.9                   28.2
                          ---------------         ------                ------               --------
Net income (loss).......          (4.6)             16.8                  15.0                   42.1
Dividends and accretion
 on preferred stock.....        --                --                    --                        9.1
                          ---------------         ------                ------               --------
Net income (loss)
 applicable to common
 stockholder............     $    (4.6)        $    16.8             $    15.0              $    33.0
                          ---------------         ------                ------               --------
                          ---------------         ------                ------               --------
Net earnings per common
 share (in millions)....                                                                    $    0.33
                                                                                             --------
                                                                                             --------
Weighted average number
 of shares
 outstanding............                                                                          100
                                                                                             --------
                                                                                             --------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       21
<PAGE>
                              S. D. WARREN COMPANY
                                 BALANCE SHEETS
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                                                 RESTATED
                                                               SEPTEMBER 24,      RESTATED
                                                                   1994         SEPTEMBER 27,
                                                              ---------------       1995
                                                                S.D. WARREN    ---------------
                                                                  COMPANY        S.D. WARREN
                                                                AND CERTAIN        COMPANY
                                                                  RELATED            AND
                                                                AFFILIATES      SUBSIDIARIES
                                                               (PREDECESSOR)     (SUCCESSOR)
                                                              ---------------  ---------------
                                            ASSETS
<S>                                                           <C>              <C>
Current Assets:
  Cash and cash equivalents.................................  $        4.7     $       62.2
  Trade accounts receivable, net............................          69.8            129.4
  Other receivables.........................................          21.7             24.5
  Inventories...............................................         135.7            226.5
  Deferred income taxes.....................................          38.5              8.9
  Other current assets......................................           3.6             11.1
                                                              ---------------  ---------------
      Total current assets..................................         274.0            462.6
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     $    1,887.6
                                                              ---------------  ---------------
                                                              ---------------  ---------------
 
                             LIABILITIES AND STOCKHOLDER'S 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             94.2
                                                              ---------------  ---------------
      Total current liabilities.............................         117.8            285.0
                                                              ---------------  ---------------
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          1,448.3
                                                              ---------------  ---------------
Commitments and contingencies (Note 16)
Series B redeemable exchangeable preferred stock
 (liquidation value, $83.5 million).........................       --                  74.5
                                                              ---------------  ---------------
Stockholder's equity:
  Common stock ($.01 par value; 1,000 shares authorized; 100
   shares issued and outstanding at September 27, 1995).....       --               --
  Capital in excess of par value............................       --                 331.8
  Retained earnings.........................................       --                  33.0
  Parent's equity...........................................       1,136.5          --
                                                              ---------------  ---------------
      Total stockholder's equity............................       1,136.5            364.8
                                                              ---------------  ---------------
      Total liabilities and stockholder's equity............  $    1,676.9     $    1,887.6
                                                              ---------------  ---------------
                                                              ---------------  ---------------
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       22
<PAGE>
                              S.D. WARREN COMPANY
                            STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
 
   
<TABLE>
<CAPTION>
 
                                                        RESTATED                                RESTATED
                                     RESTATED          NINE MONTHS          RESTATED         PERIOD DECEMBER
                                   TWELVE MONTHS          ENDED         PERIOD SEPTEMBER           21,
                                       ENDED          SEPTEMBER 24,            25,            1994 THROUGH
                                 DECEMBER 25, 1993        1994            1994 THROUGH        SEPTEMBER 27,
                                 -----------------  -----------------   DECEMBER 20, 1994         1995
                                    S.D. WARREN        S.D. WARREN     -------------------  -----------------
                                    COMPANY AND        COMPANY AND     S.D. WARREN COMPANY     S.D. WARREN
                                  CERTAIN RELATED    CERTAIN RELATED   AND CERTAIN RELATED       COMPANY
                                    AFFILIATES         AFFILIATES          AFFILIATES       AND SUBSIDIARIES
                                   (PREDECESSOR)      (PREDECESSOR)       (PREDECESSOR)        (SUCCESSOR)
                                 -----------------  -----------------  -------------------  -----------------
<S>                              <C>                <C>                <C>                  <C>
Cash Flows from Operating
 Activities:
  Net income (loss)............      $    (4.6)         $    16.8           $    15.0           $    42.1
  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)            --                  --                  --
  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                66.3
    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 equity
   contribution................         --                 --                  --                   331.8
  Proceeds from issuance of
   preferred stock, net of
   expenses....................         --                 --                  --                    65.4
  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.
 
                                       23
<PAGE>
                              S.D. WARREN COMPANY
                    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.
 
                                       24
<PAGE>
                              S.D. WARREN COMPANY
                  STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
                        (IN MILLIONS, EXCEPT SHARE DATA)
 
   
<TABLE>
<CAPTION>
                                                                                                    CAPITAL IN
                                                                                         COMMON      EXCESS OF    RETAINED
                                                                        COMMON SHARES     STOCK      PAR VALUE    EARNINGS
                                                                        -------------  -----------  -----------  -----------
<S>                                                                     <C>            <C>          <C>          <C>
Balance, December 21, 1994............................................          100     $  --        $  --        $  --
  Equity contribution from SDW Holdings Corporation...................                     --            331.8       --
  Net income..........................................................                     --           --             42.1
  Dividends accrued on redeemable exchangeable preferred stock........                     --           --             (8.5)
  Accretion to liquidation preference value on redeemable exchangeable
   preferred stock....................................................                     --           --             (0.6)
                                                                                ---    -----------  -----------       -----
Balance, September 27, 1995 (Restated)................................          100     $  --        $   331.8    $    33.0
                                                                                ---    -----------  -----------       -----
                                                                                ---    -----------  -----------       -----
</TABLE>
    
 
                See accompanying notes to financial statements.
 
                                       25
<PAGE>
                              S.D. WARREN COMPANY
                         NOTES TO FINANCIAL STATEMENTS
 
NOTE 1 -- BUSINESS, FORMATION AND ACQUISITION
 
    BUSINESS
 
    S.D.  Warren Company ("S.D. Warren", "Warren" or 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 SDW Holdings Corporation ("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.
 
    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>
    
 
    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. 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
 
                                       26
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 1 -- BUSINESS, FORMATION AND ACQUISITION (CONTINUED)
   
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, Warren 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):
 
   
<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          202.4
                                                                                  ------    -------------
                                                                                  ------    -------------
Net income (loss)..........................................................        (44.4  )        41.0
                                                                                  ------    -------------
                                                                                  ------    -------------
Net income (loss) applicable to common stockholder.........................        (53.0  )        28.9
                                                                                  ------    -------------
                                                                                  ------    -------------
Net income (loss) per common share.........................................        (0.53  )        0.29
                                                                                  ------    -------------
                                                                                  ------    -------------
</TABLE>
    
 
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 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 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
    
 
                                       27
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2 -- RESTATEMENTS (CONTINUED)
   
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,   SEPTEMBER 24,     DECEMBER 20,       SEPTEMBER 27,
                                                        1993           1994              1994                1995
                                                   --------------  -------------  ------------------  ------------------
<S>                                                <C>             <C>            <C>                 <C>
Income (loss) before income taxes:
  As previously reported in the Company's Form
   10-K..........................................    $    (23.3)    $      22.4       $     30.0          $     77.7
  As restated....................................           1.9            28.0             24.9                70.3
Net income (loss):
  As previously reported in the Company's Form
   10-K..........................................    $    (19.4)    $      12.7       $     18.0          $     46.5
  As restated....................................          (4.6)           16.8             15.0                42.1
Parent's equity:
  As previously reported in the Company's Form
   10-K..........................................    $  1,049.9     $   1,094.0       $  1,195.2          $   --
  As restated....................................       1,088.1         1,136.5          1,219.1              --
Stockholder's equity:
  As previously reported in the Company's Form
   10-K..........................................    $   --         $   --            $   --              $    369.2
  As restated....................................        --             --                --                   364.8
</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.
 
    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 the Company's Board of Directors.
    
 
                                       28
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    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 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.
 
                                       29
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    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.
    
 
    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
 
                                       30
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
 
    Earnings per common share is computed  using the weighted average number  of
common  shares outstanding during the period.  The Company's net income has been
reduced by Series B preferred stock dividends to arrive at net income applicable
to the common stockholder.
 
    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.
 
    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.
 
                                       31
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 4 -- BASIS OF PRESENTATION AND ACCOUNTING POLICIES -- PREDECESSOR
CORPORATION (CONTINUED)
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 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 21). Sappi is the largest investor in Holdings.
 
                                       32
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 5 -- ACCOUNTS RECEIVABLE (CONTINUED)
    
   
    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 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.
 
   
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>
    
 
                                       33
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
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>
    
 
   
NOTE 9 -- INCOME TAXES
    
   
    The  domestic and foreign  components of income before  taxes 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>
Domestic..................................    $     5.1      $    24.8      $    22.4      $    67.9
Foreign...................................         (3.2)           3.2            2.5            2.4
                                                 ------          -----          -----          -----
                                              $     1.9      $    28.0      $    24.9      $    70.3
                                                 ------          -----          -----          -----
                                                 ------          -----          -----          -----
</TABLE>
    
 
                                       34
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 9 -- INCOME TAXES (CONTINUED)
    
   
    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)     $    14.9
  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)          15.9
                                                 ------          -----          -----          -----
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      $    28.2
                                                 ------          -----          -----          -----
                                                 ------          -----          -----          -----
</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>
    
 
                                       35
<PAGE>
                              S.D. WARREN COMPANY
                   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 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.
 
                                       36
<PAGE>
                              S.D. WARREN COMPANY
                   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           14.9
                                                                           -----         ------
                                                                       $    41.8      $    94.2
                                                                           -----         ------
                                                                           -----         ------
</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
                                                                     SEPTEMBER 24,      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, the Company  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  by the  Company  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 the Company, 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.
 
                                       37
<PAGE>
                              S.D. WARREN COMPANY
                   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 the Company  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 the Company 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 are limited to those  amounts necessary to enable Holdings to
pay certain obligations and maintain minimum cash balances. The Company is  also
restricted from prepaying certain of its indebtedness and is required to satisfy
certain  financial  covenants which  require the  Company 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
the  Annual Report on Form 10-K from December  26, 1995 to January 10, 1996, the
Company was unable to satisfy  specific financial reporting covenants under  the
Credit  Agreement. As a result,  the Company 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, the  Company is required to  enter
into interest rate protection agreements. At September 27, 1995, the Company 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,  the Company  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.
 
    The  Company 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.  The Company is  also required to prepay  the term loan facilities
annually in an amount equal to 75% of  the Excess Cash Flow (as defined) of  the
Company  and its subsidiaries for the prior fiscal year, except that the Company
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,  the  Company   made  a   payment  of  approximately
 
                                       38
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
    
$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.
 
    REVOLVING CREDIT FACILITY
 
    Under  the Revolving Credit  Facility, the Company has  a borrowing limit in
the amount of $250.0 million. A  portion of the revolving credit commitments  is
available  to the  Company 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. The Company  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. The  Company 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).
 
    The  Company 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, the Company
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,  the  Company issued  Series  A  Notes
bearing  interest at a rate of 12% payable semiannually. The Series A Notes were
redeemable at the option of the Company, 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, the Company 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
"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 the Company
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 the Company
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
 
    The Company 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. The  Company assumed
responsibility for Scott's obligations under the Issues but with respect to each
Issue (other than the
 
                                       39
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 12 -- LONG-TERM DEBT (CONTINUED)
    
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  re-marketed on
August 21,  1995 as  fixed interest  rate  bonds. The  Company 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 the  Company 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>
<S>                                 <C>
1996..............................  $    78.6
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, 1994      SEPTEMBER 27, 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
 
                                       40
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
   
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
    
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 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.
 
                                       41
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (Continued)
 
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.
 
   
    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
 
                                       42
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 15 -- ENVIRONMENTAL AND SAFETY MATTERS (CONTINUED)
addition, if it  is necessary to  replace the functional  capacity of the  surge
pond with above-grade structures, the Company preliminarily estimates that up to
an additional $8.0 million may be required for such construction costs.
 
    The Company has been identified as a potentially responsible party under the
Federal  Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), or analogous state law, for  cleanup
of  contamination at seven sites. Based  upon the Company's understanding of the
total amount of liability at each site, its calculation of its percentage  share
in  each proceeding, and  the number of potentially  responsible parties at each
site, the  Company presently  believes  that its  aggregate exposure  for  these
matters  is not material. Moreover, as a result of the Acquisition, 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  Company 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,  the  Company  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 qualities 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 the Company to provide electric power and steam to the paper mill at  rates
 
                                       43
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 16 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
generally comparable to market tariffs, including fuel cost and capital recovery
components.  Scott,  MESC and  the Company  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. The Company has the
option to cancel certain non-essential  services covered by the Shared  Services
Agreement at any time prior to the end of the 25 year term.
 
    A   substantial  portion  of  the  Company's  electricity  requirements  are
satisfied  through  cogeneration  agreements  ("Power  Purchase  Agreements"  or
"Agreements")   whereby  the  Somerset  and   Westbrook  mills  each  cogenerate
electricity and sell  the output  to Central  Maine Power  Company ("CMP").  The
Westbrook  and Somerset Agreements require CMP  to purchase such energy produced
by these cogeneration  facilities at above  market rates which  has reduced  the
Company's  historical cost of electrical energy. The Westbrook Agreement expires
October 31,  1997 and  the Somerset  Agreement  expires in  the year  2012.  The
favorable  pricing element  of the Somerset  Agreement will end  on November 30,
1997. The agreements also require the mills to purchase electricity from CMP  at
the standard industrial tariff rate.
 
    To  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 (Company 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 the Company  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.
 
                                       44
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 17 -- RETIREMENT BENEFITS (CONTINUED)
    The funded status of the company-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 the  Company 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 Company 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. The Company  currently sponsors two  401(k) deferred  contribution
plans
 
                                       45
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 17 -- RETIREMENT BENEFITS (CONTINUED)
covering  substantially all Company  employees pursuant to  which the Company is
obligated to match,  up to  specified amounts,  employee contributions.  Company
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. The Company
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  the  Company  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   SEPTEMBER 27,
                                                                      24, 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
                                              YEAR ENDED        ENDED       THREE MONTHS      NINE MONTHS
                                             DECEMBER 25,   SEPTEMBER 24,  ENDED DECEMBER   ENDED SEPTEMBER
                                                 1993           1994          20, 1994         27, 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.
 
                                       46
<PAGE>
                              S.D. WARREN COMPANY
                   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 -- REDEEMABLE EXCHANGEABLE PREFERRED STOCK
    The  Company has authorized  10.0 million shares  of redeemable exchangeable
preferred stock from which the Company'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 Senior Preferred Stock on May
31, 1995.
 
    The Senior Preferred Stock has a liquidation preference of $25.00 per  share
(aggregate liquidation preference is $75.0 million, plus accumulated dividends).
The  Senior Preferred Stock  was recorded at  the net proceeds  of $65.4 million
received  from  the   issuance  after   deducting  stock   issuance  costs   and
approximately  $6.9 million  paid 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.
 
    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"). The Company does not expect to pay dividends  on
the Senior Preferred Stock in cash for any period ending on or prior to December
15, 1999. Cumulative dividends on 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 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 Senior Preferred Stock  is redeemable at the  option of the Company,  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
Senior  Preferred Stock set  forth below plus all  accrued and unpaid liquidated
damages and  dividends (excluding  any Accumulated  Dividends but  including  an
amount  equal to  a pro rated  dividend from the  immediately preceding dividend
accrual date to  the redemption  date), 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>
 
    "Specified  Amount" on any specific date with respect to any share of 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.
 
                                       47
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 20 -- REDEEMABLE EXCHANGEABLE PREFERRED STOCK (CONTINUED)
   
    In  the event that Holdings consummates one  or more public offerings of its
common stock on or  before December 15,  1997, the Company  may, at its  option,
redeem  the 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 but
including an amount equal to a pro rated dividend from the immediately preceding
dividend accrual date to  the redemption date), if  any, through the  redemption
date;  provided, that  at least $50.0  million in aggregate  specified amount of
Senior  Preferred   Stock  remains   outstanding  immediately   following   such
redemption.
    
 
    The Company is required to redeem the Senior Preferred Stock on December 15,
2006  at the Specified Amount plus all  accrued and unpaid damages and dividends
(excluding any Accumulated  Dividends but  including an  amount equal  to a  pro
rated  dividend  from the  immediately preceding  dividend  accrual date  to the
redemption date).
 
    At any scheduled  dividend payment  date, the  Company may,  at its  option,
exchange  all of the shares  of the Senior Preferred  Stock then outstanding for
the Company's 14% Series B Subordinated Exchange Debentures due 2006.
 
    In the event  of a  Change of  Control, as  defined, the  holders of  Senior
Preferred Stock will have the right to require the Company to redeem such 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 but  including an  amount equal  to a pro
rated dividend  from the  immediately  preceding dividend  accrual date  to  the
redemption date).
 
    Holders  of the Senior Preferred Stock have limited voting rights, customary
for preferred  stock, and  the  right to  elect  two additional  directors  upon
certain  events such as  the Company failing  to pay dividends  in cash for more
than six consecutive dividend accrual periods ending after December 15, 1999.
 
NOTE 21 -- RELATED PARTY TRANSACTIONS
    Pursuant to the limitations  on restricted payments  outlined in the  Credit
Agreement,  the indenture relating to the  Notes and the Senior Preferred Stock,
the Company may make cash payments  to Holdings, including, among other  things,
(i) amounts under a tax sharing agreement to be entered into between the Company
and  Holdings necessary to enable  Holdings to pay the  Company's taxes and (ii)
administrative fees to Holdings and amounts to cover various specified costs and
expenses of Holdings. The associated administrative fee expensed during the nine
months ended September 27, 1995 was approximately $0.8 million.
 
    The Company  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 the company 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 the Company  by SIM and SMS  is limited to an  annual amount of $1.0
million. For the nine  months ended September 27,  1995, the Company incurred  a
related management fee expense 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. The
Company agrees to pay a  service fee to SIM which  is determined based upon  the
Company'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%.  The
Company's  proportionate share is based upon  the time spent on Company 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.
 
                                       48
<PAGE>
                              S.D. WARREN COMPANY
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 21 -- RELATED PARTY TRANSACTIONS (CONTINUED)
    The  Central  Cost  Allocation  Agreement  with  SMS  provides  for  general
technical  and  administrative  support  services  to  supplement  the  services
provided by SIM. The  Company has agreed to  pay a service fee  to SMS which  is
determined  based upon the Company'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%.  The Company's  proportionate share  is based  upon  the
Company'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, the Company 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 the
Company 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, the Company sold products to certain Sappi subsidiaries
(Sappi  Europe,  SA  and  Specialty  Pulp  Services)  at  market  rates.   These
subsidiaries  then sold the Company's product to external customers and remitted
the proceeds from such sales to Warren,  net of a sales commission. The  Company
sold  $33.0 million of  products to subsidiaries  of Sappi and  expensed fees of
approximately $1.1 million  relating to these  sales for the  nine months  ended
September  27, 1995.  Trade accounts receivable  at September  27, 1995 includes
approximately $12.4 million due  from subsidiaries of Sappi.  The Company is  in
the process of formalizing a written agreement for this relationship.
    
 
   
NOTE 22 -- SUBSEQUENT EVENTS (UNAUDITED)
    
 
   
    In  April 1996, the Company 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 the Company's Credit
Agreement, the Company entered into a five year agreement which provides for the
sale  of all  of the  Company'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  the  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.
    
 
                                       49
<PAGE>
   
                                                                     SCHEDULE II
    
 
                              S.D. WARREN COMPANY
                       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>
    
 
                                       50
<PAGE>
ITEM 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE
 
   
    Deloitte & Touche LLP were  appointed independent auditors to SDW  Holdings'
Corporation,  the  parent  of  the  Company, 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  the  Company's  independent auditors.  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  of  the
Company  and  or Sappi  Limited 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
Annual Report on Form 10-K.
    
 
                                       51
<PAGE>
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
DIRECTORS AND EXECUTIVE OFFICERS
 
    Set  forth below  are the  names, ages  and positions  of the  directors and
executive officers of Warren as of the filing date of this Annual Report on Form
10-K.
 
<TABLE>
<CAPTION>
        NAME               AGE                               POSITION
---------------------      ---      -----------------------------------------------------------
<S>                    <C>          <C>
Eugene van As                  55   Director
Monte R. Haymon                58   Director, President, Chief Executive Officer
James H. Frick, Jr             56   Director, Vice President
O. Harley Wood                 53   Director, Vice President
William E. Hewitt              60   Director, Vice President
Trevor L. Larkan               40   Director, Chief Financial Officer, Vice President,
                                     Treasurer, Secretary
E. Dannis Herring              43   Director, Vice President
Pablo P. Zamora                53   Vice President
Lewis W. Mohler                58   Vice President
</TABLE>
 
    Messrs. van As,  Hewitt and Larkan  have been Directors  since December  20,
1994.  Mr. Frick has been  a Director since March  21, 1989. Messrs. Herring and
Wood have been Directors since  March 17, 1992. Mr.  Haymon has been a  Director
since  October 1, 1995. Directors  of the Company are  elected annually to serve
until the next  annual meeting of  stockholders of the  Company and until  their
successors  have been elected or appointed and qualified. Executive officers are
appointed by, and  serve at  the direction  of, the  Board of  Directors of  the
Company.
 
    Set forth below is a brief account of the business experience of each of the
officers  and directors  of the  Company as  of the  filing date  of this Annual
Report on Form 10-K.
 
ORGANIZATION
 
   
    EUGENE VAN AS served as President and Chief Executive Officer of the Company
from April 30, 1995 through  September 30, 1995. Mr.  van As has been  Executive
Chairman  of Sappi since 1991. He joined  Sappi in 1977 as the Managing Director
and Chief Executive Officer of Sappi. He  is also a director of Malbak  Limited,
Olivetti  Africa Limited, the Council for Scientific and Industrial Research and
the South African Foreign Trade Organization.
    
 
    MONTE R.  HAYMON was  appointed  President and  Chief Executive  Officer  of
Warren  on October 1, 1995. Previously he had been President and Chief Operating
Officer of  Ply-Gem Industries,  and  for thirteen  years, President  and  Chief
Executive Officer of Packaging Corporation of America, a division of Tenneco. In
addition  to his  business experience, Mr.  Haymon is  a member of  the Board of
Directors of  Evanston Hospital,  a member  of the  Board of  Trustees of  Tufts
University  as well  as Chairman  of the Board  of Overseers  of the Engineering
School. Mr. Haymon is a former member of the Board of Directors of the  National
Association  of Manufacturers. He is also a former Trustee of both the Institute
of Paper & Science and American Forest Products Association.
 
    JAMES H.  FRICK,  JR., became  Vice  President  -- Sales  and  Marketing  in
December  1994.  Prior  to assuming  such  a  position, Mr.  Frick  held various
positions with the Company since joining the Company in 1961, including as  Vice
President  -- Coated Printing and Publishing  from January 1984 through December
1994 and Vice  President/Division Manager printing  and publishing beginning  in
1975.
 
                                       52
<PAGE>
    O.  HARLEY WOOD  became Vice President  -- Manufacturing of  Warren in March
1991. Mr. Wood joined Scott in  January 1989 as Vice President of  Manufacturing
Development for its U.S. tissue businesses. Prior to joining Scott, Mr. Wood had
held various positions with Procter and Gamble since 1964.
 
    WILLIAM  E. HEWITT was appointed a  non-executive director of S.D. Warren at
the time of the Acquisition.  He has been the  Executive Director -- Finance  of
Sappi  since 1987. He qualified  as a chartered accountant  in 1957. He has held
executive financial positions in the motor, steel, transportation and  retailing
sectors  and was Group Financial Director, Toyota (South Africa) until 1987. Mr.
Hewitt is a director of Sappi, Limited.
 
    TREVOR L. LARKAN, having  most recently been  Financial Director for  Sappi,
Southern  Africa, a  division of  Sappi Limited,  since 1992,  he transferred to
Warren as Vice President and Treasurer with effect from January 1, 1995. In  May
1995,  Mr. Larkan was also  appointed Chief Financial Officer  of the Company. A
chartered accountant, he specialized in treasury management during the early and
mid-1980s, joining Saiccor, the dissolving pulp subsidiary of Courtaulds Plc  in
1986.  Soon after the acquisition of Saiccor  by Sappi in 1988, he was appointed
Financial and Commercial Director of that division.
 
    E. DANNIS HERRING became Vice  President -- Procurement and Distribution  in
May  of 1995. Prior  to such time,  Mr. Herring held  various positions with the
Company, including  serving  as  Controller  from 1992  to  1994  and  as  Chief
Financial Officer from March 1994 to May 1995. Mr. Herring began his career with
Scott in 1974 in Warren's Mobile, Alabama mill.
 
    PABLO  P. ZAMORA became  Vice President -- Research  and Development for the
Company in February 1995. Prior to such time, Mr. Zamora had been with the James
River Corporation  as  Vice President  --  Research and  Development  and  Chief
Technology  Officer. From 1984  to 1990 he  held the title  of Vice President --
Product Development for  Tambrands, Incorporated. Mr.  Zamora also held  several
technical  management  positions  during  a 16-year  period  of  employment with
Proctor and Gamble.
 
    LEWIS W.  MOHLER  has  been  Vice  President  and  General  Manager  of  the
Specialties  business since July 1992.  Prior to such time,  Mr. Mohler has held
various positions with Warren since he joined the Company in 1966, including  as
General Manager of the Pressure Sensitive business from 1988 to 1992.
 
                                       53
<PAGE>
ITEM 11.  EXECUTIVE COMPENSATION
 
COMPENSATION
 
    The  following tables set forth information with respect to the compensation
of the  Chief Executive  Officer  and the  four  other most  highly  compensated
individuals who served as officers of S.D. Warren during 1995. All references to
shares,  options and stock appreciation rights  ("SARs") therein refer to shares
of Scott Paper Company ("Scott"), S.D.  Warren's former parent. S.D. Warren  has
not  granted shares,  options or SARs  to its  employees prior to  or during the
fiscal year ended September 27, 1995.
 
                           SUMMARY COMPENSATION TABLE
 
   
<TABLE>
<CAPTION>
                                                        ANNUAL        LONG-TERM
                                                     COMPENSATION   COMPENSATION
                                                     -------------  -------------    ALL OTHER
                NAME AND                    YEAR        SALARY      OPTIONS/SARS   COMPENSATION
           PRINCIPAL POSITION              (1)(2)         ($)            (#)            (3)
----------------------------------------  ---------  -------------  -------------  -------------
<S>                                       <C>        <C>            <C>            <C>
Eugene van As                               1995      $        --    $      --      $        --
 Chief Executive Officer and President
 (4)
J. Richard Leaman, Jr.                      1995          211,074            0                0
 Former Chief Executive Officer and         1994          448,767       25,000(6)       504,334
 President (5)                              1993          441,096       25,000           24,303
Pablo Zamora                                1995          154,329            0            3,186
 Vice President -- Research and
 Development
James H. Frick                              1995          152,744            0           37,017
 Vice President -- Coated Printing and      1994          183,967        6,000(6)       161,924
 Publishing
O. Harley Wood                              1995          134,601            0          157,803
 Vice President -- Manufacturing            1994          173,025        6,000(6)        54,493
E. Dannis Herring                           1995          121,745            0            6,807
 Vice President -- Procurement and          1994          150,222        4,500(6)         6,707
 Distribution
</TABLE>
    
 
------------------------
(1) Information with respect to years prior  to 1995 is being provided only  for
    Messrs.  Leaman, Frick, Wood and Herring to the extent that information with
    respect to their compensation has previously been required to be filed  with
    the Securities and Exchange Commission.
 
(2) Compensation  for 1995, 1994, and  1993 is for the  fiscal year December 21,
    1994 through September 27,  1995, the nine months  ended September 24,  1994
    combined  with the period September 25,  1994 through December 20, 1994, and
    the twelve months ended December 25, 1993, respectively.
 
   
(3) The amounts  shown  under  "All  Other  Compensation"  consist  of  matching
    contributions  under the Salaried  Investment Plan, imputed  income for life
    insurance premiums for  each year shown  and educational assistance  payouts
    plus  payments  made  upon  withdrawals of  vacation  accrued  consisting of
    $17,260 in 1993 for Mr. Leaman, $7,460  both in 1995 and 1994 for Mr.  Frick
    and  $3,078 in 1995 and $2,532 in 1994  for Mr. Herring, and $13,310 for Mr.
    Wood in 1995. In addition, the amounts shown under "All Other  Compensation"
    consist  of bonuses associated with the sale  of S.D. Warren by Scott in the
    amount of $500,000 for  Mr. Leaman, $150,000 for  Mr. Frick and $50,000  for
    Mr. Wood paid in 1994 and $140,000 paid by Scott to Mr. Wood in 1995 under a
    supplemental retirement plan.
    
 
   
(4) From  April 30, 1995 through September 27, 1995, Mr. van As, Chief Executive
    Officer of Sappi Limited, served as Chief Executive Officer and President of
    S.D. Warren without  additional compensation, but  pursuant to a  management
    services agreement under which S.D. Warren paid Sappi a fee.
    
 
                                       54
<PAGE>
(5) Mr.  Leaman resigned from  his position as Chief  Executive Officer on April
    30, 1995. Mr. Leaman was compensated  based upon a consulting contract  from
    December  21, 1994 through April 30, 1995  and was therefore not an employee
    during that period. Mr. Leaman was reimbursed for the increase in his  state
    personal income tax liability resulting from his employment in Massachusetts
    upon becoming President in 1991. These amounts are considered immaterial.
 
   
    Mr.  Leaman's compensation  was approved by  Eugene van As,  Chairman of the
    Board of the Company, based upon the compensation paid to him by Scott.  The
    compensation  of the other  executive officers was determined  by Mr. van As
    and the Company's Vice  President of Human  Resources, in consultation  with
    the Company's compensation consultant and approved by Mr. van As.
    
 
   
(6) All options granted by Scott in 1994 were forfeited prior to the end of 1994
    in connection with the sale of S.D. Warren by Scott.
    
 
    The  following table provides  information on stock  option exercises during
1995 by  each person  named  in the  Summary  Compensation Table,  and  provides
information  on  the number  and value  of stock  options, both  exercisable and
unexercisable, held by each such person on September 27, 1995.
 
         AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
 
<TABLE>
<CAPTION>
                                                                        NUMBER OF SHARES          VALUE OF UNEXERCISED
                                           NUMBER OF                 UNDERLYING UNEXERCISED      IN-THE-MONEY OPTIONS AT
                                            SHARES                     OPTIONS AT YEAR END              YEAR END
                                          ACQUIRED ON     VALUE     -------------------------   -------------------------
                  NAME                     EXERCISE      REALIZED   EXERCISABLE/UNEXERCISABLE   EXERCISABLE/UNEXERCISABLE
----------------------------------------  -----------   ----------  -------------------------   -------------------------
<S>                                       <C>           <C>         <C>                         <C>
J. Richard Leaman, Jr.                      200,000     $4,481,513               0/0                         0/0
James H. Frick                               44,000        871,600               0/0                         0/0
O. Harley Wood                                    0              0               0/0                         0/0
E. Dannis Herring                             4,000        119,619               0/0                         0/0
</TABLE>
 
PENSION BENEFITS
 
    As of October 31,  1994, the Company assumed  sponsorship of the portion  of
the  Scott  qualified plans  which covered  employees who  would continue  to be
employed by  the Company  after the  closing of  the Acquisition  (the  "Closing
Date").  The  defined  benefit plan  which  covers the  executive  officers (the
"Salaried Plan") provides benefits based on a participant's years of service and
highest compensation during the final years of employment. Generally, the hourly
defined benefit  plan  provides  covered  employees  with  a  stated  amount  of
retirement benefit for each year of service.
 
    The  following table shows the  estimated annual retirement benefits payable
to participants with  specified amounts  of compensation and  years of  credited
service  at  normal  retirement  age  under  the  Salaried  Plan.  The estimated
retirement benefits are the amounts payable in the form of a single life annuity
and do not take  into account the  reduction with respect  to years of  credited
service  after  1978 equal  to a  percentage (up  to  a maximum  of 50%)  of the
participant's Social Security benefit.
 
                               PENSION PLAN TABLE
 
   
<TABLE>
<CAPTION>
                                             YEARS OF CREDITED SERVICE (2)
      AVERAGE FINAL        ------------------------------------------------------------------
    COMPENSATION (1)          15         20         25         30          35          40
-------------------------  ---------  ---------  ---------  ---------  ----------  ----------
<S>                        <C>        <C>        <C>        <C>        <C>         <C>
$100,000.................  $  22,500  $  30,000  $  37,500  $  45,000  $   52,500  $   60,000
 125,000.................     28,125     37,500     46,875     56,250      65,625      75,000
 150,000.................     33,750     45,000     56,250     67,500      78,750      90,000
 200,000.................     45,000     60,000     75,000     90,000     105,000     120,000
</TABLE>
    
 
------------------------
(1) A  participant's  "Average  Final  Compensation"  is  the  average  of   the
    participant's annual compensation in the four calendar years (whether or not
    consecutive),  out of the last ten years of the participant's employment, in
    which  the   participant's   annual  compensation   was   highest.   "Annual
    compensation"  includes  salary  and bonuses  paid  in such  year.  For this
    purpose, years of employment with, and
 
                                       55
<PAGE>
    compensation paid by, Scott prior to the Acquisition are taken into account.
    To comply with  tax qualification  requirements under  the Internal  Revenue
    Code,  annual compensation taken into account  for any participant under the
    Salaried Plan may not exceed  $150,000. However, effective January 1,  1995,
    the  Company adopted a plan (the "SERP") to provide supplementary retirement
    benefits where benefits are  lost under the qualified  plans as a result  of
    the  statutory  limitations and  the benefits  are  reflected in  the table.
    Accordingly, the covered compensation of each executive officer for 1995 was
    equal to the amounts of salary  and bonus shown on the Summary  Compensation
    Table  above. There also is  a statutory limitation on  the amount of annual
    benefit which may be  paid under the Salaried  Plan. Benefits which  accrued
    under  the Plan  in excess of  the statutory limitations  are also protected
    under the SERP.
 
   
(2) The named  executive  officers had  the  following full  years  of  credited
    service under the Salaried Plan as of September 30, 1995: Messrs. Frick, 34;
    Wood,  6; and Herring, 21. Neither Mr. van As nor Mr. Leaman participates in
    the salaried plan. The Company also adopted, effective January 1, 1995,  the
    Plan for Individual Deferred Compensation Arrangements in which Messrs. Wood
    and  Zamora participated.  If Mr. Zamora  remains with the  Company for five
    years from February 19, 1995, this Plan will pay him a supplemental  benefit
    as if he had an additional five years of credited service under the Salaried
    Plan  and five more  after 10 years  of employment. Mr.  Wood will receive a
    benefit under  this Plan  based  upon an  additional  10 years  of  credited
    service  if he is  employed by the  Company for five  years from February 1,
    1994.
    
 
    In addition to the  foregoing plans, the  Company sponsors two  collectively
bargained  pension  plans in  the U.S.  and  one salaried  plan in  Belgium. The
collectively bargained plans provide benefits of stated amounts for each year of
credited service and the international plan provides benefits based on years  of
service  and compensation. No executive officer is covered by any of these other
plans.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    All of  the issued  and outstanding  common stock  of the  Company is  owned
beneficially  and of record by Holdings. Holdings  has pledged such stock to the
lenders under the Credit  Agreement in support of  its guarantee thereunder.  In
the  event of  a default by  Holdings in  respect of its  obligations under such
guarantee, the lenders under  the Credit Agreement  could exercise their  powers
under such pledge and thereby obtain control of the Company. The following table
sets  forth  certain information  with respect  to  the beneficial  ownership of
common stock of Holdings ("Common Stock") as of September 27, 1995.
 
   
<TABLE>
<CAPTION>
                                                        BENEFICIAL OWNERSHIP
                                                  ---------------------------------
              NAME AND ADDRESS OF                   NUMBER OF     PERCENT OF CLASS
                BENEFICIAL OWNER                      SHARES       OUTSTANDING (1)
------------------------------------------------  --------------  -----------------
<S>                                               <C>             <C>
Sappi Limited (2)                                   26,976,561            87.80
48 Ameshoff Street
Braamfontein 2001
Republic of South Africa
DLJ Merchant Banking Partners, L.P.
and certain of its affiliates ("DLJMB")              6,593,749(3)         19.28
140 Broadway
New York, NY 10005
UBS Capital LCC ("UBSCC")                            1,408,594(3)          4.47
299 Park Avenue
New York, NY 10171
</TABLE>
    
 
------------------------
(1) Percentages have been  calculated assuming, in  the case of  each person  or
    group  listed, the  exercise of  all warrants  and options  owned (which are
    exercisable within 60 days following September 27, 1995) by each such person
    or group, respectively,  but not  the exercise  of any  warrants or  options
    owned by any other person or group.
 
                                       56
<PAGE>
(2) Sappi's shares are held through one of its subsidiaries.
 
   
(3) Includes  the following shares  of Common Stock subject  to Class B Warrants
    (as defined in Item 13): DLJMB, 3,468,749 shares and UBSCC, 693,750  shares.
    In  addition,  UBSCC's  ownership  includes 89,844  shares  of  Common Stock
    subject to Class A Warrants.
    
 
SHAREHOLDERS AGREEMENT
 
   
    In connection with  the Acquisition,  Sappi, an affiliate  of Sappi,  DLJMB,
UBSCC,  Holdings and  the Company  (as successor  by merger  to SDW Acquisition)
entered  into   a  shareholders   agreement,  as   amended  (the   "Shareholders
Agreement"), which contains certain agreements with respect to the capital stock
and  corporate governance  of Holdings  and the  Company. The  following summary
containing material provisions of the Shareholders Agreement is qualified in its
entirety by reference to the complete text of the Shareholders Agreement, a copy
of which  has been  filed as  an exhibit  to this  Annual Report  on Form  10-K.
Capitalized  terms set forth  below and not otherwise  defined have the meanings
assigned thereto in the Shareholders Agreement.
    
 
    CORPORATE GOVERNANCE
 
   
    The Board of  Directors of  Holdings (the "Holdings  Board") will  initially
consist of nine members. Sappi and its permitted transferees (the "Sappi Group")
have  the right to  designate a majority  of the Holdings  Board (initially five
directors) subject to the conditions that (a) if the Sappi Group owns less  than
50%  of its original  holdings of Common  Stock, the Sappi  Group will lose such
right and will be allowed to designate  two directors of the Holdings Board  and
(b) if the value of the Sappi Group's original holdings of Common Stock is below
a specified threshold, the Sappi Group will lose its right to designate a second
director.  DLJMB and certain  of its affiliates  and their permitted transferees
(the "DLJ Group") originally had the right to designate two directors;  however,
the  value  of  the  DLJ  Group's original  investment  fell  below  a specified
threshold, and as a result, the DLJ Group lost its rights to designate a  second
director.  UBSCC and its permitted transferees  (the "UBS Group") have the right
to designate one director. The chief executive officer of the Company will  also
be  a director and will not count as a designee for any of Sappi, DLJMB or UBSCC
(collectively, the "Investor Group"). If any  of the Sappi Group, the DLJ  Group
or the UBS Group should own less than a specific percentage of the Common Stock,
such  group will, subject to certain exceptions,  lose all rights to designate a
director, which rights would not be regained through the subsequent  acquisition
of  additional  shares  of Common  Stock  other  than shares  acquired  upon the
exercise of certain warrants acquired by such Group.
    
 
    "Board Approval"  generally requires  the  affirmative vote  of at  least  a
majority  of the directors at  a duly convened meeting  of the Holdings Board at
which a Quorum (as defined below) is present. "Special Board Approval" generally
requires (a) Board Approval, (b) approval by at least one DLJ Group director (if
any)  and  (c)  approval  by  at  least  one  Sappi  Group  director  (if  any).
"Extraordinary  Board  Approval"  generally  requires  (a)  Board  Approval, (b)
approval by at least one DLJ Group  director (if any), (c) approval by at  least
one  Sappi Group director (if any) and (d)  approval by a UBS Group director (if
any). A "Quorum"  of the  Holdings Board  (or any  committee thereof)  generally
requires  (a) a majority  of directors present  to be Sappi  Group directors (so
long as the Sappi Group is entitled to designate a majority of Directors to  the
Holdings  Board); (b) a DLJ Group director (so long as the DLJ Group is entitled
to one  director); and  (c) after  the Sappi  Group loses  its right  to have  a
majority of its directors on the Holdings Board, a Sappi Group director (so long
as the Sappi Group is entitled to one director). There is no requirement to have
a  majority of  Sappi Group  directors present after  the Sappi  Group loses its
right to have a majority of its directors on the Holdings Board.
 
    Each of the following actions requires Extraordinary Board Approval:
 
        (a)  prior  to  an  Initial  Public  Offering,  any  amendment  of   the
    Certificate  or  Articles of  Incorporation or  By-laws  of Holdings  or the
    Company; (b) approval of any annual  business plan or budget of Holdings  or
    the Company; (c) hiring or dismissal of the chief executive officer or chief
    financial  officer  of Holdings  or the  Company;  (d) certain  issuances of
    capital stock  of  Holdings  or  the Company  (or  issuances  of  securities
    exchangeable,  convertible or exercisable  for such capital  stock); (e) any
    merger
 
                                       57
<PAGE>
    or similar transaction involving (i) Holdings or (ii) the Company (but  only
    if  the Company is not the surviving  corporation); (f) any sale of Holdings
    or the Company;  (g) any  sale of  all or  substantially all  the assets  of
    Holdings  or the Company; (h) any  transaction, contract or arrangement with
    an affiliate of Holdings or with a Shareholder (or an affiliate thereof)  if
    such  transaction  is not  in the  business plan  or budget  (and identified
    therein as an affiliate transaction) and involves an amount in excess of  $1
    million (Board Approval is required for certain transactions that involve $1
    million or less); (i) entering into certain designated marketing agreements;
    (j) the grant of any registration or similar rights to any person other than
    various  rights  granted  in connection  with  the Acquisition  and  (k) the
    selection of the managing underwriters  in connection with any  Underwritten
    Public Offering.
 
    Each of the following transactions requires the approval specified below:
 
        (a)  any  merger involving  (i) the  Company where  it is  the surviving
    entity or (ii) any subsidiary of the  Company; (b) any sale of a  subsidiary
    of the Company or any division of the Company; (c) any sale of substantially
    all  the assets of any subsidiary or division of the Company; (d) any change
    in the  capital  structure (including  the  incurrence of  indebtedness)  of
    Holdings  or the Company  or any subsidiary thereof;  (e) any appointment or
    dismissal of  auditors  and  principal  legal counsel  of  Holdings  or  the
    Company;  (f)  any voluntary  filing of  or failure  to oppose  a bankruptcy
    petition; (g) compensation of the chief executive officer of Holdings or the
    Company and (h) any  declaration or payment of  any dividend by Holdings  if
    not  paid  out of  earnings (other  than  dividends on  common stock  of the
    Company so long as Holdings owns 100% of such common stock and dividends  on
    Holdings  Preferred  Stock  or  Senior  Preferred  Stock).  Any  transaction
    described in  (e) through  (h) above  requires Special  Board Approval.  Any
    transaction  described  in clauses  (a) through  (d) above  requires Special
    Board Approval if it involves more than  $50 million or if it involves  more
    than  $25 million and is not specifically set forth in an approved budget or
    business plan. Any such transaction  requires Board Approval if it  involves
    more  than $20 million  or if it involves  more than $10  million and is not
    specifically set forth in an approved budget or business plan. In  addition,
    Special Board Approval is required for any contract involving the receipt or
    expenditure  of  more than  $20 million  in any  one year  or more  than $50
    million over the term of the contract.
 
    In addition  to  the  transactions  that  are  described  in  the  preceding
paragraph  as requiring Board Approval, the following transactions require Board
Approval: (a) any  declaration or  payment of  any dividend  or distribution  by
Holdings or the Company if paid out of earnings (other than dividends on Company
common  stock  so  long  as  Holdings  owns  100%  of  such  common  stock); (b)
compensation of the chief financial officer of Holdings or the Company; and  (c)
election  or appointment  of the  members of  the Company's  Board of Directors.
Board Approval is also required for any other contract involving the receipt  or
expenditure  of more than $10  million in any one year  or more than $25 million
over the  term  of the  contract  and  for certain  transactions,  contracts  or
arrangements  with  an affiliate  of Holdings  or with  any Shareholder  (or any
affiliate thereof).
 
    PREEMPTIVE RIGHTS
 
    Except  in  certain  circumstances,  upon  any  issuance  of  Common   Stock
Equivalents  of Holdings, the Sappi Group, the  DLJ Group and the UBS Group have
preemptive rights with respect to such Common Stock Equivalents.
 
    TRANSFER RESTRICTIONS
 
    Except for certain permitted  dispositions, members of  the Sappi Group  may
not  transfer any  Shares until  the earlier  of an  Initial Public  Offering by
Holdings or  December 20,  1997 (the  earlier of  such dates,  the  "Restriction
Termination Date"). After the Restriction Termination Date, members of the Sappi
Group  may  transfer Shares  as  follows: transfers  in  a public  offering upon
exercise  of  registration  rights;  transfers  pursuant  to  Rule  144  of  the
Securities  Act (subject, in certain circumstances, to certain "first offer" and
"tag along" rights); transfers (subject to certain "first offer" and "tag along"
rights) to a person who becomes a party to the Shareholders Agreement and who is
not an  Adverse  Person; and  transfers  pursuant to  certain  specified  pledge
arrangements. Shareholders who are not members of the Sappi Group (collectively,
the  "Minority Shareholders") may transfer Shares as follows: subject to certain
restrictions, transfers in a public
 
                                       58
<PAGE>
offering upon exercise of  registration rights; transfers  pursuant to Rule  144
(subject,  in certain  circumstances, to certain  "first offer"  and "tag along"
rights); transfers pursuant  to "tag  along" rights; and  transfers (subject  to
certain "first offer" and "tag along" rights) to a person who becomes a party to
the  Shareholders Agreement  and who  is not an  Adverse Person.  Members of the
Sappi Group  may participate  in such  Initial Public  Offering only  after  the
Minority  Shareholders have participated to the fullest extent requested by such
Minority Shareholders. After June 18, 1998, the DLJ Group or the UBS Group  may,
under  certain  circumstances, transfer  the right  to  designate a  director of
Holdings (but not any  Special Approval or  Extraordinary Approval rights).  Any
Shareholder  may transfer Shares to a Permitted Transferee who is not an Adverse
Person and  who  becomes a  party  to the  Shareholders  Agreement or  to  Sappi
(subject to certain "tag along" rights) or any of its Permitted Transferees.
 
    RIGHT OF FIRST OFFER
 
    If  either (i) any  Minority Shareholder proposes to  transfer any Shares to
any Person other than to one of its Permitted Transferees or to Sappi or any  of
its  Permitted Transferees  or (ii)  any member of  the Sappi  Group proposes to
transfer any  Shares  other than  to  one  of its  Permitted  Transferees,  such
Shareholder  (the  "Selling  Shareholder") is  required  to offer  to  sell such
securities to certain other Shareholders party to the Shareholders Agreement and
Holdings. Sales of Shares to a Permitted Transferee of the seller or to Sappi or
any  of  its  Permitted  Transferees  are  not  subject  to  these  first  offer
provisions.
 
    PARTICIPATION RIGHTS
 
    Under  certain circumstances,  if a  member of  the Sappi  Group proposes to
transfer any  Shares, it  must  offer the  Minority  Shareholders the  right  to
participate  in such transfer. In addition,  under certain circumstances, if any
member of  the DLJ  Group  or the  UBS Group  is  selling equity  securities  of
Holdings  or the Company it must offer members  of the group whose member is not
the selling Shareholder a right to participate in such sale.
 
    REGISTRATION RIGHTS
 
    Members of the Sappi Group, the DLJ Group and the UBS Group have the  right,
subject to certain limitations, to require Holdings to register all or a portion
of  their Registrable Stock (as defined) under  the Act by giving written notice
to Holdings  of  such  demand  (a "Demand  Registration").  Subject  to  certain
limitations, the Sappi Group and the DLJ Group each have the right to make up to
three  Demand Registrations and the  UBS Group has the  right to make one Demand
Registration. The Shareholders Agreement  also grants members  of the DLJ  Group
the  right,  under certain  circumstances,  to transfer  one  demand right  to a
transferee of shares of Common  Stock, subject to certain limitations.  Holdings
has  agreed to pay all reasonable expenses incurred in connection with the first
two Demand Registrations effected pursuant  to the Shareholders Agreement. If  a
Demand  Registration involves an underwritten  public offering, any underwriters
involved in such  offering have the  right, subject to  certain limitations,  to
limit  the  Registrable  Stock  included in  such  registration,  in  which case
Shareholders requesting  the  Demand  Registration  shall,  subject  to  certain
exceptions,   have  priority  over   Shareholders  exercising  piggyback  rights
(described below).
 
    In addition,  under  certain  circumstances, Shareholders  holding  Class  B
Warrants  can require  registration by Holdings  to permit the  exercise of such
Class B Warrants.
 
    PIGGYBACK RIGHTS
 
    Under certain circumstances,  if Holdings registers  Common Stock under  the
Securities  Act of 1933, each Shareholder (and certain transferees of members of
the  DLJ  Group  and  UBS  Group)  will  have  the  right,  subject  to  certain
limitations, to require Holdings to include such Shareholder's (or transferee's)
Registrable Stock in such registration.
 
    MISCELLANEOUS PROVISIONS
 
    If  certain of Sappi's  foreign operations intend to  sell products into the
United States that are the same as or substantially similar to, or compete with,
the Company's products, they will, subject to certain exceptions, be required to
enter into an  arm's length  marketing agreement with  the Company,  and if  the
Company  intends to sell  products outside of  the United States  and Canada, it
will, subject to certain
 
                                       59
<PAGE>
exceptions, be required  to enter  into arm's length  marketing agreements  with
affiliates  of  Sappi.  Each  Shareholder has  agreed  not  to  use Confidential
Information in  any  way that  is  reasonably likely  to  result in  a  material
detriment to the business of the Company in the United States or to the business
of   Sappi  and  its  affiliates  outside  the  United  States.  Moreover,  each
Shareholder has  agreed not  to disclose  Confidential Information,  subject  to
certain  limitations (including  that members  of the  Sappi Group  may disclose
Confidential Information to Sappi and its  affiliates in the ordinary course  of
business).
 
    Any  amendment  to  the  Shareholders  Agreement  requires  the  approval of
Holdings (with Board Approval) and representatives  of the Sappi Group, the  DLJ
Group  and the UBS Group (but  only so long as a  Group is entitled to designate
one director,  subject  to certain  exceptions)  but  not the  approval  of  the
Company.
 
    TERMINATION
 
    The  Shareholders  Agreement terminates  on the  earliest  of (a)  the tenth
anniversary of such Agreement unless earlier terminated, (b) subject to  certain
exceptions, the merger, consolidation or sale of substantially all of the assets
of  Holdings, (c) on the date on which none of the Sappi Group, the DLJ Group or
the UBS Group is entitled to designate a member of the Board or (d) upon written
agreement among Holdings,  the Sappi  Group (if it  is entitled  to designate  a
member  of the Board), the DLJ Group (if it is entitled to designate a member of
the Board) and the  UBS Group (if it  is entitled to designate  a member of  the
Board).
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
   
S.D. WARREN'S MOBILE FACILITY: ARRANGEMENTS WITH SCOTT
    
 
   
    S.D.  Warren's 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, S.D. 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 facility. 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. Scott had previously
announced its intention to sell the Mobile pulp mill, but any sale is apparently
on  hold due  to the  merger between  Scott and  Kimberly-Clark Corporation. The
buyer of the mill will be bound by the terms of the above-mentioned agreements.
    
 
SHAREHOLDERS AGREEMENT
 
   
    In connection with the Acquisition, Sappi, one of Sappi's affiliates, DLJMB,
UBSCC, Holdings and  the Company  (as successor  by merger  to SDW  Acquisition)
entered into the Shareholders Agreement.
    
 
INVESTOR GROUP AGREEMENTS
 
   
    The  Company paid certain sponsor fees, reimbursed expenses for and provided
indemnification to,  members  of  the  Investor Group  in  connection  with  the
Acquisition  and  the financing  thereof. Sappi  received a  sponsor fee  in the
amount of $3,752,543 and UBSCC received a sponsor fee in the amount of $553,753.
In addition, Donaldson, Lufkin &  Jenrette Securities Corporation, an  affiliate
of DLJMB, received a sponsors
    
 
                                       60
<PAGE>
   
fee in the amount of $2,768,766. The Company pays a yearly advisory fee to Sappi
and/or  its Affiliates of up to $1.0 million. As a result of this fee, Sappi and
its Affiliates generally will not charge  the Company for time spent on  Company
matters  by the  senior executive  officers of Sappi  and its  Affiliates or for
related travel and out-of-pocket expenses (see Note 21 to Financial Statements).
    
 
   
TRANSACTIONS INVOLVING DLJMB AND UBSCC
    
 
   
    In connection  with the  Acquisition (i)  DLJMB purchased  for an  aggregate
consideration  of  $65.0 million,  $31.25 million  in liquidation  preference of
Holdings Preferred Stock, Class B Warrants  (the "Class B Warrants") to  acquire
3,593,749  shares of  Common Stock, and  3,125,000 shares of  Common Stock; (ii)
UBSCC, purchased for an aggregate consideration of $20.2 million, $6.25  million
in  liquidation preference of the Holdings  Preferred Stock, Class B Warrants to
acquire 718,750  shares of  Common Stock,  625,000 shares  of Common  Stock  and
300,000  Units  as  defined  in  Note  21  to  the  Financial  Statements, (iii)
Donaldson, Lufkin and  Jenrette Securities Corporation,  an affiliate of  DLJMB,
provided  investment banking services to Holdings  and Warren in connection with
the offering of 2,700,000 Units, for which it received a customary  underwriting
discount;  and  (iv)  an  affiliate  of DLJMB  provided  a  standby  bridge loan
commitment for which it received  approximately $5.6 million and was  reimbursed
for expenses.
    
 
   
    Following  the  Acquisition, the  Units  became separately  transferable and
UBSCC sold the Senior Preferred Stock which comprised a portion of the Units.
    
 
   
    On July 6, 1995, DLJMB sold 1,250,000 shares of Holdings Preferred Stock and
125,000 Class B  Warrants and UBSCC  sold 250,000 shares  of Holdings  Preferred
Stock and 25,000 Class B Warrants.
    
 
TRANSACTIONS WITH RELATED PARTIES
 
   
    See  Note  21  to  the  Financial  Statements  for  information  related  to
transactions with related parties.
    
 
                                       61
<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
           VIII--VALUATION  AND QUALIFYING ACCOUNTS LISTED UNDER ITEM 8 IS FILED
           AS PART OF THIS ANNUAL REPORT.
 
        (3) EXHIBITS. The exhibits listed on the accompanying Index to  Exhibits
                      are filed as a part of this Annual Report.
 
    (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.
 
                                       62
<PAGE>
                              S.D. WARREN COMPANY
                               INDEX TO EXHIBITS
                                 ITEM 14(A)(3)
 
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION                                          REFERENCE
-------------  --------------------------------------------------------------------  -------------------------------
<S>            <C>                                                                   <C>
      3.1      Amended and Restated Articles of Incorporation of the Registrant.     Incorporated herein by
                                                                                      reference to Exhibit 3.1 to
                                                                                      Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
      3.2      By-laws of the Registrant.                                            Incorporated herein by
                                                                                      reference to Exhibit 3.2 to
                                                                                      Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
      4.1      Certificate of Designations, Preferences and Relative,                Incorporated herein by
                Participating, Optional and other Special Rights of Preferred Stock   reference to Exhibit 4.3 to
                and Qualifications, Limitations and Restrictions thereof of 14%       the Company's Registration
                Series B Senior Exchangeable Preferred Stock due 2006 of S.D.         Statement 33-88496 on Form
                Warren Company, dated as of December 20, 1994.                        S-4.
      4.2      Form of the Exchange Debenture Indenture between S.D. Warren Company  Incorporated herein by
                and the United States Trust Company of New York relating to S.D.      reference to Exhibit 4.4 to
                Warren Company's 14% Series A Subordinated Exchange Debentures due    the Company's Registration
                2006 and 14% Series B Subordinated Exchange Debentures due 2006.      Statement 33-88496 on Form
                                                                                      S-4.
     10.1      Credit and Guarantee Agreement dated as of December 20, 1994 among    Incorporated herein by
                SDW Holdings Corporation, SDW Acquisition Corporation (and            reference to Exhibit 10.1 to
                following the merger, S.D. Warren Company as successor thereto),      Amendment No. 1 to the
                the Lenders (as defined therein) and Chemical Bank, as Agent.         Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.2      Securities Subscription Agreement, dated as of December 20, 1994,     Incorporated herein by
                among SDW Holdings Corporation, SDW Acquisition Corporation (and      reference to Exhibit 10.3 to
                following the merger, S.D. Warren Company as successor thereto),      the Company's Registration
                and each of Sappi Limited, Sappi Deutschland GmbH, DLJ Merchant       Statement 33-88496 on Form
                Banking Partner, L.P. and certain of its affiliates and UBS Capital   S-4.
                Corporation.
     10.3      Second Amended and Restated Shareholders Agreement dated as of        Incorporated herein by
                December 20, 1994, among Sappi Limited, Sappi Deutschland GmbH, DLJ   reference to Exhibit 10.3
                Merchant Banking Partners, L.P. and certain of its affiliates, UBS    to the Company's Registration
                Capital Corporation, SDW Holdings Corporation and S.D. Warren         Statement 33-88496 on Form
                Company as successor to SDW Acquisition Corporation.                  10-K.
</TABLE>
    
 
                                       63
<PAGE>
                              S.D. WARREN COMPANY
                               INDEX TO EXHIBITS
                                 ITEM 14(A)(3)
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION                                          REFERENCE
-------------  --------------------------------------------------------------------  -------------------------------
<S>            <C>                                                                   <C>
     10.4      Participation Agreement dated as of January 1, 1982 among Scott       Incorporated herein by
                Paper Company, as Purchaser, General Electric Credit Corporation,     reference to Exhibit 10.5 to
                as Owner Participant and The Connecticut Bank and Trust Company, as   Amendment No. 1 to the
                Owner Trustee.                                                        Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.5      Refinancing Participation Agreement dated as of December 15, 1986,    Incorporated herein by
                among Scott Paper Company, as Purchaser, General Electric Credit      reference to Exhibit 10.6 to
                Corporation, as Owner Participant, and The Connecticut Bank and       Amendment No. 1 to the
                Trust Company National Association, as Owner Trustee.                 Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.6      Power Sales Agreement dated as of January 1, 1982, between The        Incorporated herein by
                Connecticut Bank and Trust Company, Owner Trustee, as Seller, and     reference to Exhibit 10.7 to
                Scott Paper Company, as Purchaser, as amended by the First            Amendment No. 1 to the
                Amendment dated as of December 15, 1986.                              Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.7      Ground Lease Agreement dated as of January 1, 1982 between Scott      Incorporated herein by
                Paper Company, as Lessor, and The Connecticut Bank and Trust          reference to Exhibit 10.8 to
                Company, Owner Trustee, as Lessee, as amended by First Amendment      Amendment No. 1 to the
                dated as of December 15, 1986.                                        Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.8      Operating Agreement dated as of January 1, 1982 between The           Incorporated herein by
                Connecticut Bank and Trust Company, as Owner Trustee, and Scott       reference to Exhibit 10.9 to
                Paper Company, as Operator, as amended by First Amendment dated as    Amendment No. 1 to the
                of December 15, 1986.                                                 Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.9      Tax Indemnification Agreement dated as of January 1, 1982, among      Incorporated herein by
                General Electric Credit Corporation, Owner Participant, The           reference to Exhibit 10.10 to
                Connecticut Bank and Trust Company, as Owner Trustee, and Scott       Amendment No. 1 to the
                Paper Company, Purchaser, as amended by the Amendment dated as of     Company's Registration
                November 25, 1986.                                                    Statement 33-88496 on Form
                                                                                      S-4.
</TABLE>
 
                                       64
<PAGE>
                              S.D. WARREN COMPANY
                               INDEX TO EXHIBITS
                                 ITEM 14(A)(3)
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION                                          REFERENCE
-------------  --------------------------------------------------------------------  -------------------------------
<S>            <C>                                                                   <C>
     10.10     Facilities Agreement dated as of January 1, 1982 between Scott Paper  Incorporated herein by
                Company and The Connecticut Bank and Trust Company, as Owner          reference to Exhibit 10.11 to
                Trustee, as amended by First Amendment dated as of December 15,       Amendment No. 1 to the
                1986.                                                                 Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.11     Indenture and Security Agreement dated as of December 15, 1986,       Incorporated herein by
                among The Connecticut Bank and Trust Company National Association,    reference to Exhibit 10.12 to
                as Westbrook Owner Trustee and Winslow Owner Trustee, Scott Paper     Amendment No. 1 to the
                Company, and The Bank of New York, as Indenture Trustee.              Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.12     Transfer Agreement dated as of June 29, 1986 between Scott Paper      Incorporated herein by
                Company and S.D. Warren Company, as amended October 25, 1990, as      reference to Exhibit 10.13 to
                further amended November 1, 1993.                                     Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.13     Stock Purchase Agreement by and among Scott Paper Company, Sappi      Incorporated herein by
                Limited and SDW Acquisition Corporation dated as of October 8,        reference to Exhibit 10.14
                1994.                                                                 Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.14     Supplemental Agreement to Stock Purchase Agreement dated as of        Incorporated herein by
                October 8, 1994 by and among Scott Paper Company, Sappi Limited and   reference to Exhibit 10.15 to
                SDW Acquisition Corporation dated as of December 19, 1994.            Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.14(a)  Extension of Time Period specified in Section 1.6(e) of the Stock     Incorporated herein by
                Purchase agreement dated as of October 8, 1994 by and among Scott     reference to Exhibit 10.15(a)
                Paper Company, Sappi Limited and SDW Acquisition Corporation.         to Amendment No. 5 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
</TABLE>
 
                                       65
<PAGE>
                              S.D. WARREN COMPANY
                               INDEX TO EXHIBITS
                                 ITEM 14(A)(3)
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION                                          REFERENCE
-------------  --------------------------------------------------------------------  -------------------------------
<S>            <C>                                                                   <C>
     10.15     Assignment and Assumption Agreement (relating to Westbrook Biomass    Incorporated herein by
                Financing) dated as of December 20, 1994 between Scott Paper          reference to Exhibit 10.16 to
                Company and S.D. Warren Company.                                      Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.16     General Assignment and Assumption Agreement dated as of December 20,  Incorporated herein by
                1994 by and between Scott Paper Company, Scott Continental N.V. and   reference to Exhibit 10.17 to
                S.D. Warren Company.                                                  Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.17     Contract dated as of August 1, 1978 between Central Maine Power       Incorporated herein by
                ("CMP") and S.D. Warren Company, as amended by Amendment dated as     reference to Exhibit 10.18 to
                of May 15, 1982, as further amended by Amendment dated as of          Amendment No. 1 to the
                October 27, 1982.                                                     Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.18     Westbrook Long-term Contract for the Sale of Electricity to CMP,      Incorporated herein by
                dated October 27, 1982 between CMP and Scott Paper Company, S.D.      reference to Exhibit 10.19 to
                Warren Division.                                                      Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.19     Agreement for Electric Service for the Westbrook Mill of S.D. Warren  Incorporated herein by
                Company dated as of August 1, 1983 between CMP and S.D. Warren        reference to Exhibit 10.20 to
                Company.                                                              Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.20     Agreement for Electric Service for Scott Paper Company, S.D. Warren   Incorporated herein by
                Division, Somerset County, dated as of December 1, 1982 between CMP   reference to Exhibit 10.21 to
                and S.D. Warren, as amended by Amendment dated as of July 9, 1990.    Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
</TABLE>
 
                                       66
<PAGE>
                              S.D. WARREN COMPANY
                               INDEX TO EXHIBITS
                                 ITEM 14(A)(3)
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION                                          REFERENCE
-------------  --------------------------------------------------------------------  -------------------------------
<S>            <C>                                                                   <C>
     10.21     Power Purchase Agreement between Scott Paper Company, S.D. Warren     Incorporated herein by
                Division (Somerset) and CMP dated as of December 1, 1982, as          reference to Exhibit 10.22 to
                amended by Amendment dated April 11, 1983, as further amended by      Amendment No. 1 to the
                Amendment dated July 9, 1990.                                         Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.22     Pulp Supply Agreement between Scott Paper Company and S.D. Warren     Incorporated herein by
                Company dated as of December 20, 1994.                                reference to Exhibit 10.23 to
                                                                                      Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.23     Paper Mill Energy Services Agreement between S.D. Warren Company and  Incorporated herein by
                Mobile Energy Services Company, Inc. dated as of December 12, 1994.   reference to Exhibit 10.24 to
                                                                                      Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.24     Master Operating Agreement among Scott Paper Company, S.D. Warren     Incorporated herein by
                Company and Mobile Energy Services Company, Inc. dated as of          reference to Exhibit 10.25 to
                December 12, 1994.                                                    Amendment No. 1 to the
                                                                                      Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.25     Purchase Agreement dated as of December 13, 1994, among SDW Holdings  Incorporated herein by
                Corporation, SDW Acquisition Corporation, Sappi Limited, DLJ          reference to Exhibit 1.1 to
                Merchant Banking, Inc. and certain of its affiliates, UBS Capital     the Company's Registration
                Corporation and Donaldson, Lufkin & Jenrette Securities Corporation   Statement 33-88496 on Form
                (the "Purchase Agreement").                                           S-4.
     10.26     Amendment Number 1 to the Purchase Agreement, dated as of December    Incorporated herein by
                19, 1994, among SDW Holdings Corporation, SDW Acquisition             reference to Exhibit 1.2 to
                Corporation, Sappi Limited, DLJ Merchant Banking, Inc. and certain    the Company's Registration
                of its affiliates, UBS Capital Corporation and Donaldson, Lufkin &    Statement 33-88496 on Form
                Jenrette Securities Corporation.                                      S-4.
</TABLE>
    
 
                                       67
<PAGE>
                              S.D. WARREN COMPANY
                               INDEX TO EXHIBITS
                                 ITEM 14(A)(3)
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                DESCRIPTION                                          REFERENCE
-------------  --------------------------------------------------------------------  -------------------------------
<S>            <C>                                                                   <C>
     10.27     Amendment Number 2 to the Purchase Agreement, dated as of December    Incorporated herein by
                20, 1994, among SDW Holdings Corporation, S.D. Warren Company and     reference to Exhibit 1.3 to
                Donaldson, Lufkin & Jenrette Securities Corporation.                  the Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.28     Registration Rights Agreement, dated as of December 20, 1994 by and   Incorporated herein by
                between SDW Acquisition Corporation and Donaldson, Lufkin &           reference to Exhibit 1.4 to
                Jenrette Securities Corporation (the "Registration Agreement").       the Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     10.29     Amendment Number 1 to the Registration Rights Agreement, dated as of  Incorporated herein by
                December 20, 1994, by and between S.D. Warren Company and             reference to Exhibit 1.5 to
                Donaldson, Lufkin & Jenrette Securities Corporation.                  the Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     21.1      Subsidiaries of the Registrant.                                       Incorporated herein by
                                                                                      reference to Exhibit 21.1 to
                                                                                      the Company's Registration
                                                                                      Statement 33-88496 on Form
                                                                                      S-4.
     27.0      Financial Data Schedules
</TABLE>
    
 
                                       68
<PAGE>
                                   SIGNATURES
 
   
PURSUANT  TO THE REQUIREMENTS OF SECTION 13  OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS CAUSED  THIS AMENDED REPORT TO BE SIGNED ON  ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
    
 
                                          S.D. WARREN COMPANY
 
   
Date: September 11, 1996      By:             /s/ MONTE R. HAYMON
                                       ---------------------------------
                                                Monte R. Haymon
                                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
 
PURSUANT  TO  THE REQUIREMENTS  OF  THE SECURITIES  EXCHANGE  ACT OF  1934, THIS
AMENDED REPORT HAS BEEN SIGNED BELOW BY  THE FOLLOWING PERSONS ON BEHALF OF  THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
    
 
   
             SIGNATURE               TITLE                      DATE
-----------------------------------  -------------------------  ----------------
 
        /s/ MONTE R. HAYMON          President, Chief           September 11,
-----------------------------------  Executive Officer and      1996
          Monte R. Haymon            Director (Principal
                                     Executive Officer)
 
       /s/ TREVOR L. LARKAN          Chief Financial Officer,   September 11,
-----------------------------------  Vice President,            1996
         Trevor L. Larkan            Treasurer, Secretary and
                                     Director (Principal
                                     Financial and Accounting
                                     Officer)
 
      /s/ JAMES H. FRICK, JR.        Vice President and         September 11,
-----------------------------------  Director                   1996
        James H. Frick, Jr.
 
       /s/ E. DANNIS HERRING         Vice President and         September 11,
-----------------------------------  Director                   1996
         E. Dannis Herring
 
        /s/ O. HARLEY WOOD           Vice President and         September 11,
-----------------------------------  Director                   1996
          O. Harley Wood
 
    
 
                                       69
<PAGE>
Printed in U.S.A. on Patina 70 lb/104 gsm text and 65 lb/176 gsm cover.
This paper is made from a renewable resource.