##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the thirteen weeks ended September 30, 2007



| ̈ | 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: 333-116843



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SOLO CUP
COMPANY

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 47-0938234                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                 |  |           
|------------------------------------------------ |  | ----------
|1700 Old Deerfield Road, Highland Park, Illinois |  | 60035     
|(Address of principal executive offices)         |  | (Zip Code)

Registrants telephone number, including area code: 847/831-4800



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Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The number of shares outstanding
of the Registrants common stock as of November 14, 2007:

Common Stock, $0.01 par value100 shares



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##### Table of Contents

INDEX



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I   |  | Financial Information                                                                 |  |     
|         |  |                                                                                      
|Item 1.  |  | Financial Statements                                                                  |  | 3   
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 23  
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 31  
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 32  
|         |  |                                                                                      
|PART II  |  | Other Information                                                                     |  |     
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 33  
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 33  
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 33  
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 33  
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 33  
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 33  
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 33  



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION

|Item 1. | Financial Statements.
|------- | ---------------------

SOLO CUP COMPANY AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

|                                                                                                   |  |                    |           |   |                   |   |           |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                   |  | September 30, 2007 |           |   | December 31, 2006 |  
|                                                                                                   |  | (Unaudited)        |           |   |                   |  
|Assets                                                                                             |  |                    |           |   |                   |   |           |  
|Current assets:                                                                                    |  |                    |           |   |                   |   |           |  
|Cash and cash equivalents                                                                          |  | $                  | 34,060    |   |                   | $ | 23,568    |  
|Cash in escrow                                                                                     |  |                    | 50        |   |                   |   |          |  
|Accounts receivabletrade, less allowance for doubtful accounts of $2,659 and $2,823               |  |                    | 170,566   |   |                   |   | 184,059   |  
|Accounts receivableother                                                                          |  |                    | 6,784     |   |                   |   | 25,269    |  
|Inventories                                                                                        |  |                    | 334,812   |   |                   |   | 343,821   |  
|Spare parts                                                                                        |  |                    | 23,485    |   |                   |   | 24,114    |  
|Deferred income taxes                                                                              |  |                    | 29,324    |   |                   |   | 29,986    |  
|Prepaid expenses                                                                                   |  |                    | 14,287    |   |                   |   | 6,683     |  
|Income taxes receivable                                                                            |  |                    | 975       |   |                   |   | 1,809     |  
|Assets held for sale                                                                               |  |                    | 9,246     |   |                   |   | 1,102     |  
|Assets related to discontinued operations                                                          |  |                    | 125,039   |   |                   |   | 101,186   |  
|Other current assets                                                                               |  |                    | 155       |   |                   |   | 1,838     |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Total current assets                                                                               |  |                    | 748,783   |   |                   |   | 743,435   |  
|Property, plant and equipment, net                                                                 |  |                    | 563,580   |   |                   |   | 682,027   |  
|Spare parts                                                                                        |  |                    | 6,862     |   |                   |   | 8,813     |  
|Goodwill                                                                                           |  |                    | 21,644    |   |                   |   | 20,792    |  
|Intangible assets, net                                                                             |  |                    | 10,692    |   |                   |   | 16,031    |  
|Deferred financing fees, net                                                                       |  |                    | 18,638    |   |                   |   | 26,485    |  
|Assets related to discontinued operations                                                          |  |                    |          |   |                   |   | 35,286    |  
|Other assets                                                                                       |  |                    | 6,276     |   |                   |   | 6,802     |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Total assets                                                                                       |  | $                  | 1,376,475 |   |                   | $ | 1,539,671 |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Liabilities and Shareholders Equity                                                               |  |                    |           |   |                   |   |           |  
|Current liabilities:                                                                               |  |                    |           |   |                   |   |           |  
|Accounts payable                                                                                   |  | $                  | 116,126   |   |                   | $ | 123,912   |  
|Accrued payroll and related costs                                                                  |  |                    | 57,224    |   |                   |   | 49,333    |  
|Accrued customer allowances                                                                        |  |                    | 27,989    |   |                   |   | 30,503    |  
|Accrued expenses and other current liabilities                                                     |  |                    | 35,589    |   |                   |   | 41,693    |  
|Short-term debt                                                                                    |  |                    | 200       |   |                   |   |          |  
|Current maturities of long-term debt                                                               |  |                    | 1,772     |   |                   |   | 8,096     |  
|Debt allocated to discontinued operations                                                          |  |                    | 162,700   |   |                   |   |          |  
|Income taxes payable                                                                               |  |                    | 2,173     |   |                   |   | 464       |  
|Liabilities related to discontinued operations                                                     |  |                    | 30,280    |   |                   |   | 27,575    |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Total current liabilities                                                                          |  |                    | 434,053   |   |                   |   | 281,576   |  
|Long-term debt, net of current maturities                                                          |  |                    | 821,461   |   |                   |   | 979,345   |  
|Deferred income taxes                                                                              |  |                    | 47,779    |   |                   |   | 48,876    |  
|Pensions and other postretirement benefits                                                         |  |                    | 27,169    |   |                   |   | 32,420    |  
|Liabilities related to discontinued operations                                                     |  |                    |          |   |                   |   | 172,950   |  
|Other liabilities                                                                                  |  |                    | 66,825    |   |                   |   | 14,869    |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Total liabilities                                                                                  |  |                    | 1,397,287 |   |                   |   | 1,530,036 |  
|Shareholders (deficit) equity:                                                                    |  |                    |           |   |                   |   |           |  
|Common stockPar value $0.01 per share; 1,000 shares authorized; 100 shares issued and outstanding |  |                    |          |   |                   |   |          |  
|Additional paid-in capital                                                                         |  |                    | 254,995   |   |                   |   | 257,612   |  
|Accumulated deficit                                                                                |  |                    | (280,007  | ) |                   |   | (249,679  | )
|Accumulated other comprehensive income                                                             |  |                    | 4,200     |   |                   |   | 1,702     |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Total shareholders (deficit) equity                                                               |  |                    | (20,812   | ) |                   |   | 9,635     |  
|                                                                                                   |  |                    |           |   |                   |   |           |  
|Total liabilities and shareholders (deficit) equity                                               |  | $                  | 1,376,475 |   |                   | $ | 1,539,671 |  
|                                                                                                   |  |                    |           |   |                   |   |           |  

See accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands)



|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  
|------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ------------------------------------ | - | ------- | ------------------------------------------ |  | - | -------------------------------------- | - |  | - | --------- | -
|                                                                                                  |  | Thirteen weeks ended September 30, 2007 |         |   | Thirteen weeks ended October 1, 2006 |   |         | Thirty-nine weeks ended September 30, 2007 |  |   | Thirty-nineweeks ended October 1, 2006 |  
|Net sales                                                                                         |  | $                                       | 536,413 |   |                                      | $ | 548,306 |                                            |  | $ | 1,614,201                              |   |  | $ | 1,651,554 |  
|Cost of goods sold                                                                                |  |                                         | 473,432 |   |                                      |   | 494,850 |                                            |  |   | 1,434,531                              |   |  |   | 1,475,813 |  
|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  
|Gross profit                                                                                      |  |                                         | 62,981  |   |                                      |   | 53,456  |                                            |  |   | 179,670                                |   |  |   | 175,741   |  
|Selling, general and administrative expenses                                                      |  |                                         | 52,288  |   |                                      |   | 55,775  |                                            |  |   | 160,248                                |   |  |   | 178,813   |  
|Impairment of goodwill                                                                            |  |                                         |        |   |                                      |   |        |                                            |  |   |                                       |   |  |   | 228,537   |  
|(Gain) loss on sale of property, plant and equipment                                              |  |                                         | (10,310 | ) |                                      |   | 1,241   |                                            |  |   | (11,649                                | ) |  |   | 3,037     |  
|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  
|Operating income (loss)                                                                           |  |                                         | 21,003  |   |                                      |   | (3,560  | )                                          |  |   | 31,071                                 |   |  |   | (234,646  | )
|Interest expense, net of interest income of $195, $566, $1,880 and $670                           |  |                                         | 19,789  |   |                                      |   | 19,924  |                                            |  |   | 65,134                                 |   |  |   | 56,570    |  
|Prepayment penalty                                                                                |  |                                         |        |   |                                      |   |        |                                            |  |   | 1,300                                  |   |  |   |          |  
|Loss on debt extinguishment                                                                       |  |                                         |        |   |                                      |   |        |                                            |  |   | 3,962                                  |   |  |   |          |  
|Foreign currency exchange gain, net                                                               |  |                                         | (1,727  | ) |                                      |   | (654    | )                                          |  |   | (3,521                                 | ) |  |   | (4,367    | )
|Other income, net                                                                                 |  |                                         | (75     | ) |                                      |   | (594    | )                                          |  |   | (170                                   | ) |  |   | (90       | )
|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  
|Income (loss) from continuing operations before income taxes                                      |  |                                         | 3,016   |   |                                      |   | (22,236 | )                                          |  |   | (35,634                                | ) |  |   | (286,759  | )
|Income tax provision (benefit)                                                                    |  |                                         | 900     |   |                                      |   | (1,219  | )                                          |  |   | (946                                   | ) |  |   | 55,170    |  
|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  
|Income (loss) from continuing operations                                                          |  | $                                       | 2,116   |   |                                      | $ | (21,017 | )                                          |  | $ | (34,688                                | ) |  | $ | (341,929  | )
|Income from discontinued operations, net of income tax provision of $2,057, $844, $2,729 and $734 |  |                                         | 3,287   |   |                                      |   | 1,132   |                                            |  |   | 4,360                                  |   |  |   | 928       |  
|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  
|Net income (loss)                                                                                 |  | $                                       | 5,403   |   |                                      | $ | (19,885 | )                                          |  | $ | (30,328                                | ) |  | $ | (341,001  | )
|                                                                                                  |  |                                         |         |   |                                      |   |         |                                            |  |   |                                        |   |  |   |           |  

See accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(In thousands, except
share amounts)



|                                                                                |  |              |  |                            |   |  |                     |         |   |                                               |   |          |                                      |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------ |  | -------------------------- | - |  | ------------------- | ------- | - | --------------------------------------------- | - | -------- | ------------------------------------ |  | - | ------ | - |  | - | ------- | -
|                                                                                |  | Common Stock |  | Additional paid-in capital |   |  | Accumulated deficit |         |   | Accumulated other comprehensive income (loss) |   |          | Total shareholders equity (deficit) | 
|                                                                                |  | Shares       |  | Amount                     |   |  |                     |        
|Balance at December 31, 2006                                                    |  | 100          |  | $                          |  |  | $                   | 257,612 |   |                                               | $ | (249,679 | )                                    |  | $ | 1,702  |   |  | $ | 9,635   |  
|Net loss (Unaudited)                                                            |  |             |  |                            |  |  |                     |        |   |                                               |   | (30,328  | )                                    |  |   |       |   |  |   | (30,328 | )
|Reversal of compensation expense on Convertible Preferred Units (Unaudited)     |  |             |  |                            |  |  |                     | (610    | ) |                                               |   |         |                                      |  |   |       |   |  |   | (610    | )
|Return of capital to parent (Unaudited)                                         |  |             |  |                            |  |  |                     | (2,007  | ) |                                               |   |         |                                      |  |   |       |   |  |   | (2,007  | )
|Foreign currency translation adjustment (Unaudited)                             |  |             |  |                            |  |  |                     |        |   |                                               |   |         |                                      |  |   | 6,810  |   |  |   | 6,810   |  
|Minimum pension liability adjustment (Unaudited)                                |  |             |  |                            |  |  |                     |        |   |                                               |   |         |                                      |  |   | 170    |   |  |   | 170     |  
|Unrealized investment loss, net of tax of $(220) (Unaudited)                    |  |             |  |                            |  |  |                     |        |   |                                               |   |         |                                      |  |   | (319   | ) |  |   | (319    | )
|Recognition of realized gain on cash flow hedge, net of tax of $906 (Unaudited) |  |             |  |                            |  |  |                     |        |   |                                               |   |         |                                      |  |   | (769   | ) |  |   | (769    | )
|Unrealized loss on cash flow hedge, net of tax of $0 (Unaudited)                |  |             |  |                            |  |  |                     |        |   |                                               |   |         |                                      |  |   | (3,394 | ) |  |   | (3,394  | )
|                                                                                |  |              |  |                            |   |  |                     |         |   |                                               |   |          |                                      |  |   |        |   |  |   |         |  
|Balance at September 30, 2007 (Unaudited)                                       |  | 100          |  | $                          |  |  | $                   | 254,995 |   |                                               | $ | (280,007 | )                                    |  | $ | 4,200  |   |  | $ | (20,812 | )
|                                                                                |  |              |  |                            |   |  |                     |         |   |                                               |   |          |                                      |  |   |        |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.



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##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



|                                                                                          |  |                                           |          |   |                                        |   |          |  
|----------------------------------------------------------------------------------------- |  | ----------------------------------------- | -------- | - | -------------------------------------- | - | -------- | -
|                                                                                          |  | Thirty-nine weeks endedSeptember 30, 2007 |          |   | Thirty-nine weeks endedOctober 1, 2006 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                      |  |                                           |          |   |                                        |   |          |  
|Net loss                                                                                  |  | $                                         | (30,328  | ) |                                        | $ | (341,001 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                           |          |   |                                        |   |          |  
|Depreciation and amortization                                                             |  |                                           | 72,185   |   |                                        |   | 75,612   |  
|Deferred finance fee amortization                                                         |  |                                           | 4,758    |   |                                        |   | 3,668    |  
|(Gain) loss on sale of property, plant and equipment                                      |  |                                           | (11,706  | ) |                                        |   | 3,132    |  
|Goodwill impairment                                                                       |  |                                           |         |   |                                        |   | 228,537  |  
|Asset impairment                                                                          |  |                                           | 2,559    |   |                                        |   | 7,933    |  
|Loss on debt extinguishment                                                               |  |                                           | 3,962    |   |                                        |   |         |  
|Postretirement plan curtailment gains                                                     |  |                                           |         |   |                                        |   | (22,067  | )
|Deferred income taxes                                                                     |  |                                           | 1,966    |   |                                        |   | 50,425   |  
|Foreign currency exchange gain, net                                                       |  |                                           | (3,532   | ) |                                        |   | (4,364   | )
|Changes in operating assets and liabilities:                                              |  |                                           |          |   |                                        |   |          |  
|Accounts receivable                                                                       |  |                                           | 44,365   |   |                                        |   | (8,529   | )
|Inventories                                                                               |  |                                           | 12,354   |   |                                        |   | (59,895  | )
|Prepaid expenses and other current assets                                                 |  |                                           | (3,851   | ) |                                        |   | 11,662   |  
|Other assets                                                                              |  |                                           | (3       | ) |                                        |   | 1,514    |  
|Accounts payable                                                                          |  |                                           | (8,950   | ) |                                        |   | 11,072   |  
|Accrued expenses and other current liabilities                                            |  |                                           | (10,283  | ) |                                        |   | (12,150  | )
|Other liabilities                                                                         |  |                                           | (6,900   | ) |                                        |   | (4,510   | )
|Other, net                                                                                |  |                                           | (5,384   | ) |                                        |   | 268      |  
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|Net cash provided by (used in) operating activities                                       |  | $                                         | 61,212   |   |                                        | $ | (58,693  | )
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                                      |  |                                           |          |   |                                        |   |          |  
|Purchase of property, plant and equipment                                                 |  | $                                         | (29,166  | ) |                                        | $ | (45,371  | )
|Proceeds from sale of property, plant and equipment                                       |  |                                           | 144,192  |   |                                        |   | 3,380    |  
|(Increase) decrease in cash in escrow                                                     |  |                                           | (50      | ) |                                        |   | 13,041   |  
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|Net cash provided by (used in) investing activities                                       |  |                                           | 114,976  |   |                                        |   | (28,950  | )
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                      |  |                                           |          |   |                                        |   |          |  
|Net (repayments) borrowings under revolving credit facilities                             |  |                                           | (49,594  | ) |                                        |   | 31,125   |  
|Borrowings under term notes                                                               |  |                                           | 50,000   |   |                                        |   | 80,000   |  
|Repayments of term notes                                                                  |  |                                           | (165,694 | ) |                                        |   | (6,160   | )
|Repayment of capital to parent                                                            |  |                                           | (2,007   | ) |                                        |   |         |  
|Repayments of other debt                                                                  |  |                                           | (88      | ) |                                        |   | (3,317   | )
|Debt issuance costs                                                                       |  |                                           | (380     | ) |                                        |   | (4,131   | )
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|Net cash (used in) provided by financing activities                                       |  |                                           | (167,763 | ) |                                        |   | 97,517   |  
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|Effect of exchange rate changes on cash                                                   |  |                                           | 1,082    |   |                                        |   | 202      |  
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                 |  |                                           | 9,507    |   |                                        |   | 10,076   |  
|CASH AND CASH EQUIVALENTS, beginning of period(1)                                         |  |                                           | 26,391   |   |                                        |   | 12,087   |  
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|CASH AND CASH EQUIVALENTS, end of period (1)                                              |  | $                                         | 35,898   |   |                                        | $ | 22,163   |  
|                                                                                          |  |                                           |          |   |                                        |   |          |  
|SUPPLEMENTAL CASH FLOW DISCLOSURES:                                                       |  |                                           |          |   |                                        |   |          |  
|Interest paid (including prepayment penalty)                                              |  | $                                         | 86,789   |   |                                        | $ | 67,870   |  
|Income taxes paid (net of income tax refunds)                                             |  | $                                         | 4,269    |   |                                        | $ | 6,825    |  

---

|(1) | Includes cash and cash
equivalents related to discontinued operations (Note 2).
|--- | -------------------------------------------------------------------------------

See accompanying Notes to Consolidated Financial
Statements.



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##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) BASIS OF PRESENTATION

As used in these notes,
unless the context otherwise requires, the Company shall refer to Solo Cup Company, a Delaware corporation (Solo Delaware) which is the holding company for Solo Cup Operating Corporation, a Delaware corporation
(SCOC). The Company is a wholly owned subsidiary of SF Holdings Group, Inc. (SF Holdings), which is a wholly owned subsidiary of Solo Cup Investment Corporation, a Delaware corporation (SCIC).

The information included in the accompanying interim consolidated financial statements of the Company is unaudited but, in the opinion of management,
includes all adjustments (consisting only of normal recurring adjustments and accruals unless otherwise indicated) which the Company considers necessary for a fair presentation of the financial position, operating results and cash flows for the
periods presented. Results for the interim periods are not necessarily indicative of results expected for the entire year. These interim consolidated financial statements should be read in conjunction with the Companys consolidated financial
statements and notes thereto for the fiscal year ended December 31, 2006 included in its 2006 Annual Report on Form 10-K.

These
interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, using managements best estimates and judgments where appropriate. These estimates and judgments affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and
judgments.

In accordance with the guidance of Staff Accounting Bulletin No. 108, these interim consolidated financial statements
reflect the immaterial correction of errors in the Companys prior period financial statements. See further discussion in Notes 3, 4 and 14.

(2)
ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets held for sale

In March 2007, the Company entered into a purchase and sale agreement (the Agreement) with a third party for the sale of certain property of
the Company located in the City of Chicago. Previously, the Company had entered into agreements with the State of Illinois (State) and the City of Chicago (City) relating to the acquisition and development of the property.
Pursuant to these agreements, the State and City provided certain grants to the Company, paid certain costs on behalf of the Company and undertook certain obligations relating to the property. Under these agreements, the Company is required to
fulfill certain obligations relating to development of the property and retention of a certain number of employees. If these obligations were not fulfilled, the Company would be required to repay certain amounts granted or paid by the City or the
State, the net impact of which, the Company believes, would not be material to its business, financial condition, results of operations or cash flows. The Agreement with the third party provides that, upon the closing of the sale, the obligations of
the Company to the State and City will be satisfied or the Company will otherwise be released from such obligations. As of September 30, 2007, assets held for sale of $9.2 million represents the carrying value of this property.

Discontinued operations

The Company,
SF Holdings and SCOC, entered into an Asset Purchase Agreement dated September 7, 2007 (the Purchase Agreement). Pursuant to the terms of the Purchase Agreement, the Company will sell substantially all of the assets and liabilities
of its Hoffmaster business, included in its North American operating segment, for approximately $170 million, including its product portfolio of disposable tableware and special occasions consumer products and associated manufacturing equipment, two
manufacturing facilities located in Oshkosh and Appleton, Wisconsin and 100% of the shares of CEGI (Hong Kong) Limited, a Hong Kong entity, that is a subsidiary of SF Holdings. As part of this agreement, the buyer would also assume a leased
distribution center located in Indianapolis, Indiana.

At closing, the purchase price is subject to a standard working capital adjustment
to reflect an average level of working capital in the business. The Purchase Agreement also includes a non-competition agreement with terms that are customary for a transaction of this type, scope and size. The Company also entered into a Transition
Services Agreement with the Buyer to provide certain information technology, human resources and other services for a period not to exceed 12 months. The transaction closed in October 2007 (Note 15).



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



The carrying amounts of the major classes of assets and liabilities included in the disposal group
are the following:



|                                                   |  |                    |         |                   |   |        
|-------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                                                   |  | September 30, 2007 |         | December 31, 2006
|Cash and cash equivalents                          |  | $                  | 1,838   |                   | $ | 2,823  
|Accounts receivable                                |  |                    | 35,459  |                   |   | 44,970 
|Inventories                                        |  |                    | 46,757  |                   |   | 46,800 
|Property, plant and equipment                      |  |                    | 28,712  |                   |   | 29,992 
|Other assets                                       |  |                    | 12,273  |                   |   | 11,887 
|                                                   |  |                    |         |                   |   |        
|Assets related to discontinued operations          |  | $                  | 125,039 |                   | $ | 136,472
|                                                   |  |                    |         |                   |   |        
|Accounts payable                                   |  | $                  | 12,273  |                   | $ | 12,212 
|Debt (1)                                           |  |                    | 162,700 |                   |   | 162,700
|Other liabilities                                  |  |                    | 18,007  |                   |   | 25,613 
|                                                   |  |                    |         |                   |   |        
|Liabilities related to discontinued operations (1) |  | $                  | 192,980 |                   | $ | 200,525
|                                                   |  |                    |         |                   |   |        

---

|(1) | Debt allocated to discontinued operations on the Companys Consolidated
Balance Sheet at September 30, 2007, represents the net cash proceeds from the sale of Hoffmaster. The Company has classified this portion of its long-term debt as current, because it is required by the terms of its First Lien Facility, as
amended, to use the sale proceeds to make a prepayment of the term loan under its First Lien Facility (Note 7).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                        |  |                                         |        |                                      |   |                                            |  |                                        |         |  |   |        
|------------------------------------------------------- |  | --------------------------------------- | ------ | ------------------------------------ | - | ------------------------------------------ |  | -------------------------------------- | ------- |  | - | -------
|                                                        |  | Thirteen weeks ended September 30, 2007 |        | Thirteen weeks ended October 1, 2006 |   | Thirty-nine weeks ended September 30, 2007 |  | Thirty-nineweeks ended October 1, 2006
|Sales from discontinued operations                      |  | $                                       | 70,484 |                                      | $ | 72,376                                     |  | $                                      | 196,954 |  | $ | 206,661
|Income from discontinued operations before income taxes |  | $                                       | 5,344  |                                      | $ | 1,976                                      |  | $                                      | 7,089   |  | $ | 1,662  

(3) INVENTORIES

The components of inventories are as follows (in thousands):



|                           |  |                    |         |                   |   |        
|-------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                           |  | September 30, 2007 |         | December 31, 2006
|Finished goods             |  | $                  | 248,016 |                   | $ | 247,338
|Work in process            |  |                    | 15,115  |                   |   | 16,122 
|Raw materials and supplies |  |                    | 71,681  |                   |   | 80,361 
|                           |  |                    |         |                   |   |        
|Total inventories          |  | $                  | 334,812 |                   | $ | 343,821
|                           |  |                    |         |                   |   |        

Raw materials and supplies include an adjustment reflecting an immaterial correction of an error,
which increased the December 31, 2006 balance by approximately $1.5 million with a corresponding increase to accounts payable.



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(4) PROPERTY, PLANT AND EQUIPMENT, NET

The Companys major classes of property, plant and equipment are as follows (in thousands):



|                                                |  |                    |           |   |                   |   |           |  
|----------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                |  | September 30, 2007 |           |   | December 31, 2006 |  
|Land                                            |  | $                  | 27,947    |   |                   | $ | 44,072    |  
|Buildings and improvements                      |  |                    | 196,111   |   |                   |   | 266,356   |  
|Machinery and equipment                         |  |                    | 956,674   |   |                   |   | 925,072   |  
|Construction in progress                        |  |                    | 18,576    |   |                   |   | 39,162    |  
|                                                |  |                    |           |   |                   |   |           |  
|Total property, plant and equipment             |  |                    | 1,199,308 |   |                   |   | 1,274,662 |  
|Less: Accumulated depreciation and amortization |  |                    | (635,728  | ) |                   |   | (592,635  | )
|                                                |  |                    |           |   |                   |   |           |  
|Property, plant and equipment, net              |  | $                  | 563,580   |   |                   | $ | 682,027   |  
|                                                |  |                    |           |   |                   |   |           |  

Depreciation of property, plant and equipment was $20.9 million and $63.6 million for the thirteen
and thirty-nine weeks ended September 30, 2007, respectively. Capitalized interest was $0.2 million and $1.3 million for the thirteen and thirty-nine weeks ended September 30, 2007, respectively.

Depreciation of property, plant and equipment was $21.7 million and $65.9 million for the thirteen and thirty-nine weeks ended October 1, 2006,
respectively. Capitalized interest was $0.6 million and $1.3 million for the thirteen and thirty-nine weeks ended October 1, 2006, respectively.

During the thirteen weeks ended September 30, 2007, the Company recognized a gain of $9.5 million from the sale of its uncoated white paper plate product line.

As of December 31, 2006, property, plant and equipment, net reflects the immaterial correction of two errors in the Companys prior period
financial statements, which increased the December 31, 2006 balance of property, plant and equipment, net by approximately $2.1 million, decreased spare parts by $6.1 million and increased accumulated deficit relating to depreciation
expense by $4.0 million, of which $3.6 million relates to periods prior to 2006. The first error relates to equipment that was previously included in the Companys spare parts inventory; thus the Company adjusted the carrying value of the
equipment of $6.1 million from spare parts to property, plant and equipment, and recorded the effect of adjusting depreciation expense in the appropriate periods from 2004 to 2007. The second error relates to equipment that was considered obsolete
in 2004, thus the Company recorded the accelerated depreciation expense of $2.7 million that should have been recorded in that period and reversed the depreciation expense recorded during the subsequent periods. The impact to the Companys
results of operations for periods prior to 2006 is reflected in its beginning accumulated deficit at January 1, 2006. In addition, the impact on the 2005 and 2006 comparative year-end financial statements will be $0.2 million and $1.8 million
increase to previously reported net loss, respectively, and an adjustment of $1.9 million to the opening accumulated deficit at January 1, 2005. These adjustments to comparative periods will be included in the Companys Annual Report on
Form 10-K for the year ended December 30, 2007.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(5) SALE-LEASEBACK TRANSACTION

In June 2007, the Company entered into a lease agreement in conjunction with the sale of six of its manufacturing facilities. The sale proceeds of $130.0 million were used to retire the Companys Second Lien
Credit Agreement dated March 31, 2006, as amended (the Second Lien). Upon the sale of the six properties, the Company immediately leased them back pursuant to a 20-year term lease (the Lease). The Lease contains four
five-year renewal term options.

Net property, plant and equipment was reduced by the carrying values of the properties sold, which
amounted to approximately $72.6 million, of which $65.1 million was buildings and improvements and $7.5 million was land. The resulting gain of approximately $53.7 million (net of $3.7 million of closing costs) was recorded as a deferred credit
in the Companys Consolidated Balance Sheet of which $53.0 million is the balance as of September 30, 2007. The deferred credit is included in other current liabilities and other long-term liabilities and will be amortized to income
on a straight-line basis as an offset to rent expense over the 20-year lease term. The lease is classified as an operating lease in accordance with Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for
Leases.

The Lease is non-cancelable. Annual rent for the six properties is approximately $11.7 million, payable on a quarterly basis.
The lease provides for a 2% escalation of rent on an annual basis.

(6) INCOME TAXES

On January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation (FIN)
No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109. The adoption of FIN No. 48 did not have a material effect on the Companys results of operations or financial position. As of
the adoption date, the Company had unrecognized tax benefits of approximately $7.6 million, of which approximately $1.5 million, if recognized, would affect the effective tax rate while the remaining $6.1 million, if recognized, would not affect the
effective tax rate due to the existence of a valuation allowance. There have been no material changes in the amount of unrecognized tax benefits since adoption, and the Company anticipates no significant changes in the next twelve months.

The Company classifies interest and penalties recognized on underpayments of income taxes as income tax expense. As of the adoption date,
the Company had accrued interest expense related to unrecognized tax benefits of approximately $0.2 million.

The Company is subject to
U.S. federal income tax, as well as income tax in various states and foreign jurisdictions. The Companys U.S. tax returns remain subject to examination for the year ended September 27, 1998, as well as the year ended March 25, 2002,
and all subsequent periods. The Company does not expect the amounts of unrecognized tax benefits as of January 1, 2007, the date of adoption, to change significantly during 2007.

The Companys management assesses the realizability of its deferred tax assets, including the net operating loss, and records a valuation allowance
for the deferred tax assets when it is more likely than not that a portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including
the reversals of deferred tax liabilities) during the periods in which those temporary differences will become deductible. As such, the Company had a valuation allowance against its U.S. deferred tax assets of $133 million and $120 million at
September 30, 2007 and December 31, 2006, respectively, to reflect managements assessment regarding the realizability of the deferred tax assets. The Company expects to continue to maintain a valuation allowance on deferred tax
assets until other positive evidence is sufficient to justify realization.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(7) DEBT

Long-term debt at September 30, 2007 and December 31, 2006, including amounts payable within one year, is as follows (in thousands):



|                                                                                               |  |                    |         |                   |   |          
|---------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | ---------
|                                                                                               |  | September 30, 2007 |         | December 31, 2006
|8.5% Senior Subordinated Notes                                                                 |  | $                  | 325,000 |                   | $ | 325,000  
|First Lien Facility  Term Loan                                                                |  |                    | 602,250 |                   |   | 632,125  
|First Lien Facility  Revolver                                                                 |  |                    | 53,100  |                   |   | 102,600  
|Second Lien Facility                                                                           |  |                    |        |                   |   | 80,000   
|Canadian Credit Facility  Term Loan                                                           |  |                    | 3,694   |                   |   | 8,379    
|Capital lease obligations                                                                      |  |                    | 1,889   |                   |   | 2,037    
|                                                                                               |  |                    |         |                   |   |          
|Total long-term debt                                                                           |  |                    | 985,933 |                   |   | 1,150,141
|Less: Current maturities of long-term debt                                                     |  |                    | 1,772   |                   |   | 8,096    
|Less: Current maturities of long-term debt related to discontinued operations                  |  |                    | 162,700 |                   |   |         
|Less: Long-term debt included under non-current liabilities related to discontinued operations |  |                    |        |                   |   | 162,700  
|                                                                                               |  |                    |         |                   |   |          
|Long-term debt, net of current maturities  continuing operations                              |  | $                  | 821,461 |                   | $ | 979,345  
|                                                                                               |  |                    |         |                   |   |          

In September 2007, the Company made $25.0 million of prepayments to the term loan under the First
Lien Facility (First Lien), in addition to its scheduled quarterly repayment of $1.625 million. Of the $25.0 million, $7.7 million was a mandatory prepayment made from the net proceeds of the sale of assets related to the Companys
uncoated white paper plate product line (Note 4). The remaining $17.3 million was an optional prepayment made by the Company. In accordance with the credit agreement governing the First Lien, the prepayments will be allocated to the next four
quarterly prepayments and then reduce the remaining scheduled quarterly prepayments on a pro rata basis through maturity in February 2011. Accordingly, current maturities of long-term debt as of September 30, 2007 does not include an amount
related to the First Lien.

At September 30, 2007, current maturities of long-term debt related to discontinued operations of $162.7
million represents the net proceeds from the sale of the Hoffmaster division (Note 2). The Company has classified this portion of its long-term debt as current, because it is required by the terms of its First Lien, as amended, to use the net
proceeds to make a prepayment of the term loan under its First Lien. The long-term debt balance at December 31, 2006 includes $162.7 million of debt related to discontinued operations included under non-current.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



The Company was in compliance with all financial covenants under the First Lien during the
thirty-nine weeks ended September 30, 2007.

On March 31, 2006, the Company and SCIC entered into a second lien credit agreement
which was subsequently amended by Amendment No. 1 dated October 13, 2006, and Amendment No. 2 dated December 22, 2006. The Second Lien provided a secured term loan facility in the amount of $80.0 million (Second Term
Loan). The proceeds of the Second Term Loan were used to reduce amounts outstanding under the Companys revolving credit facility under the First Lien. The principal amount was due upon maturity in February 2012.

On January 5, 2007, the Company borrowed an additional $50 million under its Second Lien, which was provided by Amendment No. 2, and used the
proceeds to pay down amounts outstanding under the Companys revolving credit facility under the Company and SCICs credit facility dated February 27, 2004, as amended (the First Lien), as required by Amendment No. 2.

In June 2007, the Company repaid the Second Lien with the proceeds from its sale-leaseback transaction (Note 5). In connection with the
prepayment, the Company incurred $1.3 million of prepayment penalties and a loss on debt extinguishment of approximately $4.0 million representing the write-off of unamortized deferred financing fees.

(8) DERIVATIVES AND HEDGING ACTIVITIES

In September
2007, the Company entered into a forward-starting receive-variable, pay-fixed interest rate swap with a total notional amount of $50.0 million. The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid is
4.6475%. The swap agreement is effective from October 2, 2007 through April 2, 2009. This interest rate swap is accounted for as a cash flow hedge and its fair value was $(0.1) million as of September 30, 2007.

In June 2007, the Company entered into three forward-starting receive-variable, pay-fixed interest rate swap with a total notional amount of $150.0
million. The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid is 5.3765%. The swap agreements are effective from August 28, 2007 through February 28, 2011. These interest rate swaps are accounted
for as cash flow hedges and their fair value was $(3.4) million as of September 30, 2007.

In September 2006, the Company entered into
three interest rate cap agreements with a total notional amount of $245.0 million. Under these agreements the Company receives variable interest rate payments when the 3-month LIBOR rises above 6.0%. These agreements were in effect through
September 14, 2007. In October 2006, the Company entered into an interest rate cap agreement with a notional amount of $20.0 million. Under this agreement, the Company receives variable interest rate payments when the 3-month LIBOR rises above
6.0%. This agreement is in effect through October 12, 2007.

In March 2004, June 2005 and March 2006, the Company entered into
receive-variable, pay-fixed interest rate swaps with a total notional amount of $300.0 million. In September 2006, the Company terminated these agreements prior to their stated expirations. Through the termination date, these interest rate swap
agreements were accounted for as cash flow hedges and their fair values were included in other current assets and other assets in the Companys Consolidated Balance Sheets. Included in accumulated other comprehensive income is a deferred gain
on the qualified hedged transactions of $0.7 million and $2.2 million as of September 30, 2007 and December 31, 2006, respectively. The deferred gain is being amortized into interest expense over the remaining term of the underlying debt.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(9) PENSIONS AND OTHER POSTRETIREMENT BENEFITS

Net periodic benefit cost (income) for the Companys pension and other postretirement benefit plans consists of the following (in thousands):



|                                   |  |                                            |        |   |                                         |   |        |                                            |  |   |                                         |   |  |   |         |  
|---------------------------------- |  | ------------------------------------------ | ------ | - | --------------------------------------- | - | ------ | ------------------------------------------ |  | - | --------------------------------------- | - |  | - | ------- | -
|                                   |  | Pension Benefits                           |        |   | Other Postretirement Benefits           |  
|                                   |  | Thirteen weeks ended September 30,
2007    |        |   | Thirteen weeks ended October 1, 2006    |   |        | Thirteen weeks ended September 30,
2007    |  |   | Thirteen weeks ended October 1, 2006    |  
|Service cost                       |  | $                                          | 491    |   |                                         | $ | 447    |                                            |  | $ | 26                                      |   |  | $ | 23      |  
|Interest cost                      |  |                                            | 1,574  |   |                                         |   | 1,460  |                                            |  |   | 208                                     |   |  |   | 337     |  
|Expected return on plan assets     |  |                                            | (1,799 | ) |                                         |   | (1,592 | )                                          |  |   |                                        |   |  |   |        |  
|Amortization of prior service cost |  |                                            | 51     |   |                                         |   |       |                                            |  |   | (62                                     | ) |  |   | (585    | )
|Amortization of net loss           |  |                                            |       |   |                                         |   |       |                                            |  |   | 56                                      |   |  |   | (92     | )
|                                   |  |                                            |        |   |                                         |   |        |                                            |  |   |                                         |   |  |   |         |  
|Net periodic benefit cost (income) |  | $                                          | 317    |   |                                         | $ | 315    |                                            |  | $ | 228                                     |   |  | $ | (317    | )
|                                   |  |                                            |        |   |                                         |   |        |                                            |  |   |                                         |   |  |   |         |  
|                                   |  |                                           
|                                   |  | Pension Benefits                           |        |   | Other Postretirement Benefits           |  
|                                   |  | Thirty-nine weeks ended September 30, 2007 |        |   | Thirty-nine weeks ended October 1, 2006 |   |        | Thirty-nine weeks ended September 30, 2007 |  |   | Thirty-nine weeks ended October 1, 2006 |  
|Service cost                       |  | $                                          | 1,452  |   |                                         | $ | 1,336  |                                            |  | $ | 76                                      |   |  | $ | 172     |  
|Interest cost                      |  |                                            | 4,703  |   |                                         |   | 4,372  |                                            |  |   | 623                                     |   |  |   | 1,070   |  
|Expected return on plan assets     |  |                                            | (5,375 | ) |                                         |   | (4,768 | )                                          |  |   |                                        |   |  |   |        |  
|Amortization of prior service cost |  |                                            | 153    |   |                                         |   |       |                                            |  |   | (187                                    | ) |  |   | (2,649  | )
|Amortization of net loss           |  |                                            |       |   |                                         |   |       |                                            |  |   | 169                                     |   |  |   | 233     |  
|                                   |  |                                            |        |   |                                         |   |        |                                            |  |   |                                         |   |  |   |         |  
|                                   |  |                                            | 933    |   |                                         |   | 940    |                                            |  |   | 681                                     |   |  |   | (1,174  | )
|Curtailment gains                  |  |                                            |       |   |                                         |   |       |                                            |  |   |                                        |   |  |   | (22,067 | )
|                                   |  |                                            |        |   |                                         |   |        |                                            |  |   |                                         |   |  |   |         |  
|Net periodic benefit cost (income) |  | $                                          | 933    |   |                                         | $ | 940    |                                            |  | $ | 681                                     |   |  | $ | (23,241 | )
|                                   |  |                                            |        |   |                                         |   |        |                                            |  |   |                                         |   |  |   |         |  

During the thirty-nine weeks ended September 30, 2007, approximately $9.0 million of
contributions had been made by the Company to its pension and other postretirement benefit plans. The Company presently anticipates contributing an additional $2.0 million to fund its pension and other postretirement benefit plans in 2007 for a
total of approximately $11.0 million.

During the thirty-nine weeks ended October 1, 2006, the Company recognized $22.1 million in
curtailment gains as a result of a significant reduction in postretirement benefits for certain active plan participants. Curtailment gains are included in cost of goods sold in the Companys Consolidated Statements of Operations.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(10) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consisted of the following (in thousands):



|                                                        |  |                                       |        |   |                                      |   |         |                                            |  |   |                                         |   |  |   |          |  
|------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------ | - | ------- | ------------------------------------------ |  | - | --------------------------------------- | - |  | - | -------- | -
|                                                        |  | Thirteenweeks endedSeptember 30, 2007 |        |   | Thirteen weeks ended October 1, 2006 |   |         | Thirty-nine weeks ended September 30, 2007 |  |   | Thirty-nine weeks ended October 1, 2006 |  
|Net income (loss)                                       |  | $                                     | 5,403  |   |                                      | $ | (19,885 | )                                          |  | $ | (30,328                                 | ) |  | $ | (341,001 | )
|Foreign currency translation adjustment                 |  |                                       | 4,534  |   |                                      |   | (572    | )                                          |  |   | 6,810                                   |   |  |   | 1,711    |  
|Minimum pension liability adjustments                   |  |                                       |       |   |                                      |   |        |                                            |  |   | 170                                     |   |  |   |         |  
|Unrealized investment (loss) gain, net of income taxes  |  |                                       | (200   | ) |                                      |   | 26      |                                            |  |   | (319                                    | ) |  |   | 174      |  
|Recognized gain on cash flow hedge, net of income taxes |  |                                       | (157   | ) |                                      |   | (145    | )                                          |  |   | (769                                    | ) |  |   | (146     | )
|Unrealized loss on cash flow hedge, net of income taxes |  |                                       | (3,394 | ) |                                      |   | (3,137  | )                                          |  |   | (3,394                                  | ) |  |   | (2,458   | )
|                                                        |  |                                       |        |   |                                      |   |         |                                            |  |   |                                         |   |  |   |          |  
|Comprehensive income (loss)                             |  | $                                     | 6,186  |   |                                      | $ | (23,713 | )                                          |  | $ | (27,830                                 | ) |  | $ | (341,720 | )
|                                                        |  |                                       |        |   |                                      |   |         |                                            |  |   |                                         |   |  |   |          |  

Accumulated other comprehensive income (loss) consisted of the following (in thousands):



|                                                           |  |                    |        |   |                   |   |        |  
|---------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                                                           |  | September 30, 2007 |        |   | December 31, 2006 |  
|Foreign currency translation adjustments                   |  | $                  | 11,997 |   |                   | $ | 5,187  |  
|Minimum pension liability adjustments, net of income taxes |  |                    | (5,160 | ) |                   |   | (5,330 | )
|Unrealized investment gain, net of income taxes            |  |                    | 601    |   |                   |   | 920    |  
|Unrecognized gain on cash flow hedge, net of income taxes  |  |                    | 156    |   |                   |   | 925    |  
|Unrealized loss on cash flow hedge, net of income taxes    |  |                    | (3,394 | ) |                   |   |       |  
|                                                           |  |                    |        |   |                   |   |        |  
|Accumulated other comprehensive income                     |  | $                  | 4,200  |   |                   | $ | 1,702  |  
|                                                           |  |                    |        |   |                   |   |        |  

(11) SHARE-BASED PAYMENT

SCIC, the Companys parent, has a management investment and incentive compensation plan for certain key employees of the Company. Under this plan, SCIC has reserved 1,450,000 shares of SCIC common stock, and
5,000 shares of convertible participating preferred stock (CPPS) for issuance. The accounting impact of this plan is recorded in the consolidated financial statements of the Company as the plan relates to employees of the Company.

During the second quarter of 2004, SCIC issued 3,283 Convertible Preferred Units (CPUs) to certain Company employees in
settlement of $3.3 million of deferred compensation liabilities. The fair value of the CPUs granted by SCIC was linked to the fair market value of one share of CPPS. For CPUs, compensation expense is recognized periodically based on changes in the
fair value of the CPU relative to the grant-date fair value of the CPU. During 2006 and 2005, as the result of employees separating from the Company, 109 and 1,267 of CPUs were settled, respectively. During the thirty-nine weeks ended
September 30, 2007, as a result of an employees separation from the Company, the remaining 1,907 of CPUs were settled and the Company reversed compensation expense of $0.6 million and reduced additional paid-in capital by $1.9 million.

At December 31, 2006, 293,585 time-based options and 195,723 performance-based options were outstanding. During the thirteen weeks
ended April 1, 2007, the Companys Board of Directors cancelled all outstanding options. No options had been exercised at the time of cancellation.



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(12) RELATED PARTY TRANSACTIONS

The Company is a wholly owned subsidiary of SCIC. SCC Holding Company LLC, a Delaware limited liability company (SCC Holding) and Vestar Capital Partners (Vestar) own 67.2% and 32.7% of SCIC,
respectively. Company management holds the remaining 0.1% of SCIC.

In the first quarter of 2004, the Company and SCIC entered into a
management agreement with SCC Holding providing for, among other things, the payment by SCIC of an annual advisory fee of $2.5 million to SCC Holding. Pursuant to this management agreement, the Company incurred $0.6 million of advisory fees during
the thirteen weeks ended September 30, 2007 and October 1, 2006, and $1.9 million of advisory fees during the thirty-nine weeks ended September 30, 2007 and October 1, 2006.

In 2004, SCIC also entered into a management agreement with Vestar pursuant to which SCIC would pay Vestar an annual advisory fee of $0.8 million, plus
reimbursement of its expenses. The Company incurred $0.2 million of advisory fees during the thirteen weeks ended September 30, 2007 and October 1, 2006, and $0.6 million of advisory fees during the thirty-nine weeks ended
September 30, 2007 and October 1, 2006. Vestar also is party to a registration rights agreement with SCIC and SCC Holding. In addition, Vestar and SCC Holding entered into a stockholders agreement relating to, among other things,
their ownership of voting stock of SCIC.

In December 2006, the Companys First Lien and Second Lien were amended to, among other
things, provide that beginning in 2007, SCC Holding and Vestar may not receive payment for management services unless the Company meets certain financial covenants contained in the First Lien and Second Lien. The Company is accruing for any such
management fees that are earned but not paid pursuant to the foregoing, which total $3.2 million as of September 30, 2007.



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(13) SEGMENTS

The Company manages and evaluates its operations in three reportable segments: North America, Europe and Asia-Pacific. All of these segments produce a broad array of disposable food service products, which are
available in paper, plastic and foam. The operating segments are managed separately based on the products and requirements of the different markets. North America includes all U.S. entities, Canada, Mexico, Corporate and Puerto Rico; Europe includes
all U.K. entities; Asia-Pacific includes all Japanese entities and Australia; and Other includes Panama.

The accounting policies of the
operating segments are the same as those described in Note 2 to the consolidated financial statements in the Companys 2006 Annual Report on Form 10-K. Segment operating results are measured based on operating income (loss). Intersegment net
sales are accounted for on an arms length pricing basis.



|                                           |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|------------------------------------------ |  | ------------- | --------- | - | ------ | - | ------------ |  | - | ------ | - | -------------- | - | ------ | ------------ | - | --------- | ----- |  | - | ------- | - |  | - | --------- | -
|(in thousands)                             |  | North America |           |   | Europe |   | Asia-Pacific |  |   | Other  |   | Total Segments |   |        | Eliminations |   |           | Total | 
|Thirteen weeks ended September 30, 2007    |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales to external customers            |  | $             | 503,164   |   |        | $ | 25,279       |  | $ | 10,325 |   |                | $ | 3,120  |              | $ | 541,888   |       |  | $ | (5,475  | ) |  | $ | 536,413   |  
|Intersegment net sales                     |  |               | 5,475     |   |        |   |             |  |   |       |   |                |   |       |              |   | 5,475     |       |  |   | (5,475  | ) |  |   |          |  
|Operating income                           |  |               | 18,497    |   |        |   | 508          |  |   | 942    |   |                |   | 1,145  |              |   | 21,092    |       |  |   | (89     | ) |  |   | 21,003    |  
|Thirty-nine weeks ended September 30, 2007 |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales to external customers            |  | $             | 1,516,841 |   |        | $ | 73,596       |  | $ | 29,562 |   |                | $ | 9,494  |              | $ | 1,629,493 |       |  | $ | (15,292 | ) |  | $ | 1,614,201 |  
|Intersegment net sales                     |  |               | 15,206    |   |        |   |             |  |   | 86     |   |                |   |       |              |   | 15,292    |       |  |   | (15,292 | ) |  |   |          |  
|Operating income                           |  |               | 24,724    |   |        |   | 2,412        |  |   | 2,630  |   |                |   | 1,375  |              |   | 31,141    |       |  |   | (70     | ) |  |   | 31,071    |  
|Thirteen weeks ended October 1, 2006       |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales to external customers            |  | $             | 508,044   |   |        | $ | 22,638       |  | $ | 20,190 |   |                | $ | 3,054  |              | $ | 553,926   |       |  | $ | (5,620  | ) |  | $ | 548,306   |  
|Intersegment net sales                     |  |               | 5,574     |   |        |   |             |  |   | 46     |   |                |   |       |              |   | 5,620     |       |  |   | (5,620  | ) |  |   |          |  
|Operating income (loss)                    |  |               | 535       |   |        |   | 105          |  |   | (4,150 | ) |                |   | 83     |              |   | (3,427    | )     |  |   | (133    | ) |  |   | (3,560    | )
|Thirty-nine weeks ended October 1, 2006    |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales to external customers            |  | $             | 1,530,246 |   |        | $ | 65,453       |  | $ | 62,821 |   |                | $ | 9,047  |              | $ | 1,667,567 |       |  | $ | (16,013 | ) |  | $ | 1,651,554 |  
|Intersegment net sales                     |  |               | 15,906    |   |        |   |             |  |   | 107    |   |                |   |       |              |   | 16,013    |       |  |   | (16,013 | ) |  |   |          |  
|Operating (loss) income                    |  |               | (231,638  | ) |        |   | 1,135        |  |   | (4,306 | ) |                |   | 447    |              |   | (234,362  | )     |  |   | (284    | ) |  |   | (234,646  | )
|At September 30, 2007                      |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Total assets                               |  | $             | 1,114,298 |   |        | $ | 86,426       |  | $ | 41,505 |   |                | $ | 11,077 |              | $ | 1,253,306 |       |  | $ | (1,870  | ) |  | $ | 1,251,436 |  
|At December 31, 2006                       |  |               |           |   |        |   |              |  |   |        |   |                |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Total assets                               |  | $             | 1,270,705 |   |        | $ | 76,960       |  | $ | 47,597 |   |                | $ | 9,507  |              | $ | 1,404,769 |       |  | $ | (1,570  | ) |  | $ | 1,403,199 |  



|                                                                                |  |                                         |         |   |                                      |   |         |                                            |  |   |                                         |   |  |   |          |  
|------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ------------------------------------ | - | ------- | ------------------------------------------ |  | - | --------------------------------------- | - |  | - | -------- | -
|(in thousands)                                                                  |  | Thirteen weeks ended September 30, 2007 |         |   | Thirteen weeks ended October 1, 2006 |   |         | Thirty-nine weeks ended September 30, 2007 |  |   | Thirty-nine weeks ended October 1,
2006 |  
|Total segment operating income (loss)                                           |  | $                                       | 21,092  |   |                                      | $ | (3,427  | )                                          |  | $ | 31,141                                  |   |  | $ | (234,362 | )
|Elimination of intersegment operating income                                    |  |                                         | (89     | ) |                                      |   | (133    | )                                          |  |   | (70                                     | ) |  |   | (284     | )
|Interest expense, net of interest income of $195, $566, $1,880 and $670         |  |                                         | (19,789 | ) |                                      |   | (19,924 | )                                          |  |   | (65,134                                 | ) |  |   | (56,570  | )
|Prepayment penalty                                                              |  |                                         |        |   |                                      |   |        |                                            |  |   | (1,300                                  | ) |  |   |         |  
|Loss on debt extinguishment                                                     |  |                                         |        |   |                                      |   |        |                                            |  |   | (3,962                                  | ) |  |   |         |  
|Foreign currency exchange gain, net                                             |  |                                         | 1,727   |   |                                      |   | 654     |                                            |  |   | 3,521                                   |   |  |   | 4,367    |  
|Other income, net                                                               |  |                                         | 75      |   |                                      |   | 594     |                                            |  |   | 170                                     |   |  |   | 90       |  
|                                                                                |  |                                         |         |   |                                      |   |         |                                            |  |   |                                         |   |  |   |          |  
|Total consolidated income (loss) from continuing operations before income taxes |  | $                                       | 3,016   |   |                                      | $ | (22,236 | )                                          |  | $ | (35,634                                 | ) |  | $ | (286,759 | )



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(14) GUARANTOR NOTE

On February 27, 2004, with an effective date of February 22, 2004, the Company acquired SF Holdings. The Company partially funded this acquisition through the issuance of the 8.5% Senior Subordinated Notes.
The 8.5% Senior Subordinated Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of the Companys subsidiaries. The consolidated guarantors include: Solo Cup Company (Solo Delaware), P.R. Solo
Cup, Inc., SF Holdings Group, Inc., Solo Cup Operating Corporation (formerly known as Sweetheart Cup Company Inc.), Lily-Canada Holding Corporation, Solo Cup (UK) Limited, Insulpak Holdings Limited and Solo Cup Europe Limited. The following
financial information presents the guarantors and non-guarantors of the 8.5% Senior Subordinated Notes, in accordance with Rule 3-10 of Regulation S-X.

The Statements of Operations for the thirteen weeks and thirty-nine weeks ended October 1, 2006 include an adjustment between Solo Delaware and Other Guarantors reflecting an immaterial correction of an error
during these periods which related to deferred income taxes. For the thirteen weeks ended October 1, 2006, the income tax benefit for Solo Delaware was decreased by $8.1 million and the income tax provision for Other Guarantors was decreased by
$8.1 million. For the thirty-nine weeks ended October 1, 2006, the income tax benefit for Solo Delaware was decreased by $7.6 million and the income tax provision for Other Guarantors was decreased by $7.6 million. There was no impact to the
consolidated income tax provision (benefit) or the Statement of Cash Flows during the periods effected.



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(14) GUARANTOR NOTE (Continued)



|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|---------------------------------------------------- |  | ---------------------------------------------------------------------- | ------- | - | ---------------- | - | --------- | --------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | --------- | -
|                                                     |  | Condensed Consolidated Balance Sheet September 30, 2007 (In
thousands) |        
|                                                     |  | Solo Delaware                                                          |         |   | Other Guarantors |   |           | Non- Guarantors |  | Eliminations |         |  | Consolidated |         
|Assets                                               |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Current assets:                                      |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Cash and cash equivalents                            |  | $                                                                      | 16,026  |   |                  | $ | 2,065     |                 |  | $            | 16,019  |  | $            |         |   |  | $ | 34,110    |  
|Accounts receivable:                                 |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Trade                                                |  |                                                                        |        |   |                  |   | 137,006   |                 |  |              | 33,560  |  |              |         |   |  |   | 170,566   |  
|Other                                                |  |                                                                        | 83,176  |   |                  |   | 17,054    |                 |  |              | 450     |  |              | (93,896  | ) |  |   | 6,784     |  
|Inventories                                          |  |                                                                        |        |   |                  |   | 308,196   |                 |  |              | 28,091  |  |              | (1,475   | ) |  |   | 334,812   |  
|Deferred income taxes                                |  |                                                                        |        |   |                  |   | 27,311    |                 |  |              | 1,568   |  |              | 445      |   |  |   | 29,324    |  
|Prepaid expenses and other current assets            |  |                                                                        | 42      |   |                  |   | 41,458    |                 |  |              | 6,648   |  |              |         |   |  |   | 48,148    |  
|Assets related to discontinued operations            |  |                                                                        |        |   |                  |   | 125,153   |                 |  |              |        |  |              | (114     | ) |  |   | 125,039   |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total current assets                                 |  |                                                                        | 99,244  |   |                  |   | 658,243   |                 |  |              | 86,336  |  |              | (95,040  | ) |  |   | 748,783   |  
|Property, plant and equipment, net                   |  |                                                                        |        |   |                  |   | 511,053   |                 |  |              | 52,527  |  |              |         |   |  |   | 563,580   |  
|Goodwill and intangible assets, net                  |  |                                                                        |        |   |                  |   | 32,078    |                 |  |              | 258     |  |              |         |   |  |   | 32,336    |  
|Other assets                                         |  |                                                                        | 78,622  |   |                  |   | 310       |                 |  |              | 3,122   |  |              | (50,278  | ) |  |   | 31,776    |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total assets                                         |  | $                                                                      | 177,866 |   |                  | $ | 1,201,684 |                 |  | $            | 142,243 |  | $            | (145,318 | ) |  | $ | 1,376,475 |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Liabilities and Shareholders Equity                 |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Current liabilities:                                 |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Accounts payable                                     |  | $                                                                      |        |   |                  | $ | 185,812   |                 |  | $            | 24,254  |  | $            | (93,940  | ) |  | $ | 116,126   |  
|Accrued expenses and other current liabilities       |  |                                                                        | 14,930  |   |                  |   | 92,657    |                 |  |              | 15,388  |  |              |         |   |  |   | 122,975   |  
|Short-term debt                                      |  |                                                                        |        |   |                  |   | 200       |                 |  |              |        |  |              |         |   |  |   | 200       |  
|Current maturities of long-term debt                 |  |                                                                        |        |   |                  |   | 279       |                 |  |              | 1,493   |  |              |         |   |  |   | 1,772     |  
|Liabilities related to discontinued operations       |  |                                                                        |        |   |                  |   | 30,280    |                 |  |              |        |  |              |         |   |  |   | 30,280    |  
|Debt allocated to discontinued operations            |  |                                                                        |        |   |                  |   | 162,700   |                 |  |              |        |  |              |         |   |  |   | 162,700   |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total current liabilities                            |  |                                                                        | 14,930  |   |                  |   | 471,928   |                 |  |              | 41,135  |  |              | (93,940  | ) |  |   | 434,053   |  
|Long-term debt, net of current maturities            |  |                                                                        | 137,676 |   |                  |   | 681,544   |                 |  |              | 2,241   |  |              |         |   |  |   | 821,461   |  
|Deferred income taxes                                |  |                                                                        | 35      |   |                  |   | 43,418    |                 |  |              | 4,326   |  |              |         |   |  |   | 47,779    |  
|Other liabilities                                    |  |                                                                        |        |   |                  |   | 79,554    |                 |  |              | 14,440  |  |              |         |   |  |   | 93,994    |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total liabilities                                    |  |                                                                        | 152,641 |   |                  |   | 1,276,444 |                 |  |              | 62,142  |  |              | (93,940  | ) |  |   | 1,397,287 |  
|Shareholders equity (deficit):                      |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Common stock                                         |  |                                                                        |        |   |                  |   |          |                 |  |              | 2,114   |  |              | (2,114   | ) |  |   |          |  
|Additional paid-in capital                           |  |                                                                        | 45,875  |   |                  |   | 209,120   |                 |  |              | 39,168  |  |              | (39,168  | ) |  |   | 254,995   |  
|(Accumulated deficit) retained earnings              |  |                                                                        | (17,412 | ) |                  |   | (282,768  | )               |  |              | 30,269  |  |              | (10,096  | ) |  |   | (280,007  | )
|Accumulated other comprehensive (loss) income        |  |                                                                        | (3,238  | ) |                  |   | (1,112    | )               |  |              | 8,550   |  |              |         |   |  |   | 4,200     |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total shareholders equity (deficit)                 |  |                                                                        | 25,225  |   |                  |   | (74,760   | )               |  |              | 80,101  |  |              | (51,378  | ) |  |   | (20,812   | )
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total liabilities and shareholders equity (deficit) |  | $                                                                      | 177,866 |   |                  | $ | 1,201,684 |                 |  | $            | 142,243 |  | $            | (145,318 | ) |  | $ | 1,376,475 |  
|                                                     |  |                                                                        |         |   |                  |   |           |                 |  |              |         |  |              |          |   |  |   |           |  

(Continued)



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(14) GUARANTOR NOTE (Continued)



|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|-------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | ------ | - | ---------------- | - | ------- | --------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                           |  | Consolidated Statement of Operations Thirteen weeks ended September 30, 2007 (In thousands) |       
|                                                                           |  | Solo Delaware                                                                               |        |   | Other Guarantors |   |         | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                                  |  | $                                                                                           |       |   |                  | $ | 494,495 |                 |  | $ | 64,005       |   |  | $            | (22,087 | ) |  | $ | 536,413 |  
|Cost of goods sold                                                         |  |                                                                                             |       |   |                  |   | 442,315 |                 |  |   | 53,342       |   |  |              | (22,225 | ) |  |   | 473,432 |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                               |  |                                                                                             |       |   |                  |   | 52,180  |                 |  |   | 10,663       |   |  |              | 138     |   |  |   | 62,981  |  
|Selling, general and administrative expenses                               |  |                                                                                             | 63     |   |                  |   | 48,040  |                 |  |   | 4,185        |   |  |              |        |   |  |   | 52,288  |  
|Gain on sale of property, plant and equipment                              |  |                                                                                             |       |   |                  |   | (9,048  | )               |  |   | (1,262       | ) |  |              |        |   |  |   | (10,310 | )
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Operating (loss) income                                                    |  |                                                                                             | (63    | ) |                  |   | 13,188  |                 |  |   | 7,740        |   |  |              | 138     |   |  |   | 21,003  |  
|Interest expense, net                                                      |  |                                                                                             | 2,635  |   |                  |   | 16,868  |                 |  |   | 286          |   |  |              |        |   |  |   | 19,789  |  
|Foreign currency exchange gain, net                                        |  |                                                                                             |       |   |                  |   | (1,546  | )               |  |   | (181         | ) |  |              |        |   |  |   | (1,727  | )
|Other income, net                                                          |  |                                                                                             |       |   |                  |   | (11     | )               |  |   | (64          | ) |  |              |        |   |  |   | (75     | )
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from continuing operations before income taxes               |  |                                                                                             | (2,698 | ) |                  |   | (2,123  | )               |  |   | 7,699        |   |  |              | 138     |   |  |   | 3,016   |  
|Income tax (benefit) provision                                             |  |                                                                                             | 73     |   |                  |   | (2,111  | )               |  |   | 2,938        |   |  |              |        |   |  |   | 900     |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from continuing operations                                   |  |                                                                                             | (2,771 | ) |                  |   | (12     | )               |  |   | 4,761        |   |  |              | 138     |   |  |   | 2,116   |  
|Income from discontinued operations, net of income tax provision of $2,057 |  |                                                                                             |       |   |                  |   | 3,325   |                 |  |   |             |   |  |              | (38     | ) |  |   | 3,287   |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Net (loss) income                                                          |  | $                                                                                           | (2,771 | ) |                  | $ | 3,313   |                 |  | $ | 4,761        |   |  | $            | 100     |   |  | $ | 5,403   |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|                                                                           | 
|                                                                           |  | Consolidated Statement of Operations Thirteen weeks ended October 1, 2006 (In thousands)    |       
|                                                                           |  | Solo Delaware                                                                               |        |   | Other Guarantors |   |         | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                                  |  | $                                                                                           |       |   |                  | $ | 498,703 |                 |  | $ | 68,313       |   |  | $            | (18,710 | ) |  | $ | 548,306 |  
|Cost of goods sold                                                         |  |                                                                                             |       |   |                  |   | 456,534 |                 |  |   | 57,078       |   |  |              | (18,762 | ) |  |   | 494,850 |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                               |  |                                                                                             |       |   |                  |   | 42,169  |                 |  |   | 11,235       |   |  |              | 52      |   |  |   | 53,456  |  
|Selling, general and administrative expenses                               |  |                                                                                             | 101    |   |                  |   | 46,007  |                 |  |   | 9,713        |   |  |              | (46     | ) |  |   | 55,775  |  
|Gain on sale of property, plant and equipment                              |  |                                                                                             |       |   |                  |   | 1,164   |                 |  |   | 77           |   |  |              |        |   |  |   | 1,241   |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Operating (loss) income                                                    |  |                                                                                             | (101   | ) |                  |   | (5,002  | )               |  |   | 1,445        |   |  |              | 98      |   |  |   | (3,560  | )
|Interest expense, net                                                      |  |                                                                                             | 1,262  |   |                  |   | 18,281  |                 |  |   | 381          |   |  |              |        |   |  |   | 19,924  |  
|Foreign currency exchange gain, net                                        |  |                                                                                             |       |   |                  |   | (330    | )               |  |   | (324         | ) |  |              |        |   |  |   | (654    | )
|Other income, net                                                          |  |                                                                                             |       |   |                  |   | (486    | )               |  |   | (108         | ) |  |              |        |   |  |   | (594    | )
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|(Loss) income from continuing operations before income taxes               |  |                                                                                             | (1,363 | ) |                  |   | (22,467 | )               |  |   | 1,496        |   |  |              | 98      |   |  |   | (22,236 | )
|Income tax (benefit) provision                                             |  |                                                                                             | (284   | ) |                  |   | (856    | )               |  |   | (79          | ) |  |              |        |   |  |   | (1,219  | )
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Income (loss) from continuing operations                                   |  |                                                                                             | (1,079 | ) |                  |   | (21,611 | )               |  |   | 1,575        |   |  |              | 98      |   |  |   | (21,017 | )
|Income from discontinued operations, net of income tax provision of $844   |  |                                                                                             |       |   |                  |   | 1,146   |                 |  |   |             |   |  |              | (14     | ) |  |   | 1,132   |  
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  
|Net income (loss)                                                          |  | $                                                                                           | (1,079 | ) |                  | $ | (20,465 | )               |  | $ | 1,575        |   |  | $            | 84      |   |  | $ | (19,885 | )
|                                                                           |  |                                                                                             |        |   |                  |   |         |                 |  |   |              |   |  |              |         |   |  |   |         |  

(Continued)



19



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##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(14) GUARANTOR NOTE (Continued)



|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|----------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ------ | - | ---------------- | - | --------- | --------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | --------- | -
|                                                                        |  | Consolidated Statement of Operations Thirty-nine weeks ended September 30, 2007 (In thousands) |       
|                                                                        |  | Solo Delaware                                                                                  |        |   | Other Guarantors |   |           | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                               |  | $                                                                                              |       |   |                  | $ | 1,501,382 |                 |  | $ | 183,168      |   |  | $            | (70,349 | ) |  | $ | 1,614,201 |  
|Cost of goods sold                                                      |  |                                                                                                |       |   |                  |   | 1,348,414 |                 |  |   | 156,082      |   |  |              | (69,965 | ) |  |   | 1,434,531 |  
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Gross profit                                                            |  |                                                                                                |       |   |                  |   | 152,968   |                 |  |   | 27,086       |   |  |              | (384    | ) |  |   | 179,670   |  
|Selling, general and administrative expenses                            |  |                                                                                                | (477   | ) |                  |   | 148,179   |                 |  |   | 12,631       |   |  |              | (85     | ) |  |   | 160,248   |  
|Gain on sale of property, plant and equipment                           |  |                                                                                                |       |   |                  |   | (10,212   | )               |  |   | (1,437       | ) |  |              |        |   |  |   | (11,649   | )
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Operating (loss) income                                                 |  |                                                                                                | 477    |   |                  |   | 15,001    |                 |  |   | 15,892       |   |  |              | (299    | ) |  |   | 31,071    |  
|Interest expense, net                                                   |  |                                                                                                | 2,144  |   |                  |   | 62,222    |                 |  |   | 768          |   |  |              |        |   |  |   | 65,134    |  
|Prepayment penalty                                                      |  |                                                                                                | 1,300  |   |                  |   |          |                 |  |   |             |   |  |              |        |   |  |   | 1,300     |  
|Loss on debt extinguishment                                             |  |                                                                                                | 3,962  |   |                  |   |          |                 |  |   |             |   |  |              |        |   |  |   | 3,962     |  
|Foreign currency exchange gain, net                                     |  |                                                                                                |       |   |                  |   | (2,673    | )               |  |   | (848         | ) |  |              |        |   |  |   | (3,521    | )
|Other income (expense), net                                             |  |                                                                                                |       |   |                  |   | (6        | )               |  |   | (164         | ) |  |              |        |   |  |   | (170      | )
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|(Loss) income from continuing operations before income taxes            |  |                                                                                                | (6,929 | ) |                  |   | (44,542   | )               |  |   | 16,136       |   |  |              | (299    | ) |  |   | (35,634   | )
|Income tax provision (benefit)                                          |  |                                                                                                | (222   | ) |                  |   | (6,487    | )               |  |   | 5,763        |   |  |              |        |   |  |   | (946      | )
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|(Loss) income from continuing operations                                |  |                                                                                                | (6,707 | ) |                  |   | (38,055   | )               |  |   | 10,373       |   |  |              | (299    | ) |  |   | (34,688   | )
|Income from discontinued operations, net of income tax provision $2,729 |  |                                                                                                |       |   |                  |   | 4,450     |                 |  |   |             |   |  |              | (90     | ) |  |   | 4,360     |  
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Net (loss) income                                                       |  | $                                                                                              | (6,707 | ) |                  | $ | (33,605   | )               |  | $ | 10,373       |   |  | $            | (389    | ) |  | $ | (30,328   | )
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|                                                                        | 
|                                                                        |  | Consolidated Statement of Operations Thirty-nine weeks ended October 1, 2006 (In thousands)    |       
|                                                                        |  | Solo Delaware                                                                                  |        |   | Other Guarantors |   |           | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                               |  | $                                                                                              |       |   |                  | $ | 1,504,783 |                 |  | $ | 207,761      |   |  | $            | (60,990 | ) |  | $ | 1,651,554 |  
|Cost of goods sold                                                      |  |                                                                                                |       |   |                  |   | 1,360,543 |                 |  |   | 176,165      |   |  |              | (60,895 | ) |  |   | 1,475,813 |  
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Gross profit                                                            |  |                                                                                                |       |   |                  |   | 144,240   |                 |  |   | 31,596       |   |  |              | (95     | ) |  |   | 175,741   |  
|Selling, general and administrative expenses                            |  |                                                                                                | 396    |   |                  |   | 157,881   |                 |  |   | 20,635       |   |  |              | (99     | ) |  |   | 178,813   |  
|Impairment of goodwill                                                  |  |                                                                                                |       |   |                  |   | 228,537   |                 |  |   |              |   |  |              |        |   |  |   | 228,537   |  
|Gain on sale of property, plant and equipment                           |  |                                                                                                |       |   |                  |   | 2,817     |                 |  |   | 220          |   |  |              |        |   |  |   | 3,037     |  
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Operating (loss) income                                                 |  |                                                                                                | (396   | ) |                  |   | (244,995  | )               |  |   | 10,741       |   |  |              | 4       |   |  |   | (234,646  | )
|Interest expense, net                                                   |  |                                                                                                | 6,951  |   |                  |   | 48,320    |                 |  |   | 1,299        |   |  |              |        |   |  |   | 56,570    |  
|Foreign currency exchange gain, net                                     |  |                                                                                                |       |   |                  |   | (4,016    | )               |  |   | (351         | ) |  |              |        |   |  |   | (4,367    | )
|Other income (expense), net                                             |  |                                                                                                |       |   |                  |   | 63        |                 |  |   | (153         | ) |  |              |        |   |  |   | (90       | )
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|(Loss) income from continuing operations before income taxes            |  |                                                                                                | (7,347 | ) |                  |   | (289,362  | )               |  |   | 9,946        |   |  |              | 4       |   |  |   | (286,759  | )
|Income tax provision (benefit)                                          |  |                                                                                                | (3,100 | ) |                  |   | 55,024    |                 |  |   | 3,246        |   |  |              |        |   |  |   | 55,170    |  
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Income (loss) from continuing operations                                |  |                                                                                                | (4,247 | ) |                  |   | (344,386  | )               |  |   | 6,700        |   |  |              | 4       |   |  |   | (341,929  | )
|Income from discontinued operations, net of income tax provision $734   |  |                                                                                                |       |   |                  |   | 970       |                 |  |   |             |   |  |              | (42     | ) |  |   | 928       |  
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Net income (loss)                                                       |  | $                                                                                              | (4,247 | ) |                  | $ | (343,416  | )               |  | $ | 6,700        |   |  | $            | (38     | ) |  | $ | (341,001  | )
|                                                                        |  |                                                                                                |        |   |                  |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  

(Continued)



20



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##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(14) GUARANTOR NOTE (Continued)



|                                                              |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- | -------- | - | ---------------- | - | -------- | --------------- |  | - | ------------ | - |  | - | -------- | -
|                                                              |  | Condensed Consolidated Statement of Cash
Flows Thirty-nine weeks ended September 30, 2007 (In thousands) |         
|                                                              |  | Solo Delaware                                                                                            |          |   | Other Guarantors |   |          | Non- Guarantors |  |   | Consolidated |  
|CASH FLOWS FROM OPERATING ACTIVITIES                          |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|Net cash provided by (used in) operating activities           |  | $                                                                                                        | 176,556  |   |                  | $ | (128,083 | )               |  | $ | 12,739       |   |  | $ | 61,212   |  
|CASH FLOWS FROM INVESTING ACTIVITIES                          |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|Purchase of property, plant and equipment                     |  |                                                                                                          |         |   |                  |   | (27,216  | )               |  |   | (1,950       | ) |  |   | (29,166  | )
|Proceeds from sale of property, plant and equipment           |  |                                                                                                          |         |   |                  |   | 141,815  |                 |  |   | 2,377        |   |  |   | 144,192  |  
|Transfer of property, plant and equipment                     |  |                                                                                                          |         |   |                  |   | 1,023    |                 |  |   | (1,023       | ) |  |   |         |  
|Increase in cash in escrow                                    |  |                                                                                                          |         |   |                  |   | (50      | )               |  |   |             |   |  |   | (50      | )
|                                                              |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|Net cash provided by (used in) investing activities           |  |                                                                                                          |         |   |                  |   | 115,572  |                 |  |   | (596         | ) |  |   | 114,976  |  
|CASH FLOWS FROM FINANCING ACTIVITIES                          |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|Net (repayments) borrowings under revolving credit facilities |  |                                                                                                          | (49,500  | ) |                  |   |         |                 |  |   | (94          | ) |  |   | (49,594  | )
|Borrowings under the term notes                               |  |                                                                                                          | 50,000   |   |                  |   |         |                 |  |   |             |   |  |   | 50,000   |  
|Repayments of the term notes                                  |  |                                                                                                          | (159,875 | ) |                  |   |         |                 |  |   | (5,819       | ) |  |   | (165,694 | )
|Contribution                                                  |  |                                                                                                          | (2,007   | ) |                  |   | 5,557    |                 |  |   | (5,557       | ) |  |   | (2,007   | )
|Repayments of other debt                                      |  |                                                                                                          |         |   |                  |   | (23      | )               |  |   | (65          | ) |  |   | (88      | )
|Debt issuance costs                                           |  |                                                                                                          | (380     | ) |                  |   |         |                 |  |   |             |   |  |   | (380     | )
|                                                              |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|Net cash (used in) provided by financing activities           |  |                                                                                                          | (161,762 | ) |                  |   | 5,534    |                 |  |   | (11,535      | ) |  |   | (167,763 | )
|Effect of exchange rate changes on cash                       |  |                                                                                                          |         |   |                  |   | 17       |                 |  |   | 1,065        |   |  |   | 1,082    |  
|                                                              |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          |  |                                                                                                          | 14,794   |   |                  |   | (6,960   | )               |  |   | 1,673        |   |  |   | 9,507    |  
|Cash and cash equivalents, beginning of period                |  |                                                                                                          | 1,231    |   |                  |   | 10,815   |                 |  |   | 14,345       |   |  |   | 26,391   |  
|                                                              |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  
|Cash and cash equivalents, end of period                      |  | $                                                                                                        | 16,025   |   |                  | $ | 3,855    |                 |  | $ | 16,018       |   |  | $ | 35,898   |  
|                                                              |  |                                                                                                          |          |   |                  |   |          |                 |  |   |              |   |  |   |          |  



|                                                              |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------- | -------- | - | ---------------- | - | ------- | --------------- |  | - | ------------ | - |  | - | ------- | -
|                                                              |  | Condensed Consolidated Statement of Cash
Flows Thirty-nine weeks ended October 1, 2006 (In thousands) |         
|                                                              |  | Solo Delaware                                                                                         |          |   | Other Guarantors |   |         | Non- Guarantors |  |   | Consolidated |  
|CASH FLOWS FROM OPERATING ACTIVITIES                          |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|Net cash (used in) provided by operating activities           |  | $                                                                                                     | (116,236 | ) |                  | $ | 44,708  |                 |  | $ | 12,835       |   |  | $ | (58,693 | )
|CASH FLOWS FROM INVESTING ACTIVITIES                          |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|Purchase of property, plant and equipment                     |  |                                                                                                       |         |   |                  |   | (42,846 | )               |  |   | (2,525       | ) |  |   | (45,371 | )
|Proceeds from sale of property, plant and equipment           |  |                                                                                                       |         |   |                  |   | 3,324   |                 |  |   | 56           |   |  |   | 3,380   |  
|Decrease in cash in escrow                                    |  |                                                                                                       | 13,041   |   |                  |   |        |                 |  |   |             |   |  |   | 13,041  |  
|                                                              |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|Net cash provided by (used in) investing activities           |  |                                                                                                       | 13,041   |   |                  |   | (39,522 | )               |  |   | (2,469       | ) |  |   | (28,950 | )
|CASH FLOWS FROM FINANCING ACTIVITIES                          |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|Net borrowings (repayments) under revolving credit facilities |  |                                                                                                       | 31,700   |   |                  |   |        |                 |  |   | (575         | ) |  |   | 31,125  |  
|Borrowings under the term notes                               |  |                                                                                                       | 80,000   |   |                  |   |        |                 |  |   |             |   |  |   | 80,000  |  
|Repayments of the term notes                                  |  |                                                                                                       | (4,875   | ) |                  |   |        |                 |  |   | (1,285       | ) |  |   | (6,160  | )
|Repayments of other debt                                      |  |                                                                                                       |         |   |                  |   |        |                 |  |   | (3,317       | ) |  |   | (3,317  | )
|Debt issuance costs                                           |  |                                                                                                       | (4,052   | ) |                  |   |        |                 |  |   | (79          | ) |  |   | (4,131  | )
|                                                              |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities           |  |                                                                                                       | 102,773  |   |                  |   |        |                 |  |   | (5,256       | ) |  |   | 97,517  |  
|Effect of exchange rate changes on cash                       |  |                                                                                                       |         |   |                  |   | 163     |                 |  |   | 39           |   |  |   | 202     |  
|                                                              |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          |  |                                                                                                       | (422     | ) |                  |   | 5,349   |                 |  |   | 5,149        |   |  |   | 10,076  |  
|Cash and cash equivalents, beginning of period                |  |                                                                                                       | 422      |   |                  |   | 6,616   |                 |  |   | 5,049        |   |  |   | 12,087  |  
|                                                              |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  
|Cash and cash equivalents, end of period                      |  | $                                                                                                     |         |   |                  | $ | 11,965  |                 |  | $ | 10,198       |   |  | $ | 22,163  |  
|                                                              |  |                                                                                                       |          |   |                  |   |         |                 |  |   |              |   |  |   |         |  



21



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SOLO CUP COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



(15) SUBSEQUENT EVENTS

LTIP

On October 1, 2007, the Board of Directors of the Company approved a new Long Term Incentive Plan
(LTIP). The purpose of the LTIP is to provide long term incentives to selected key management employees of the Company and its affiliates, including the named executive officers.

Sale of Hoffmaster division

On October 15,
2007, the Company sold all of the assets of its Hoffmaster division for approximately $170 million. The net proceeds from the sale will be applied to reduce the term loan under the First Lien (Note 2). The Hoffmaster division has been reflected as a
discontinued operation in the accompanying consolidated financial statements, except that the gain on sale will be reflected in the fourth quarter of 2007.

Closure of Leominster and Wheeling

On October 16, 2007, the Company announced that it intends to close manufacturing
facilities in Leominster, Massachusetts, and Wheeling, Illinois, and shift production and employment to other manufacturing locations, including North Andover, Massachusetts, and Chicago, Illinois. The Leominster and Wheeling plants are expected to
close by December 31, 2007, and February 28, 2008, respectively.

Sale of Japanese Subsidiaries

On October 25, 2007, the Company announced that it signed an agreement to sell 100% of the capital stock of its Japanese subsidiaries, Yugen Kaisha
Solo Cup Asia-Pacific and Solo Cup Japan Co., Ltd. The transaction closed on November 12, 2007. Under the terms of the agreement, the buyer acquired all property, plant and equipment, including Solo Cup Japans manufacturing facilities in
Fuji and Kumamoto, Japan and corporate office in Tokyo. Solo Cup Japan primarily manufactures drinking straws and milk bottle caps. The net proceeds from the sale of approximately $40 million must be applied to reduce the term loan under the First
Lien. The net assets as of September 30, 2007 include approximately $17.9 million of accounts receivable, $3.0 million of inventory, $14.0 million of property, plant and equipment, $2.6 million of other assets and $22.8 million of liabilities.
The Companys Japanese subsidiaries will be reflected as discontinued operations commencing in the fourth quarter of 2007.



22



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operation.
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report,
as well as consolidated financial statements and notes thereto and related management discussion and analysis of financial condition and results of operations included in our 2006 Annual Report on Form 10-K.

General

We are a leading global producer and marketer of disposable foodservice products and have served our industry for over 70 years. We manufacture one of the broadest product lines of cups, lids, food containers, plates,
bowls, portion cups, stirrers, straws, cutlery, and food packaging containers in the industry, with products available in plastic, paper and foam. Our products are known for their quality, reliability and consistency. Our products are marketed
primarily under the Solo® and Sweetheart® brands, as well as Jack Frost® and Trophy®. We are one of the leading suppliers of branded disposable cups and plastic plates and bowls to consumer customers in the United States. We also provide a line of
products to our customers under private label. We currently operate manufacturing facilities and distribution centers in North America, the United Kingdom and Panama, and we sell our products worldwide.

The results of operations for our Hoffmaster division are excluded from the results of our continuing operations. The business was sold in October 2007.

Thirteen Weeks Ended September 30, 2007 Compared to the Thirteen Weeks Ended October 1, 2006



|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   
|-------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---------------------------------- | - | ------- | ------------------------- |  | - | ------- | - |  | ----- | --
|(in thousands)                                           |  | Thirteen weeksendedSeptember 30, 2007 |         |   | Thirteen weeksendedOctober 1, 2006 |   |         | Favorable / (Unfavorable) | 
|                                                         |  |                                       | $       |   |                                    | % |        
|Net sales                                                |  | $                                     | 536,413 |   |                                    | $ | 548,306 |                           |  | $ | (11,893 | ) |  | (2.2  | )%
|Cost of goods sold                                       |  |                                       | 473,432 |   |                                    |   | 494,850 |                           |  |   | 21,418  |   |  | 4.3   |   
|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   
|Gross profit                                             |  |                                       | 62,981  |   |                                    |   | 53,456  |                           |  |   | 9,525   |   |  | 17.8  |   
|Selling, general and administrative expenses             |  |                                       | 52,288  |   |                                    |   | 55,775  |                           |  |   | 3,487   |   |  | 6.3   |   
|(Gain) loss on sale of property, plant and equipment     |  |                                       | (10,310 | ) |                                    |   | 1,241   |                           |  |   | 11,551  |   |  | *     |   
|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   
|Operating income (loss)                                  |  |                                       | 21,003  |   |                                    |   | (3,560  | )                         |  |   | 24,563  |   |  | *     |   
|Interest expense, net                                    |  |                                       | 19,789  |   |                                    |   | 19,924  |                           |  |   | 135     |   |  | 0.7   |   
|Foreign currency exchange gain, net                      |  |                                       | (1,727  | ) |                                    |   | (654    | )                         |  |   | 1,073   |   |  | 164.1 |   
|Other income, net                                        |  |                                       | (75     | ) |                                    |   | (594    | )                         |  |   | (519    | ) |  | (87.4 | ) 
|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   
|Income (loss) before income taxes                        |  |                                       | 3,016   |   |                                    |   | (22,236 | )                         |  |   | 25,252  |   |  | *     |   
|Income tax provision (benefit)                           |  |                                       | 900     |   |                                    |   | (1,219  | )                         |  |   | (2,119  | ) |  | *     |   
|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   
|Income (loss) from continuing operations                 |  |                                       | 2,116   |   |                                    |   | (21,017 | )                         |  |   | 23,133  |   |  | *     |   
|Income from discontinued operations, net of income taxes |  |                                       | 3,287   |   |                                    |   | 1,132   |                           |  |   | 2,155   |   |  | 190.4 |   
|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   
|Net income (loss)                                        |  | $                                     | 5,403   |   |                                    | $ | (19,885 | )                         |  | $ | 25,288  |   |  | *     |   
|                                                         |  |                                       |         |   |                                    |   |         |                           |  |   |         |   |  |       |   

---

|* | Not meaningful
|- | --------------

Net sales decreased $11.9 million, or
2.2%, for the thirteen weeks ended September 30, 2007 compared to the prior year period. The decrease in net sales reflects a 9.2% decrease in sales volume partially offset by a 7.0% increase in average realized sales price as compared to the
thirteen weeks ended October 1, 2006. A portion of the lower sales volume is a result of the sale of certain assets in our Asia-Pacific business segment in December 2006, which represents approximately $9.3 million of the decline.

Excluding the impact from Asia-Pacific, the remaining decrease in sales of $2.6 million reflects a decrease in sales volume of 8.9% partially offset
by an increase in average realized sales price of 8.4%. This decrease in sales volume is a reflection of our strategic initiatives across product categories. Lower volumes are also a result of our concerted effort to improve commercial arrangements.
In addition, lower sales reflect the impact of competitive pressure. The increase in average realized sales price reflects both a shift in product mix and price increases implemented as a result of increasing raw material costs.



23



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##### Table of Contents

For the thirteen weeks ended September 30, 2007, gross profit increased $9.5 million or 17.8% when
compared to the prior year period. As a percentage of net sales, gross profit was 11.7% in the third quarter of 2007 versus 9.7% in the third quarter of 2006. The increase in the gross profit percentage reflects an increase in average realized sales
price, cost improvements realized from the implementation of our performance improvement program, a result of greater manufacturing efficiencies, and lower costs for freight and distribution reflecting the benefit of our new information systems.
These improvements were only partially offset by the impact of higher raw material costs, professional fees related to our performance improvement program and increased obsolescence reserves resulting from our SKU rationalization efforts.

Selling, general and administrative expenses decreased $3.5 million for the thirteen weeks ended September 30, 2007 compared to the
thirteen weeks ended October 1, 2006. The improvement reflects approximately $5 million of asset impairment in the prior year period related to our Japan dairy assets. Selling, general and administrative expense in 2007 also reflects increased
professional fees primarily related to our performance improvement program, which were more than offset by the benefit of reduced general and administrative costs. As a percentage of net sales, selling, general and administrative expenses were 9.7%
in the third quarter of 2007 versus 10.2% in the third quarter of 2006.

Gain on sale of property, plant and equipment for the thirteen
weeks ended September 30, 2007 was $10.3 million compared to a loss on sale of property, plant and equipment of $1.2 million for the thirteen weeks ended October 1, 2006. The primary driver of the increase is the gain recognized on the
sale of our uncoated white paper plate product line.

For the thirteen weeks ended September 30, 2007, interest expense, net decreased
slightly compared to the prior year period. The decrease is the net impact of lower average debt outstanding offset by higher interest rates compared to the prior year period.

The income tax provision of $0.9 million for the thirteen weeks ended September 30, 2007 is primarily related to our foreign jurisdictions. The tax
benefit generated from the loss incurred during the period was largely offset by a corresponding increase in the valuation allowance.

Thirty-nine
Weeks Ended September 30, 2007 Compared to the Thirty-nine Weeks Ended October 1, 2006



|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   
|-------------------------------------------------------- |  | ---------------------------------------- | --------- | - | -------------------------------------- | - | --------- | ------------------------- |  | - | ------- | - |  | ----- | --
|(in thousands)                                           |  | Thirty-nine weeksendedSeptember 30, 2007 |           |   | Thirty-nine weeksended October 1, 2006 |   |           | Favorable / (Unfavorable) | 
|                                                         |  |                                          | $         |   |                                        | % |          
|Net sales                                                |  | $                                        | 1,614,201 |   |                                        | $ | 1,651,554 |                           |  | $ | (37,353 | ) |  | (2.3  | )%
|Cost of goods sold                                       |  |                                          | 1,434,531 |   |                                        |   | 1,475,813 |                           |  |   | 41,282  |   |  | 2.8   |   
|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   
|Gross profit                                             |  |                                          | 179,670   |   |                                        |   | 175,741   |                           |  |   | 3,929   |   |  | 2.2   |   
|Selling, general and administrative expenses             |  |                                          | 160,248   |   |                                        |   | 178,813   |                           |  |   | 18,565  |   |  | 10.4  |   
|Impairment of goodwill                                   |  |                                          |          |   |                                        |   | 228,537   |                           |  |   | 228,537 |   |  | 100.0 |   
|(Gain) loss on sale of property, plant and equipment     |  |                                          | (11,649   | ) |                                        |   | 3,037     |                           |  |   | 14,686  |   |  | *     |   
|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   
|Operating income (loss)                                  |  |                                          | 31,071    |   |                                        |   | (234,646  | )                         |  |   | 265,717 |   |  | *     |   
|Interest expense, net                                    |  |                                          | 65,134    |   |                                        |   | 56,570    |                           |  |   | (8,564  | ) |  | (15.1 | ) 
|Prepayment penalty                                       |  |                                          | 1,300     |   |                                        |   |          |                           |  |   | (1,300  | ) |  | *     |   
|Loss on debt extinguishment                              |  |                                          | 3,962     |   |                                        |   |          |                           |  |   | (3,962  | ) |  | *     |   
|Foreign currency exchange gain, net                      |  |                                          | (3,521    | ) |                                        |   | (4,367    | )                         |  |   | (846    | ) |  | (19.4 | ) 
|Other income, net                                        |  |                                          | (170      | ) |                                        |   | (90       | )                         |  |   | 80      |   |  | 88.9  |   
|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   
|Loss before income taxes                                 |  |                                          | (35,634   | ) |                                        |   | (286,759  | )                         |  |   | 251,125 |   |  | 87.6  |   
|Income tax (benefit) provision                           |  |                                          | (946      | ) |                                        |   | 55,170    |                           |  |   | 56,116  |   |  | *     |   
|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   
|Loss from continuing operations                          |  |                                          | (34,688   | ) |                                        |   | (341,929  | )                         |  |   | 307,241 |   |  | 89.9  |   
|Income from discontinued operations, net of income taxes |  |                                          | 4,360     |   |                                        |   | 928       |                           |  |   | 3,432   |   |  | 369.8 |   
|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   
|Net loss                                                 |  | $                                        | (30,328   | ) |                                        | $ | (341,001  | )                         |  | $ | 310,673 |   |  | 91.1  | % 
|                                                         |  |                                          |           |   |                                        |   |           |                           |  |   |         |   |  |       |   

---

|* | Not meaningful
|- | --------------

Net sales decreased $37.4 million, or
2.3%, for the thirty-nine weeks ended September 30, 2007 compared to the prior year period. The decrease in net sales reflected a 5.7% decrease in sales volume partially offset by a 3.4%



24



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##### Table of Contents

increase in average realized sales price as compared to the thirty-nine weeks ended October 1, 2006. Approximately $30.5 million of the decline is a
result of lower sales volumes due to the sale of certain assets in our Asia-Pacific business segment in December 2006.

Excluding the
impact from Asia-Pacific, the remaining decrease in sales of $6.9 million reflects a decrease in sales volume of 5.2% partially offset by an increase in average realized sales price of 4.8%. This decrease in sales volume is a reflection of our
strategic initiatives across product categories. Lower volumes are also a result of our concerted effort to improve commercial arrangements. In addition, lower sales reflect the impact of competitive pressure. The increase in average realized sales
price reflects both a shift in product mix and price increases implemented as a result of higher raw material costs.

For the thirty-nine
weeks ended September 30, 2007, gross profit increased $3.9 million or 2.2% compared to the prior year period. As a percentage of net sales, gross profit was 11.1% in 2007 versus 10.6% in 2006. The increase in gross profit reflects an increase
in average realized sales price, lower costs for freight and distribution reflecting the benefit of our new information systems, partially offset by the impact of higher raw material costs and increased obsolescence reserves resulting from our SKU
rationalization efforts. Cost improvements realized from the implementation of our performance improvement program, reflecting greater manufacturing efficiencies, were only partially offset by the related professional fees.

Gross profit in 2006 included a charge of $9.8 million for a reserve for spare parts and inventory obsolescence due to a change in estimate related to
the valuation of these assets. This decrease in gross profit was offset by $22.1 million of curtailment gains related to negotiated changes in postretirement benefits for certain active employees. Excluding these amounts, our gross profit percentage
would have been 9.9% for the thirty-nine weeks ended October 1, 2006.

Selling, general and administrative expenses decreased $18.6
million for the thirty-nine weeks ended September 30, 2007 compared to the thirty-nine weeks ended October 1, 2006. The improvement reflects approximately $8 million of asset impairment and $7 million of severance costs in the prior year
period, the latter related to a reduction-in-force and the departure of certain senior executives. Selling, general and administrative expense in 2007 also reflects an increase in performance-based compensation expense as well as an increase in
professional fees related to our performance improvement program and our debt reduction initiatives, which were more than offset by reduced administrative costs attributable to cost savings initiatives implemented during 2007. As a percentage of net
sales, selling, general and administrative expenses were 9.9% in 2007 versus 10.8% in 2006.

Gain on sale of property, plant and equipment
for the thirty-nine weeks ended September 30, 2007 was $11.6 million compared to a loss on sale of property, plant and equipment of $3.0 million for the thirty-nine weeks ended October 1, 2006. The primary driver of the increase is the
gain recognized on the sale of our uncoated white paper plate product line.

For the thirty-nine weeks ended September 30, 2007,
interest expense, net increased $8.6 million compared to the prior year period. This increase is primarily attributable to higher outstanding borrowings under our Second Lien Facility (Second Lien) in addition to higher interest rates
compared to the prior year period.

For the thirty-nine weeks ended September 30, 2007, prepayment penalties were $1.3 million and the
loss on debt extinguishment was $4.0 million. The prepayment penalty was the result of our early extinguishment of the Second Lien. The loss on debt extinguishment represents the write off of unamortized deferred financing fees resulting from the
extinguishment of the Second Lien.

The income tax benefit of $0.9 million for the thirty-nine weeks ended September 30, 2007
represents the partial reversal of our valuation allowance, related to deferred tax assets, resulting from the sale and leaseback of six properties during the period offset by income tax provision primarily related to our foreign jurisdictions. For
our domestic operations, the tax benefit generated from the loss incurred during the period was largely offset by a corresponding increase in the valuation allowance; therefore, a minimal net domestic tax benefit was recognized. During the
thirty-nine weeks ended October 1, 2006, the income tax provision of $55.2 million included a $105.0 million income tax charge to establish a valuation allowance for certain deferred tax assets partially offset by the tax benefit generated from
domestic operations.



25



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##### Table of Contents

Liquidity and Capital Resources

The Company relies on cash flows from operations and revolving credit borrowings to finance its working capital requirements and capital expenditures. Net cash provided by operating activities during the thirty-nine
weeks ended September 30, 2007 was $61.2 million compared to net cash used in operating activities of $58.7 million during the thirty-nine weeks ended October 1, 2006. The improvement was driven by a decrease in accounts receivable,
partially driven by the receipt of vendor rebate payments, and lower inventory balances. The lower inventory reflects the impact of various initiatives designed to reduce inventory levels, including our new order management system.

Working capital decreased by $147.1 million to $314.7 million at September 30, 2007 from $461.8 million at December 31, 2006. During the
thirty-nine weeks ended September 30, 2007, working capital was impacted by the reclassification of $162.7 million of long-term debt to current. This represents the net proceeds from the sale of our Hoffmaster division which will be used to
reduce the term loan under our First Lien in October 2007. The working capital is also impacted by reclassification of assets ($34.3 million) and liabilities ($6.4 million) of our Hoffmaster division as current, due to the impending sale of the
division, which would have otherwise been treated as non-current. Excluding the impact of these reclassifications, working capital decreased by $5.6 million.

Net cash provided by investing activities during the thirty-nine weeks ended September 30, 2007 was $115.0 million compared to net cash used in investing activities of $29.0 million during the thirty-nine weeks
ended October 1, 2006. The increase was primarily driven by the proceeds from the sale-leaseback transaction of approximately $130.0 million, described below, the proceeds of $13.0 million from the sale of our uncoated white paper plate product
line, and lower capital expenditures.

Capital expenditures during the thirty-nine weeks ended September 30, 2007 were $29.2 million
compared to $45.4 million during the thirty-nine weeks ended October 1, 2006. The decrease in capital spending reflects prior year expenditures for our new order management system. The lower spending in 2007 also reflects a planned shift of
capital expenditures to the fourth quarter. Capital expenditures were primarily funded by borrowings under our revolving credit facilities. For the remainder of 2007, the Company intends to rely on cash provided by operations and the revolving
credit facilities for its capital expenditures.

In June 2007, we entered into a lease agreement in conjunction with the sale of six of our
manufacturing facilities. We received proceeds of $130.0 million that were used to retire our Second Lien. Upon the sale of the six properties, we immediately leased them back pursuant to a 20-year term lease (the Lease). The Lease
contains four five-year renewal term options. The Lease is non-cancelable. Annual rent for the six properties is approximately $11.7 million, payable on a quarterly basis, with a provision for a 2% annual rent escalation. The Company is responsible
for, among other things, operating costs, maintenance, replacement and repair costs for the properties. The Lease provides that in the event of a change in control of the Company, Landlord consent is required if the successor tenant does not meet
certain credit criteria. The Lease also contains standard default terms and conditions as well as certain cross-default provisions if the Company fails to cure a principal or interest payment default under its Credit Agreement dated
February 27, 2004, as amended (the First Lien), or upon the acceleration of the First Lien or the indenture governing our 8.5% Senior Subordinated Notes.

Net cash used in financing activities during the thirty-nine weeks ended September 30, 2007 was $167.8 million compared to net cash provided by financing activities of $97.5 million during the thirty-nine weeks
ended October 1, 2006. During the thirty-nine weeks ended September 30, 2007, the net cash used in financing activities was driven by the repayment of our $130.0 million Second Lien and $29.9 million of prepayments on our First Lien term
loan.



26



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##### Table of Contents

Long-term debt

The following is a summary of our long-term debt at September 30, 2007 (in thousands):



|                                                                  |  |                    |        
|----------------------------------------------------------------- |  | ------------------ | -------
|                                                                  |  | September 30, 2007
|Long-term debt:                                                   |  |                    |        
|8.5% Senior Subordinated Notes(1)                                 |  | $                  | 325,000
|First Lien Facility  Term Loan                                   |  |                    | 602,250
|First Lien Facility  Revolver                                    |  |                    | 53,100 
|Canadian Credit Facility  Term Loan                              |  |                    | 3,694  
|Capital lease obligations                                         |  |                    | 1,889  
|                                                                  |  |                    |        
|Total long-term debt                                              |  |                    | 985,933
|Less: Current maturities of long-term debt                        |  |                    | 1,772  
|Less: Debt allocated to discontinued operations                   |  |                    | 162,700
|                                                                  |  |                    |        
|Long-term debt, net of current maturities  continuing operations |  | $                  | 821,461
|                                                                  |  |                    |        

The following is a summary of our committed revolving credit facilities at September 30, 2007
(in thousands):



|                          |  |                  |         |                    |   |                      |  |                    |        |  |   |       
|------------------------- |  | ---------------- | ------- | ------------------ | - | -------------------- |  | ------------------ | ------ |  | - | ------
|                          |  | CommitmentAmount |         | AmountsOutstanding |   | Letters ofCredit (2) |  | UnusedCapacity (3)
|First Lien Facility:      |  |                  |         |                    |   |                      |  |                    |        |  |   |       
|Revolving facility        |  | $                | 150,000 |                    | $ | 53,100               |  | $                  | 28,967 |  | $ | 67,933
|Canadian Credit Facility: |  |                  |         |                    |   |                      |  |                    |        |  |   |       
|Revolving facility        |  |                  | 12,551  |                    |   |                     |  |                    |       |  |   | 12,551
|                          |  |                  |         |                    |   |                      |  |                    |        |  |   |       
|                          |  | $                | 162,551 |                    | $ | 53,100               |  | $                  | 28,967 |  | $ | 80,484
|                          |  |                  |         |                    |   |                      |  |                    |        |  |   |       

---

|(1) | From time-to-time, and in accordance with any applicable securities laws, the
Companys principal shareholders or their affiliates may enter the market to purchase or sell Notes.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Availability of the credit facilities is reduced by letters of credit issued under
the facilities.
|--- | --------------------------------------------------------------------------------------------------

|(3) | In addition to the unused capacity under our revolving facilities, the term loan
under our Canadian credit facility had additional borrowing availability of CAD $7.4 million (approximately $7.4 million) as of September 30, 2007.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Second Lien Facility

On
March 31, 2006, we entered into a senior secured second lien credit agreement, which was subsequently amended by Amendment No. 1, dated October 13, 2006, and by Amendment No. 2, dated December 22, 2006 (collectively, the
Second Lien). The Second Lien provided a secured term loan facility in the amount of $80.0 million (Second Term Loan). The proceeds of the Second Term Loan were used to reduce amounts outstanding under our revolving credit
facility under the First Lien. The principal amount was due upon maturity in February 2012. On January 5, 2007, we borrowed an additional $50.0 million under our Second Lien, which was provided by Amendment No. 2, and used the proceeds to
pay down amounts outstanding under the revolving credit facility under our First Lien, as required by Amendment No. 2. In June 2007, we repaid the Second Lien with the proceeds of our sale-leaseback transaction described above.

First Lien Facility

On
February 27, 2004, we entered into credit facilities comprised of a $150.0 million revolving credit facility maturing in 2010 and a $650.0 million term loan facility maturing on February 27, 2011 (collectively, the First Lien).
The revolving credit facility is principally used for working capital purposes, and the term loan facility was used to finance our acquisition of SF Holdings and related transactions. The First Lien was subsequently amended by Amendment No. 1
dated as of March 31, 2005, Amendment No. 2 dated as of October 14, 2005, Amendment No. 3 and waiver dated as of March 27, 2006, Amendment No. 4 and waiver dated as of October 13, 2006 and Amendment No. 5
dated as of December 22, 2006.



27



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##### Table of Contents

The terms of the First Lien, as amended, provide for scheduled quarterly principal payments through
November 27, 2010, with a balloon payment of $606.125 million due on February 27, 2011. All mandatory quarterly payments have been made to date.

During the thirteen weeks ended September 30, 2007, the Company was required to make a mandatory prepayment to the term loan of $7.7 million based on disposition of assets. The Company also made $17.3 million of
optional prepayments. The prepayments will be applied to the Companys next four quarterly scheduled principal payments and the remaining schedule of principal payments, beginning November 2008, has been adjusted from $1.625 million per quarter
to approximately $1.151 million per quarter.

We were in compliance with all financial covenants under the First Lien during the thirteen
weeks ended September 30, 2007.

Other Contingencies

We entered into agreements with the State of Illinois (State) and the City of Chicago (City) relating to the acquisition and
development of certain property of the Company located in the City. Pursuant to these agreements, the State and City provided certain grants to us, paid certain costs on our behalf and undertook certain obligations relating to the property. Under
these agreements, we are required to fulfill certain obligations relating to development of the property and retention of a certain number of employees. If these obligations are not fulfilled, we may be required to repay certain amounts granted or
paid by the City or the State, the net impact of which, we believe, would not be material to our business, financial condition, results of operations or cash flows. In the first quarter of 2007, the Company entered into a purchase and sale agreement
to sell the property. The purchase and sale agreement provides that, upon the closing of the sale, the obligations of the Company to the State and City will be satisfied or the Company will otherwise be released from such obligations.

Liquidity Outlook

We have recorded
net losses in each fiscal year since the fiscal year ended December 31, 2003. These losses, adjusted for non-cash operating costs such as depreciation and amortization, have not provided sufficient cash flow to offset our working capital needs.
The First Lien and the indenture governing our 8.5% Senior Subordinated Notes, impose certain restrictions upon our operations in the form of financial covenants and other terms and conditions that could limit our access to additional funding and
impair our ability to meet our obligations as they become due. While we have unutilized capacity under our credit facilities as of September 30, 2007, our ability to utilize this liquidity depends upon continuing compliance with financial
covenants. In October 2007, the senior leverage ratio under the Companys First Lien is no longer applicable as the Company had paid down Senior Debt, as that term is defined in our First Lien, in excess of $250 million during 2007.

In order to help ensure continuing compliance with the covenants and provide necessary liquidity to operate our business and implement our business
strategies, our focus in 2007 is on improving operating results and cash flow. Our 2007 operating results show improvements, including positive cash flows from operations reflecting better working capital management.

We have also taken a number of steps to maximize our near-term liquidity to meet our expected working capital needs, fund our capital expenditure
requirements and fulfill our lease and debt service obligations over the longer term. We repaid our $130.0 million Second Lien during June 2007 with the proceeds from the sale-leaseback transaction described above. We have paid down our First Lien
term loan through sales of non-strategic assets; including the sale of our uncoated white paper plate business in September 2007 and the sale of our Hoffmaster division in October 2007. In November 2007, we closed on the sale of our Japanese
subsidiaries and the net proceeds from that sale will be used to make further payments on the First Lien term loan. We also continue to evaluate other opportunities; however, we will consider non-core asset sales only at prices and upon terms that
are consistent with our view of the value of such assets.

We have made and continue to make the operational improvements that we believe
will provide needed long-term financial flexibility. Other necessary steps include achieving targeted revenue enhancement and cost savings under our performance improvement program. This program was launched in December 2006 and we have implemented
several of its initiatives in 2007. Our 2007 operating results reflect improvements in manufacturing efficiencies and reduced general and administrative costs, partially offset by the related professional fees. However, for the remainder of 2007, we
expect that raw material and diesel fuel costs will likely continue to be a source of uncertainty for our industry.



28



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##### Table of Contents

At September 30, 2007, the Companys outstanding borrowings under our First Lien, the 8.5%
Senior Subordinated Notes and foreign borrowings in the aggregate are approximately $985.9 million. Based on our current estimates, we expect to stay in compliance with all of our financial covenants. Accordingly, we have classified the outstanding
balance of the First Lien on our consolidated balance sheet based on its stated maturity.

Management believes that cash generated by
operations and amounts available under our credit facilities should be sufficient to meet our expected operating needs, planned capital expenditures, expenses related to previously announced plant closures, payments in conjunction with our lease
commitments and debt service requirements for the remainder of 2007. We expect that our total 2007 capital expenditures will be in the range of $45-$50 million and contributions to our defined benefit plans will be approximately $11 million.

Net Operating Loss Carryforwards

As
of September 30, 2007, we had approximately $242.5 million of U.S. federal tax net operating loss carryforwards that expire between 2021 and 2026. Approximately $78.2 million of such carryforwards are subject to the provisions of Internal
Revenue Code Section 382. During 2006, we assessed the realizability of deferred tax assets, including our net operating loss carryforwards, and concluded that it was more likely than not that the Company would not fully realize the benefits of
its existing deferred tax assets and increased our valuation allowance by $118.1 million. To date in 2007, we have further increased the valuation allowance by $12.9 million. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible.

Critical Accounting Estimates

The Companys critical accounting estimates are described in its 2006 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 2007. There have been no changes to the critical accounting estimates since that filing.



29



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##### Table of Contents

Forward-Looking Statements

This report contains forward-looking statements. The words anticipate, intend, plan, estimate, believe, expect, predict,
potential, project, could, will, should, may, would and similar expressions are intended to identify forward-looking statements, although not all forward-looking
statements contain such identifying words. All statements in this report other than statements of historical fact, including statements regarding our business strategy, future operations, financial position, estimated net sales, projected costs,
projected cost savings, projected synergies, prospects, plans and objectives, as well as information concerning industry trends and expected actions of third parties, are forward-looking statements. All forward-looking statements speak only as of
the date on which they are made. They rely on a number of assumptions concerning future events and are subject to a number of risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from
such statements.

A description of the risk factors associated with our business is contained in Item 1A, Risk Factors, of
our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2007 and incorporated herein by reference and in our other filings made from time to time with the Securities and Exchange Commission. These
cautionary statements are to be used as a reference in connection with any forward-looking statements. These risks and uncertainties include, but are not limited to:



| |  | the impact of our significant debt on our financial health and operating flexibility;
|- |  | -------------------------------------------------------------------------------------



| |  | interest rate fluctuations and continuing debt obligations;
|- |  | -----------------------------------------------------------



| |  | risks related to generating sufficient cash from operations and completing certain transactions to satisfy our financial covenants under our debt agreements;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to realize cost savings, synergies or revenue enhancements that we anticipated with the successful completion of the Companys performance
improvement program;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | any material weaknesses in our internal control over financial reporting that are not remedied effectively;
|- |  | -----------------------------------------------------------------------------------------------------------



| |  | the impact of any downgrades in our corporate ratings on the credit terms offered to us by our vendors and the interest rates offered to us if we require additional
capital or financing;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | an increased possibility of legal or regulatory proceedings as a result of our restatement of our consolidated financial statements;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  | impact of competitive products and pricing and fluctuations in demand for our products;
|- |  | ---------------------------------------------------------------------------------------



| |  | the effect of general economic and competitive business conditions in the disposable food service products industry;
|- |  | --------------------------------------------------------------------------------------------------------------------



| |  | adverse effects on business operations if we are unable to adequately manage, integrate and implement our order management and enterprise resource planning systems;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | further consolidation in the food service and retail industries;
|- |  | ----------------------------------------------------------------



| |  | availability of and increases in raw material, energy and manufacturing costs;
|- |  | ------------------------------------------------------------------------------



| |  | effect of changing federal, state, foreign and local environmental and occupational health and safety laws and regulations and increased regulation of certain raw
materials used in our products;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | risks related to conducting business in multiple foreign jurisdictions, including foreign currency exchange rate fluctuations;
|- |  | ------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to improve existing products and develop new products;
|- |  | ------------------------------------------------------------------



| |  | loss of key management and personnel;
|- |  | -------------------------------------



| |  | potential conflicts of interest between our note holders and the stockholders of SCIC;
|- |  | --------------------------------------------------------------------------------------



| |  | loss of one or more of our principal customers;
|- |  | -----------------------------------------------



| |  | impact of any prolonged work stoppage;
|- |  | --------------------------------------



| |  | diversion of management attention from other business activities in the event we pursue additional acquisition(s) or undertake divestitures in the future; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our ability to enforce our intellectual property and other proprietary rights.
|- |  | ------------------------------------------------------------------------------



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk.
|------- | -----------------------------------------------------------

In the ordinary course of business, the Company is exposed to market risk-sensitive instruments, which consist primarily of interest rate risk associated with its variable rate debt. The First Lien facility and the Canadian credit facility
both include a revolving and term credit facility, which bear interest at a variable rate.

The interest rate on the First Lien facility is
either Eurodollar rate based (1, 2, 3 or 6 months) plus a margin or the banks base rate plus a margin, whichever the Company selects. For the revolving credit facility, the margin varies from 2.75% to 3.50% on the Eurodollar rate borrowing and
from 1.75% to 2.50% on the base rate borrowings depending on the Companys most recent Consolidated Leverage Ratio. For the term loan, the margin is 3.50% on the Eurodollar rate borrowing and 2.50% on the base rate borrowings. At
September 30, 2007, the variable rate on term loan borrowings was 8.94% and the interest rate on borrowings under the revolving credit facility was 10.16%.

The Canadian revolving and term loan facilities bear interest at the Canadian prime rate plus 0.25% or the Canadian bankers acceptance rate plus 1.50%, at the Companys option. As of September 30,
2007, borrowings under the revolving credit facility and the term loan carried effective interest rates of 6.44%.

As of September 30,
2007, we had an interest rate cap agreement with a notional amount of $20.0 million. Under this agreement, the Company receives variable interest rate payments when the 3-month LIBOR rises above 6.0%. The agreement is in effect through
October 12, 2007.

In June 2007, the Company entered into three forward-starting receive-variable, pay-fixed interest rate swaps with
a total notional amount of $150.0 million. The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid is 5.3765%. The swap agreements are effective from August 28, 2007 through February 28, 2011.

In September 2007, the Company entered into a forward-starting receive-variable, pay-fixed interest rate swap with a notional amount of
$50.0 million. The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid is 4.6475%. The swap agreement is effective from October 2, 2007 through April 2, 2009.

As of September 30, 2007, the outstanding indebtedness under the First Lien facility was $818.1 million and $67.9 million was available under the
First Lien facility. As of September 30, 2007, the outstanding indebtedness under the Canadian credit facility was CAD $3.7 million (approximately $3.7 million), CAD $12.5 million (approximately $12.5 million) was available under the revolving
credit facility and the term loan under the Canadian credit facility had additional borrowing availability of CAD $7.4 million (approximately $7.4 million).

Based upon the information above, the Companys annual pre-tax loss would decrease by approximately $5.1 million for each one-percentage point decrease in the interest rates applicable to the variable rate debt.
Additionally, the Companys annual pre-tax loss would increase by approximately $5.0 million for a one-percentage point increase in the interest rates applicable to the variable rate debt, which includes the effect of the interest rate swaps
and cap agreements. The level of the exposure to interest rate movements may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under the revolving credit facilities.



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##### Table of Contents

|Item 4. | Controls and Procedures.
|------- | ------------------------

Disclosure Controls and Procedures

On October 16, 2006, after conducting a review that revealed a material weakness in our internal control over financial reporting,
we restated certain of our previously issued consolidated financial statements by filing Form 10-K/A for the fiscal year ended January 1, 2006 and Form 10-Q/A for the thirteen weeks ended April 2, 2006. In our Form 10-Q for the thirteen
weeks ended July 2, 2006, also filed on October 16, 2006, certain of our previously issued consolidated financial statements for the thirteen and twenty-six weeks ended July 3, 2005 were restated. Our management, including our chief
executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based on such evaluation, our chief executive officer and chief financial officer concluded that, as of September 30, 2007, as a result of the material weakness described below, our disclosure controls and procedures
were not effective.

A material weakness in internal control over financial reporting (as defined in Exchange Act Rule 12b2 and Rule
102 of Regulation SX), is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrants annual or interim
financial statements will not be prevented or detected on a timely basis.

In assessing the effectiveness of our disclosure controls and
procedures as of September 30, 2007, management has identified a material weakness in the Companys internal control over financial reporting. This material weakness had been previously reported in Item 9A of Part II of the
Companys 2006 Annual Report on Form 10-K. During the thirteen weeks ended September 30, 2007, management continued efforts to improve our internal control over financial reporting, in particular to remediate the material weaknesses
reported as of December 31, 2006. Our management believes that these efforts are reasonably likely to constitute a material improvement in the design and effectiveness of our internal control over financial reporting and to remediate the
material weaknesses.

Controls over the Spare Parts Inventory Accuracy and Valuation.During 2007, we have published policies and
procedures designed to ensure that the accounting records for spare parts inventories were accurately maintained and the accounting for the reserve for obsolete spare parts inventory was consistent among all operating units. However, management
believes that this material weakness continues related to our failure to complete the implementation of the policies and procedures. Management has identified opportunities to improve controls in this area, including standardizing the timing, format
and process for conducting cycle counts over the spare parts inventory, and ensuring the accuracy of the data and system reports that support the reserve calculation. Management continues to expect to fully implement the policies and procedures
throughout the rest of the year.

In light of the material weakness in our internal control over financial reporting described above, we
performed additional analysis and other post-closing procedures to ensure our consolidated financial statements are prepared in accordance with GAAP. We implemented certain changes in internal control over financial reporting and will continue to
implement remediation efforts, as described above. Accordingly, we believe that the consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial position, results of operations and cash flows for
the periods presented.

Changes in Disclosure Controls and Procedures

Control Environment. As of July 1, 2007, we did not maintain an effective control environment. The control environment is the atmosphere in which a companys internal control procedures operate.
Management had substantially completed the documentation, review and publication of our accounting policies as of July 1, 2007. During the third quarter of 2007, as a final step in remediation, we substantially completed the process of
providing the required training on the application of the new policies on a Company-wide basis.

As a result of these changes in internal
control over financial reporting, management believes that the material weakness in internal control over the control environment no longer exists as of September 30, 2007.



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##### Table of Contents

PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings.
|------- | ------------------

We are involved in various
claims and legal actions arising from time to time in the ordinary course of business. While the outcome of these claims and actions cannot be predicted with certainty, management believes that we are not a party to any pending legal proceedings,
the ultimate disposition of which would have a material adverse effect on the Companys business, consolidated financial position, results of operations, or liquidity.



|Item 1A. | Risk Factors.
|-------- | -------------

We do not believe there have been
any material changes in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission on March 30, 2007.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

Not applicable.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

Not applicable.



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------

Not applicable.



|Item 5. | Other Information.
|------- | ------------------

Not applicable.



|Item 6. | Exhibits.
|------- | ---------



|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|     | 
|31.2 |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|     | 
|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                        |  |                  |  |                                                                         
|----------------------- |  | ---------------- |  | ------------------------------------------------------------------------
|                        |  | SOLO CUP COMPANY
|                        |  |                 
|Date: November 14, 2007 |  | By:              |  | /s/ Robert D. Koney, Jr.                                                
|                        |  |                  |  | Robert D. Koney, Jr.                                                    
|                        |  |                  |  | Executive Vice President and Chief Financial Officer                    
|                        |  |                  |  | (Principal Financial and Accounting Officer and Duly Authorized Officer)



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##### Table of Contents

INDEX OF EXHIBITS FILED WITH OR

INCORPORATED BY REFERENCE INTO

FORM 10-Q OF SOLO CUP COMPANY

FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 30, 2007



|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|     | 
|31.2 |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|     | 
|32.1 |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|     | 
|32.2 |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



35