##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---

FORM 10-Q



---



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

For the thirteen weeks ended July 2, 2006



| ̈ | 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



---

SOLO CUP COMPANY

(Exact name of
registrant as specified in its charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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



---

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.

Yes ̈No  x

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.

|                         |  |                    |  |                         
|------------------------ |  | ------------------ |  | ------------------------
|                         |  |                   
|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 October 16, 2006:

Common Stock, $0.01 par value - 100 shares



---



---

##### Table of Contents

Solo Cup Company

Explanatory Note  Restatement of Financial Information

On September 19, 2006, Solo Cup
Company (the Company) filed a Current Report on Form 8-K with the Securities and Exchange Commission (SEC) in which it announced that it would be restating certain consolidated financial statements as a result of the findings
of an accounting review undertaken when new management was appointed by the Board of Directors in the second and third quarters of 2006. As more fully described in Note 1 to the consolidated financial statements, the Company has identified errors in
the application of certain accounting practices and procedures primarily related to the timely recognition of certain customer credits, accounts payable and accrued expenses, and the valuation of certain assets.

The Company is filing this Form 10-Q for the thirteen weeks ended July 2, 2006 which includes restated consolidated statements of operations for the
thirteen and twenty-six weeks ended July 3, 2005 and consolidated statement of cash flows for twenty-six weeks ended July 3, 2005. The Company will not file a Form 10-Q/A for the thirteen weeks ended July 3, 2005, and the consolidated
financial statements and related financial information contained in that report should no longer be relied upon. We will restate our October 2, 2005 consolidated financial statements with the filing of our October 1, 2006 Form 10-Q.

Accordingly, this Form 10-Q should be read in conjunction with our Form 10-K/A for the fiscal year ended January 1, 2006, and the Form 10-Q/A for
the thirteen weeks ended April 2, 2006, which are being filed concurrently with this Form 10-Q.



2



---

##### Table of Contents

INDEX



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|PART I   |  | Financial Information                                                                 |  |     
|         |  |                                                                                      
|Item 1.  |  | Financial Statements                                                                  |  | 4   
|         |  |                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 29  
|         |  |                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 39  
|         |  |                                                                                      
|Item 4.  |  | Controls and Procedures                                                               |  | 40  
|         |  |                                                                                      
|PART II  |  | Other Information                                                                     |  |     
|         |  |                                                                                      
|Item 1.  |  | Legal Proceedings                                                                     |  | 44  
|         |  |                                                                                      
|Item 1A. |  | Risk Factors                                                                          |  | 44  
|         |  |                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 47  
|         |  |                                                                                      
|Item 3.  |  | Defaults Upon Senior Securities                                                       |  | 47  
|         |  |                                                                                      
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  | 47  
|         |  |                                                                                      
|Item 5.  |  | Other Information                                                                     |  | 47  
|         |  |                                                                                      
|Item 6.  |  | Exhibits                                                                              |  | 47  



3



---

##### 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)



|                                                                                                     |  |              |           |   |                |   |           |  
|---------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | -------------- | - | --------- | -
|                                                                                                     |  | July 2, 2006 |           |   | January 1,2006 |  
|                                                                                                     |  | (Unaudited)  |           |   |                |  
|Assets                                                                                               |  |              |           |   |                |   |           |  
|Current assets:                                                                                      |  |              |           |   |                |   |           |  
|Cash and cash equivalents                                                                            |  | $            | 17,226    |   |                | $ | 12,087    |  
|Cash in escrow                                                                                       |  |              | 7,274     |   |                |   | 15,000    |  
|Accounts receivable:                                                                                 |  |              |           |   |                |   |           |  
|Trade, less allowance for doubtful accounts of $5,846 and $5,854                                     |  |              | 260,069   |   |                |   | 222,283   |  
|Other                                                                                                |  |              | 27,383    |   |                |   | 21,989    |  
|Inventories                                                                                          |  |              | 398,317   |   |                |   | 381,264   |  
|Spare parts                                                                                          |  |              | 25,576    |   |                |   | 36,712    |  
|Deferred income taxes                                                                                |  |              | 31,407    |   |                |   | 59,057    |  
|Prepaid expenses                                                                                     |  |              | 8,132     |   |                |   | 9,325     |  
|Other current assets                                                                                 |  |              | 8,524     |   |                |   | 5,875     |  
|                                                                                                     |  |              |           |   |                |   |           |  
|Total current assets                                                                                 |  |              | 783,908   |   |                |   | 763,592   |  
|                                                                                                     |  |             
|Property, plant and equipment, net                                                                   |  |              | 738,553   |   |                |   | 756,185   |  
|Spare parts                                                                                          |  |              | 18,208    |   |                |   | 12,389    |  
|Goodwill                                                                                             |  |              | 19,649    |   |                |   | 245,547   |  
|Intangible assets, net                                                                               |  |              | 23,471    |   |                |   | 28,065    |  
|Deferred financing fees, net                                                                         |  |              | 27,622    |   |                |   | 26,790    |  
|Other assets                                                                                         |  |              | 7,859     |   |                |   | 12,105    |  
|                                                                                                     |  |              |           |   |                |   |           |  
|Total assets                                                                                         |  | $            | 1,619,270 |   |                | $ | 1,844,673 |  
|                                                                                                     |  |              |           |   |                |   |           |  
|Liabilities and Shareholders Equity                                                                 |  |              |           |   |                |   |           |  
|Current liabilities:                                                                                 |  |              |           |   |                |   |           |  
|Accounts payable                                                                                     |  | $            | 144,338   |   |                | $ | 163,599   |  
|Accrued payroll and related costs                                                                    |  |              | 55,271    |   |                |   | 58,216    |  
|Accrued customer allowances                                                                          |  |              | 32,318    |   |                |   | 29,289    |  
|Accrued expenses and other current liabilities                                                       |  |              | 51,058    |   |                |   | 51,904    |  
|Short-term debt                                                                                      |  |              | 5,604     |   |                |   | 5,546     |  
|Current maturities of long-term debt                                                                 |  |              | 8,804     |   |                |   | 8,726     |  
|Income taxes payable                                                                                 |  |              | 2,311     |   |                |   | 2,667     |  
|                                                                                                     |  |              |           |   |                |   |           |  
|Total current liabilities                                                                            |  |              | 299,704   |   |                |   | 319,947   |  
|                                                                                                     |  |             
|Long-term debt, net of current maturities                                                            |  |              | 1,137,277 |   |                |   | 1,029,009 |  
|Deferred income taxes                                                                                |  |              | 52,065    |   |                |   | 25,829    |  
|Pensions and other postretirement benefits                                                           |  |              | 49,844    |   |                |   | 74,374    |  
|Other liabilities                                                                                    |  |              | 11,163    |   |                |   | 10,008    |  
|                                                                                                     |  |              |           |   |                |   |           |  
|Total liabilities                                                                                    |  |              | 1,550,053 |   |                |   | 1,459,167 |  
|                                                                                                     |  |             
|Shareholders equity:                                                                                |  |              |           |   |                |   |           |  
|Common stock - Par value $0.01 per share; 1,000 shares authorized; 100 shares issued and outstanding |  |              |          |   |                |   |          |  
|Additional paid-in capital                                                                           |  |              | 258,170   |   |                |   | 258,049   |  
|(Accumulated deficit) retained earnings                                                              |  |              | (192,000  | ) |                |   | 127,519   |  
|Accumulated other comprehensive income (loss)                                                        |  |              | 3,047     |   |                |   | (62       | )
|                                                                                                     |  |              |           |   |                |   |           |  
|Total shareholders equity                                                                           |  |              | 69,217    |   |                |   | 385,506   |  
|                                                                                                     |  |              |           |   |                |   |           |  
|Total liabilities and shareholders equity                                                           |  | $            | 1,619,270 |   |                | $ | 1,844,673 |  
|                                                                                                     |  |              |           |   |                |   |           |  

See accompanying Notes to Consolidated Financial Statements.



4



---

##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands)



|                                                                    |  |                                 |          |   |                                 |   |         |                                   |  |   |                                   |   |  |   |           |  
|------------------------------------------------------------------- |  | ------------------------------- | -------- | - | ------------------------------- | - | ------- | --------------------------------- |  | - | --------------------------------- | - |  | - | --------- | -
|                                                                    |  | Thirteenweeks endedJuly 2, 2006 |          |   | Thirteenweeks endedJuly 3, 2005 |   |         | Twenty-sixweeks endedJuly 2, 2006 |  |   | Twenty-sixweeks endedJuly 3, 2005 |  
|                                                                    |  |                                 |          |   | (As restated)                   |   |         |                                   |  |   | (As restated)                     |  
|Net sales                                                           |  | $                               | 670,297  |   |                                 | $ | 646,939 |                                   |  | $ | 1,237,533                         |   |  | $ | 1,194,039 |  
|Cost of goods sold                                                  |  |                                 | 578,309  |   |                                 |   | 564,800 |                                   |  |   | 1,091,724                         |   |  |   | 1,065,800 |  
|                                                                    |  |                                 |          |   |                                 |   |         |                                   |  |   |                                   |   |  |   |           |  
|Gross profit                                                        |  |                                 | 91,988   |   |                                 |   | 82,139  |                                   |  |   | 145,809                           |   |  |   | 128,239   |  
|                                                                    |  |                                 |          |  
|Selling, general and administrative expenses                        |  |                                 | 73,847   |   |                                 |   | 66,227  |                                   |  |   | 140,924                           |   |  |   | 127,723   |  
|Impairment of goodwill                                              |  |                                 | 228,537  |   |                                 |   |        |                                   |  |   | 228,537                           |   |  |   |          |  
|Loss on sale of property, plant and equipment                       |  |                                 | 943      |   |                                 |   | 7       |                                   |  |   | 1,807                             |   |  |   | 395       |  
|                                                                    |  |                                 |          |   |                                 |   |         |                                   |  |   |                                   |   |  |   |           |  
|Operating (loss) income                                             |  |                                 | (211,339 | ) |                                 |   | 15,905  |                                   |  |   | (225,459                          | ) |  |   | 121       |  
|                                                                    |  |                                 |          |  
|Interest expense, net of interest income of $40, $99, $138 and $188 |  |                                 | 22,010   |   |                                 |   | 18,209  |                                   |  |   | 42,389                            |   |  |   | 35,282    |  
|Foreign currency exchange (gain) loss, net                          |  |                                 | (2,676   | ) |                                 |   | 2,037   |                                   |  |   | (3,710                            | ) |  |   | 2,844     |  
|Other expense (income), net                                         |  |                                 | 376      |   |                                 |   | (58     | )                                 |  |   | 503                               |   |  |   | (171      | )
|                                                                    |  |                                 |          |   |                                 |   |         |                                   |  |   |                                   |   |  |   |           |  
|Loss before income taxes and minority interest                      |  |                                 | (231,049 | ) |                                 |   | (4,283  | )                                 |  |   | (264,641                          | ) |  |   | (37,834   | )
|                                                                    |  |                                 |          |  
|Income tax provision (benefit)                                      |  |                                 | 68,315   |   |                                 |   | (1,549  | )                                 |  |   | 54,878                            |   |  |   | (14,930   | )
|Minority interest                                                   |  |                                 |         |   |                                 |   | 53      |                                   |  |   |                                  |   |  |   | 51        |  
|                                                                    |  |                                 |          |   |                                 |   |         |                                   |  |   |                                   |   |  |   |           |  
|Net loss                                                            |  | $                               | (299,364 | ) |                                 | $ | (2,787  | )                                 |  | $ | (319,519                          | ) |  | $ | (22,955   | )
|                                                                    |  |                                 |          |   |                                 |   |         |                                   |  |   |                                   |   |  |   |           |  

See accompanying Notes to Consolidated Financial Statements.



5



---

##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(In thousands, except
share amounts)



|                                                                    |  |              |  |                          |   |                                      |   |         |                                            |   |          |                          |  |   |       |   |  |   |          |  
|------------------------------------------------------------------- |  | ------------ |  | ------------------------ | - | ------------------------------------ | - | ------- | ------------------------------------------ | - | -------- | ------------------------ |  | - | ----- | - |  | - | -------- | -
|                                                                    |  | Common stock |  | Additionalpaid-incapital |   | Retainedearnings(accumulateddeficit) |   |         | Accumulatedothercomprehensiveincome (loss) |   |          | Totalshareholdersequity | 
|                                                                    |  | Shares       |  | Amount                   |   |                                      |   |        
|Balance at January 1, 2006                                          |  | 100          |  | $                        |  |                                      | $ | 258,049 |                                            | $ | 127,519  |                          |  | $ | (62   | ) |  | $ | 385,506  |  
|Net loss (Unaudited)                                                |  |             |  |                          |  |                                      |   |        |                                            |   | (319,519 | )                        |  |   |      |   |  |   | (319,519 | )
|Compensation expense on CPUs (Unaudited)                            |  |             |  |                          |  |                                      |   | 121     |                                            |   |         |                          |  |   |      |   |  |   | 121      |  
|Foreign currency translation adjustment (Unaudited)                 |  |             |  |                          |  |                                      |   |        |                                            |   |         |                          |  |   | 2,283 |   |  |   | 2,283    |  
|Unrealized investment gain, net of tax of $102 (Unaudited)          |  |             |  |                          |  |                                      |   |        |                                            |   |         |                          |  |   | 148   |   |  |   | 148      |  
|Unrealized gain on cash flow hedges, net of tax of $425 (Unaudited) |  |             |  |                          |  |                                      |   |        |                                            |   |         |                          |  |   | 678   |   |  |   | 678      |  
|                                                                    |  |              |  |                          |   |                                      |   |         |                                            |   |          |                          |  |   |       |   |  |   |          |  
|Balance at July 2, 2006 (Unaudited)                                 |  | 100          |  | $                        |  |                                      | $ | 258,170 |                                            | $ | (192,000 | )                        |  | $ | 3,047 |   |  | $ | 69,217   |  
|                                                                    |  |              |  |                          |   |                                      |   |         |                                            |   |          |                          |  |   |       |   |  |   |          |  

See accompanying Notes to Consolidated Financial Statements.



6



---

##### Table of Contents

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



|                                                                            |  |                                    |          |   |                                    |   |         |  
|--------------------------------------------------------------------------- |  | ---------------------------------- | -------- | - | ---------------------------------- | - | ------- | -
|                                                                            |  | Twenty-six weeksended July 2, 2006 |          |   | Twenty-six weeksended July 3, 2005 |  
|                                                                            |  |                                    |          |   | (As restated)                      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                                    |          |   |                                    |   |         |  
|                                                                            |  |                                   
|Net loss                                                                    |  | $                                  | (319,519 | ) |                                    | $ | (22,955 | )
|                                                                            |  |                                   
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                    |          |   |                                    |   |         |  
|Depreciation and amortization                                               |  |                                    | 50,550   |   |                                    |   | 51,756  |  
|Deferred financing fee amortization                                         |  |                                    | 2,388    |   |                                    |   | 2,335   |  
|Loss on sale of property, plant and equipment                               |  |                                    | 1,807    |   |                                    |   | 396     |  
|Goodwill impairment                                                         |  |                                    | 228,537  |   |                                    |   |        |  
|Asset impairment                                                            |  |                                    | 2,540    |   |                                    |   |        |  
|Postretirement plan curtailment gains                                       |  |                                    | (22,067  | ) |                                    |   |        |  
|Minority interest                                                           |  |                                    |         |   |                                    |   | 51      |  
|Deferred income taxes                                                       |  |                                    | 52,058   |   |                                    |   | (17,562 | )
|Foreign currency (gain) loss                                                |  |                                    | (3,710   | ) |                                    |   | 2,844   |  
|Changes in operating assets and liabilities (net of business acquisitions): |  |                                    |          |   |                                    |   |         |  
|Accounts receivable                                                         |  |                                    | (41,428  | ) |                                    |   | (47,471 | )
|Inventories                                                                 |  |                                    | (15,784  | ) |                                    |   | (46,168 | )
|Prepaid expenses and other current assets                                   |  |                                    | 7,740    |   |                                    |   | 5,777   |  
|Other assets                                                                |  |                                    | (254     | ) |                                    |   | 9,710   |  
|Accounts payable                                                            |  |                                    | (20,062  | ) |                                    |   | 14,162  |  
|Accrued expenses and other current liabilities                              |  |                                    | (607     | ) |                                    |   | (302    | )
|Other liabilities                                                           |  |                                    | (2,103   | ) |                                    |   | (3,196  | )
|Other, net                                                                  |  |                                    | 36       |   |                                    |   | 387     |  
|                                                                            |  |                                    |          |   |                                    |   |         |  
|Net cash used in operating activities                                       |  |                                    | (79,878  | ) |                                    |   | (50,236 | )
|                                                                            |  |                                   
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                                    |          |   |                                    |   |         |  
|                                                                            |  |                                   
|Purchase of property, plant and equipment                                   |  |                                    | (29,564  | ) |                                    |   | (33,448 | )
|Proceeds from sale of property, plant and equipment                         |  |                                    | 2,290    |   |                                    |   | 6,128   |  
|Decrease in cash in escrow                                                  |  |                                    | 7,726    |   |                                    |   |        |  
|                                                                            |  |                                    |          |   |                                    |   |         |  
|Net cash used in investing activities                                       |  |                                    | (19,548  | ) |                                    |   | (27,320 | )
|                                                                            |  |                                   
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                                    |          |   |                                    |   |         |  
|                                                                            |  |                                   
|Net borrowings under revolving credit facilities                            |  |                                    | 32,125   |   |                                    |   | 87,771  |  
|Borrowings under term notes                                                 |  |                                    | 80,000   |   |                                    |   |        |  
|Contribution of capital from parent                                         |  |                                    |         |   |                                    |   | 100     |  
|Return of capital to parent                                                 |  |                                    |         |   |                                    |   | (1,267  | )
|Repayments of term notes                                                    |  |                                    | (4,102   | ) |                                    |   | (4,419  | )
|Repayments of other debt                                                    |  |                                    | (425     | ) |                                    |   | (850    | )
|Debt issuance costs                                                         |  |                                    | (3,215   | ) |                                    |   | (1,100  | )
|Decrease in restricted cash                                                 |  |                                    |         |   |                                    |   | 1,905   |  
|                                                                            |  |                                    |          |   |                                    |   |         |  
|Net cash provided by financing activities                                   |  |                                    | 104,383  |   |                                    |   | 82,140  |  
|Effect of exchange rate changes on cash                                     |  |                                    | 182      |   |                                    |   | (217    | )
|                                                                            |  |                                    |          |   |                                    |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                   |  |                                    | 5,139    |   |                                    |   | 4,367   |  
|CASH AND CASH EQUIVALENTS, beginning of period                              |  |                                    | 12,087   |   |                                    |   | 15,855  |  
|                                                                            |  |                                    |          |   |                                    |   |         |  
|CASH AND CASH EQUIVALENTS, end of period                                    |  | $                                  | 17,226   |   |                                    | $ | 20,222  |  
|                                                                            |  |                                    |          |   |                                    |   |         |  
|SUPPLEMENTAL CASH FLOW DISCLOSURES:                                         |  |                                    |          |   |                                    |   |         |  
|Interest paid                                                               |  | $                                  | 38,719   |   |                                    | $ | 32,974  |  
|                                                                            |  |                                    |          |   |                                    |   |         |  
|Income taxes paid                                                           |  | $                                  | 3,725    |   |                                    | $ | 3,285   |  
|                                                                            |  |                                    |          |   |                                    |   |         |  

See accompanying Notes to Consolidated Financial Statements.



7



---

##### 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 Solo Cup Investment Corporation, a Delaware corporation (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.

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) which the
Company considers necessary for a fair presentation of the financial position, operating results and cash flows for these periods. Results for the interim periods are not necessarily indicative of results expected for the entire year. These
consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes thereto for the fiscal year ended January 1, 2006 included in its Form 10-K/A and in its Form 10-Q/A for the
thirteen weeks ended April 2, 2006 filed concurrently with the SEC on October 16, 2006.

The preparation of the financial statements
in conformity with U.S. generally accepted accounting principles required management to make estimates in determining the carrying 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 period. Actual results could differ from those estimates and judgments. Significant estimates included in the Companys consolidated financial statements relate to the valuation of
receivables, inventory, spare parts, goodwill and deferred tax assets, and accruals for customer allowances, self-insured benefit obligations and pension and postretirement benefit obligations.

Management revised its methodology for estimating the net realizable value of certain of the Companys capitalized spare parts inventory. As a
result, the Company reduced the carrying value of capitalized spare parts and inventory during the second quarter of fiscal 2006. This change in accounting estimate increased cost of goods sold by approximately $9.8 million during the period.

Certain prior period amounts have been reclassified to conform to the current periods presentation. These reclassifications had no
effect on previously reported net income (loss).

Restatement of Previously Issued Consolidated Financial Statements

On September 19, 2006, the Company filed a Current Report on Form 8-K with the SEC in which it announced that it would be restating certain
consolidated financial statements as a result of the findings of an accounting review undertaken when new management was appointed by the Board of Directors in the second and third quarters of 2006. Since that time, the Company has completed its
accounting review and has determined that certain of the errors resulted from deficiencies in the Companys internal control over financial reporting. See Item 4. Controls and Procedures. The Company has not filed a Form 10-Q/A for the
thirteen weeks ended July 3, 2005 and the consolidated financial statements and related financial information contained in that report should no longer be relied upon.

Background on the Restatement - The errors identified in the Companys previously issued consolidated financial statements are described below. For more information on the impact of these
errors on the Companys consolidated financial statements for prior annual and interim periods, see Note 22 to the consolidated financial statements included in Form 10-K/A for the fiscal year ended January 1, 2006, and Note 1 to the
consolidated financial statements included in Form 10-Q/A for the thirteen weeks ended April 2, 2006 filed concurrently with this Form 10-Q. See Item 4. Controls and Procedures.



| | Timely Recognition of Certain Credits to Customers
|- | --------------------------------------------------

The Company did not properly account for (i) sales incentives offered to customers; (ii) cash discounts offered to customers; and (iii) credit memoranda issued to customers.



| | Timely Recognition of Certain Credits from Vendors
|- | --------------------------------------------------

The Company failed to timely and properly accrue for certain rebates received from certain vendors.



8



---

##### Table of Contents

| | Timely Recognition of Certain Accrued Expenses
|- | ----------------------------------------------

The
Company did not recognize certain expenses in the appropriate period.



| | Accrued Payroll and Other Related Costs
|- | ---------------------------------------

The
Company failed to properly account for (i) vacation pay earned by certain employees, and (ii) a reimbursement of a deposit with an insurance provider.



| | Accrued Freight
|- | ---------------

The Company determined that an
employee, who is no longer with the Company, failed to record a portion of the Companys freight expense despite receiving information that the methodology used to calculate the recorded freight expense was flawed.



| | Inventory Valuation
|- | -------------------

The Company failed to properly
value certain scrap inventory at the lower of cost or market value in accordance with its accounting policies.

In connection with the
restatement of its previously issued financial statements, the Company made certain additional adjustments and reclassifications that were not previously recorded because in each case, and in the aggregate, the underlying errors were not considered
material to the Companys consolidated financial statements.

The following tables set forth the amounts previously reported in the
Companys consolidated statements of operations for the thirteen weeks and twenty-six weeks ended July 3, 2005, the effect of the restatement adjustments, and the restated amounts. The notes that follow the tables describe the restatement
adjustments. The total amounts reported in the consolidated statement of cash flows for the twenty-six weeks ended July 3, 2005 for net cash used in operating activities, net cash used in investing activities and net cash provided by financing
activities were not impacted by the restatement.



9



---

##### Table of Contents

|                                                        |  |                                                     |         |   |             |   |         |                                 |  |   |         |  
|------------------------------------------------------- |  | --------------------------------------------------- | ------- | - | ----------- | - | ------- | ------------------------------- |  | - | ------- | -
|                                                        |  | Consolidated Statement of Operations (In thousands) |        
|                                                        |  | Thirteenweeks endedJuly 3, 2005                     |         |   | Adjustments |   |         | Thirteenweeks endedJuly 3, 2005 | 
|                                                        |  | (As reported)                                       |         |   |             |   |         | (As restated)                   | 
|Net sales (a)                                           |  | $                                                   | 654,502 |   |             | $ | (7,563  | )                               |  | $ | 646,939 |  
|Cost of goods sold (b) (c) (d) (e) (f) (g)              |  |                                                     | 560,452 |   |             |   | 4,348   |                                 |  |   | 564,800 |  
|                                                        |  |                                                     |         |   |             |   |         |                                 |  |   |         |  
|Gross profit                                            |  |                                                     | 94,050  |   |             |   | (11,911 | )                               |  |   | 82,139  |  
|Selling, general and administrative expenses (c) (g)    |  |                                                     | 67,191  |   |             |   | (964    | )                               |  |   | 66,227  |  
|Loss on sale of property, plant and equipment           |  |                                                     | 7       |   |             |   |        |                                 |  |   | 7       |  
|                                                        |  |                                                     |         |   |             |   |         |                                 |  |   |         |  
|Operating income                                        |  |                                                     | 26,852  |   |             |   | (10,947 | )                               |  |   | 15,905  |  
|Interest expense, net of interest income                |  |                                                     | 18,209  |   |             |   |        |                                 |  |   | 18,209  |  
|Foreign currency exchange loss, net                     |  |                                                     | 2,037   |   |             |   |        |                                 |  |   | 2,037   |  
|Other (income) expense, net                             |  |                                                     | (58     | ) |             |   |        |                                 |  |   | (58     | )
|                                                        |  |                                                     |         |   |             |   |         |                                 |  |   |         |  
|Income (loss) before income taxes and minority interest |  |                                                     | 6,664   |   |             |   | (10,947 | )                               |  |   | (4,283  | )
|Income tax provision (benefit) (h)                      |  |                                                     | 2,666   |   |             |   | (4,215  | )                               |  |   | (1,549  | )
|Minority interest                                       |  |                                                     | 53      |   |             |   |        |                                 |  |   | 53      |  
|                                                        |  |                                                     |         |   |             |   |         |                                 |  |   |         |  
|Net income (loss)                                       |  | $                                                   | 3,945   |   |             | $ | (6,732  | )                               |  | $ | (2,787  | )
|                                                        |  |                                                     |         |   |             |   |         |                                 |  |   |         |  



|                                                     |  |                                                     |           |   |             |   |         |                                   |  |   |           |  
|---------------------------------------------------- |  | --------------------------------------------------- | --------- | - | ----------- | - | ------- | --------------------------------- |  | - | --------- | -
|                                                     |  | Consolidated Statement of Operations (In thousands) |          
|                                                     |  | Twenty-sixweeks endedJuly 3, 2005                   |           |   | Adjustments |   |         | Twenty-sixweeks endedJuly 3, 2005 | 
|                                                     |  | (As reported)                                       |           |   |             |   |         | (As restated)                     | 
|Net sales (a)                                        |  | $                                                   | 1,200,595 |   |             | $ | (6,556  | )                                 |  | $ | 1,194,039 |  
|Cost of goods sold (b) (c) (d) (e) (f) (g)           |  |                                                     | 1,058,050 |   |             |   | 7,750   |                                   |  |   | 1,065,800 |  
|                                                     |  |                                                     |           |   |             |   |         |                                   |  |   |           |  
|Gross profit                                         |  |                                                     | 142,545   |   |             |   | (14,306 | )                                 |  |   | 128,239   |  
|Selling, general and administrative expenses (c) (g) |  |                                                     | 128,095   |   |             |   | (372    | )                                 |  |   | 127,723   |  
|Loss on sale of property, plant and equipment (g)    |  |                                                     | 781       |   |             |   | (386    | )                                 |  |   | 395       |  
|                                                     |  |                                                     |           |   |             |   |         |                                   |  |   |           |  
|Operating income                                     |  |                                                     | 13,669    |   |             |   | (13,548 | )                                 |  |   | 121       |  
|Interest expense, net of interest income             |  |                                                     | 35,282    |   |             |   |        |                                   |  |   | 35,282    |  
|Foreign currency exchange loss, net                  |  |                                                     | 2,844     |   |             |   |        |                                   |  |   | 2,844     |  
|Other (income) expense, net                          |  |                                                     | (171      | ) |             |   |        |                                   |  |   | (171      | )
|                                                     |  |                                                     |           |   |             |   |         |                                   |  |   |           |  
|Loss before income taxes and minority interest       |  |                                                     | (24,286   | ) |             |   | (13,548 | )                                 |  |   | (37,834   | )
|Income tax benefit (h)                               |  |                                                     | (9,714    | ) |             |   | (5,216  | )                                 |  |   | (14,930   | )
|Minority interest                                    |  |                                                     | 51        |   |             |   |        |                                   |  |   | 51        |  
|                                                     |  |                                                     |           |   |             |   |         |                                   |  |   |           |  
|Net loss                                             |  | $                                                   | (14,623   | ) |             | $ | (8,332  | )                                 |  | $ | (22,955   | )
|                                                     |  |                                                     |           |   |             |   |         |                                   |  |   |           |  

Explanation of adjustments to the financial statements as reported:



|(a) | Reflects adjustments principally to properly account for (i) sales incentives offered to customers; (ii) cash discounts offered to customers; and (iii) credit memoranda
issued to customers.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



---

##### Table of Contents

|(b) | Reflects adjustments principally to properly accrue for certain rebates received from certain vendors. These adjustments decreased cost of goods sold by approximately $1.6 million
and $3.4 million for the thirteen weeks and twenty-six weeks ended July 3, 2005, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Reflects adjustments principally to properly accrue for certain expenses which were previously recorded in the incorrect period. These adjustments (decreased)/increased
(i) cost of goods sold by approximately ($0.1 million) and $3.3 million for the thirteen weeks and twenty-six weeks ended July 3, 2005, respectively; and (ii) selling, general, and administrative expenses by approximately $0.1 million
for the twenty-six weeks ended July 3, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Reflects adjustments principally to properly account for (i) vacation pay earned by certain employees; and (ii) a reimbursement of a deposit with an insurance provider.
These adjustments increased cost of goods sold by $3.3 million for the thirteen and twenty-six weeks ended July 3, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) | Reflects adjustments principally to properly accrue for freight costs. These adjustments increased cost of goods sold by approximately $2.2 million and $4.3 million for the thirteen
weeks and twenty-six weeks ended July 3, 2005, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) | Reflects adjustments principally to properly value certain scrap inventory at the lower of cost or market value in accordance with the Companys accounting policies. These
adjustments increased cost of goods sold by approximately $0.3 million and $0.5 million for the thirteen weeks and twenty-six weeks ended July 3, 2005, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Reflects adjustments principally to properly account for the impact of certain additional adjustments in the historical consolidated financial statements that were not previously
recorded because in each case, and in the aggregate, the underlying errors were not considered material to the Companys consolidated financial statements. These adjustments increased net income by approximately $0.7 million and $1.0 million
for the thirteen weeks and twenty-six weeks ended July 3, 2005, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | Reflects adjustments principally to recognize the income tax effect of all adjustments described in (a) through (g) above at the estimated effective income tax rate for the period.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



---

##### Table of Contents

(2) ACQUISITIONS

On February 27, 2004, with an effective date of February 22, 2004, the Company consummated the purchase of 100.0% of the issued and outstanding capital stock of SF Holdings (the SF Holdings
Acquisition). The SF Holdings Acquisition resulted in goodwill of $150.0 million that is not tax deductible and $45.0 million of acquired intangible assets with a weighted average useful life of approximately five years. The resulting goodwill
was included in the Companys North America reporting unit. The Company determined that the goodwill for this reporting unit was fully impaired at July 2, 2006. See Note 6.

The aggregate purchase price was $917.2 million of which $15.0 million was being held in an escrow account pending the final working capital adjustment
and resolution of claims for indemnification. In May 2006, the Company received a neutral arbitrators final ruling on the SF Holdings Acquisition working capital adjustment that awarded $7.7 million (including interest) to the Company. In July
2006, the Company was awarded $5.5 million (including interest) for its indemnification claims made against the seller. The remaining $1.8 million, which is reflected in accrued expenses and other current liabilities at July 2, 2006, will be
disbursed to the stockholder representative for the seller. See Note 16. As a result of these events, the aggregate purchase price of $917.2 million was adjusted to $904.0 million.

The following are the amounts assigned to the acquired assets and liabilities (in millions):



|                                                              |  |   |         |  
|------------------------------------------------------------- |  | - | ------- | -
|Aggregate purchase price                                      |  | $ | 917.2   |  
|Less working capital adjustment award                         |  |   | (7.7    | )
|Less indemnification award                                    |  |   | (5.5    | )
|                                                              |  |   |         |  
|Adjusted purchase price                                       |  | $ | 904.0   |  
|                                                              |  |   |         |  
|Cash                                                          |  | $ | 30.4    |  
|Accounts receivable                                           |  |   | 122.3   |  
|Inventories                                                   |  |   | 211.6   |  
|Other current assets                                          |  |   | 51.0    |  
|Property, plant and equipment                                 |  |   | 570.3   |  
|Intangible assets                                             |  |   | 45.0    |  
|Other long-term assets                                        |  |   | 18.6    |  
|                                                              |  |   |         |  
|Total assets                                                  |  | $ | 1,049.2 |  
|                                                              |  |   |         |  
|Current liabilities                                           |  | $ | 201.6   |  
|Other long-term liabilities                                   |  |   | 93.6    |  
|                                                              |  |   |         |  
|Total liabilities                                             |  | $ | 295.2   |  
|                                                              |  |   |         |  
|Excess of purchase price over assets and liabilities acquired |  | $ | 150.0   |  
|                                                              |  |   |         |  

(3) ASSETS HELD FOR SALE

In the second quarter of 2006, management approved a plan to find a buyer for a plant located in Glens Falls, New York, which was closed in connection with the integration of SF Holdings. The Company recognized an
impairment loss of approximately $1.1 million to adjust the carrying value of the property to its estimated fair value. The net book value of $1.0 million is classified in other current assets in the Companys Consolidated Balance Sheet as of
July 2, 2006.

In the fourth quarter of 2005, management approved a plan to find a buyer for a plant located in Shreveport, Louisiana,
which was closed in connection with the integration of SF Holdings. In the second quarter of 2006, the Company recognized an impairment loss of approximately $1.0 million to adjust the carrying value of the property to its estimated fair value. The
net book value of approximately $1.5 million and $2.5 million is classified in other current assets in the Companys Consolidated Balance Sheets as of July 2, 2006 and January 1, 2006, respectively.

Impairment losses on assets held for sale are included in selling, general and administrative expenses in the Companys Consolidated Statements of
Operations.



12



---

##### Table of Contents

(4) INVENTORIES

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



|                           |  |              |         |                 |   |        
|-------------------------- |  | ------------ | ------- | --------------- | - | -------
|                           |  | July 2, 2006 |         | January 1, 2006
|Finished goods             |  | $            | 300,734 |                 | $ | 276,456
|Work in process            |  |              | 17,866  |                 |   | 15,490 
|Raw materials and supplies |  |              | 79,717  |                 |   | 89,318 
|                           |  |              |         |                 |   |        
|Total inventories          |  | $            | 398,317 |                 | $ | 381,264
|                           |  |              |         |                 |   |        

(5) PROPERTY, PLANT AND EQUIPMENT, NET

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



|                                    |  |              |           |   |                 |   |           |  
|----------------------------------- |  | ------------ | --------- | - | --------------- | - | --------- | -
|                                    |  | July 2, 2006 |           |   | January 1, 2006 |  
|Land                                |  | $            | 49,651    |   |                 | $ | 49,306    |  
|Buildings and improvements          |  |              | 297,176   |   |                 |   | 296,903   |  
|Machinery and equipment             |  |              | 936,272   |   |                 |   | 918,724   |  
|Construction in progress            |  |              | 27,301    |   |                 |   | 20,810    |  
|                                    |  |              |           |   |                 |   |           |  
|Total property, plant and equipment |  |              | 1,310,400 |   |                 |   | 1,285,743 |  
|Less accumulated depreciation       |  |              | (571,847  | ) |                 |   | (529,558  | )
|                                    |  |              |           |   |                 |   |           |  
|Property, plant and equipment, net  |  | $            | 738,553   |   |                 | $ | 756,185   |  
|                                    |  |              |           |   |                 |   |           |  

Depreciation of property, plant and equipment was $22.5 million and $45.9 million for the thirteen
and twenty-six weeks ended July 2, 2006, respectively. Capitalized interest was $0.4 million and $0.7 million for the thirteen and twenty-six weeks ended July 2, 2006, respectively.

Depreciation of property, plant and equipment was $23.9 million and $47.1 million for the thirteen and twenty-six weeks ended July 3, 2005,
respectively. Capitalized interest was $0.1 million and $0.2 million for the thirteen and twenty-six weeks ended July 3, 2005, respectively.

(6)
GOODWILL AND INTANGIBLE ASSETS

The following are the carrying values of goodwill by reporting unit (in thousands):



|                                                  |  |              |          |   |        |   |         |               |  |       |     |  |   |          |  
|------------------------------------------------- |  | ------------ | -------- | - | ------ | - | ------- | ------------- |  | ----- | --- |  | - | -------- | -
|                                                  |  | NorthAmerica |          |   | Europe |   |         | Asia Pacific |  | Total |    
|Balance at January 1, 2006                        |  | $            | 208,428  |   |        | $ | 36,922  |               |  | $     | 197 |  | $ | 245,547  |  
|SF Holdings Acquisition                           |  |              | (1,877   | ) |        |   |        |               |  |       |    |  |   | (1,877   | )
|Finalization of contingent consideration (Note 2) |  |              | 1,800    |   |        |   |        |               |  |       |    |  |   | 1,800    |  
|Translation adjustment                            |  |              | (89      | ) |        |   | 2,799   |               |  |       | 6   |  |   | 2,716    |  
|Impairment                                        |  |              | (208,262 | ) |        |   | (20,275 | )             |  |       |    |  |   | (228,537 | )
|                                                  |  |              |          |   |        |   |         |               |  |       |     |  |   |          |  
|Balance at July 2, 2006                           |  | $            |         |   |        | $ | 19,446  |               |  | $     | 203 |  | $ | 19,649   |  
|                                                  |  |              |          |   |        |   |         |               |  |       |     |  |   |          |  

In accordance with Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets the Company is required to determine goodwill impairment using a two-step process. The first step of the goodwill impairment test



13



---

##### Table of Contents

is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the
carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair
value of the reporting units goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill that would be recognized in a business combination.

The Companys estimates of the fair value of its reporting units are determined based on a discounted cash flow model using inputs from its annual
long-range planning process. The Company also makes estimates of discount rates, growth assumptions and other factors in estimating fair value.

Goodwill of a reporting unit is tested between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For the thirteen weeks ended
July 2, 2006, the Company initiated a goodwill impairment test. This occurred as a result of the Companys continuing net losses, significant increases in raw material costs and the impact of such increases on working capital and gross
margin and changes in the executive management team. As a result of these events, the Company determined that an impairment test of the carrying value of its North America and Europe reporting units should be performed.

The Company tested its North America and Europe reporting units for goodwill impairment at July 2, 2006 and concluded that its goodwill was
impaired. As a result, the Company recorded impairment charges of approximately $228.5 million relating to goodwill.

In addition to
performing an impairment test of the carrying value of goodwill, the Company also tested the recoverability of its long-lived assets. There were no impairment charges that resulted from this evaluation.

The gross carrying amount of nonamortizable intangible assets in the Asia-Pacific business segment as of July 2, 2006 and January 1, 2006 was
$0.1 million and $0.1 million, respectively. The following are the carrying values of amortizable intangible assets (in thousands):



|                            |  |                     |        |                         |   |                     |  |                         |        |  |   |       
|--------------------------- |  | ------------------- | ------ | ----------------------- | - | ------------------- |  | ----------------------- | ------ |  | - | ------
|                            |  | July 2, 2006        |        | January 1, 2006        
|                            |  | GrossCarryingAmount |        | AccumulatedAmortization |   | GrossCarryingAmount |  | AccumulatedAmortization
|Trademarks and trade names  |  | $                   | 22,200 |                         | $ | 10,375              |  | $                       | 22,200 |  | $ | 8,155 
|Manufacturing technology    |  |                     | 21,100 |                         |   | 9,847               |  |                         | 21,100 |  |   | 7,737 
|Patents, licenses and other |  |                     | 1,775  |                         |   | 1,462               |  |                         | 1,771  |  |   | 1,193 
|                            |  |                     |        |                         |   |                     |  |                         |        |  |   |       
|                            |  | $                   | 45,075 |                         | $ | 21,684              |  | $                       | 45,071 |  | $ | 17,085
|                            |  |                     |        |                         |   |                     |  |                         |        |  |   |       

Amortization expense related to intangible assets was $4.6 million during the twenty-six weeks
ended July 2, 2006 and the twenty-six weeks ended July 3, 2005. The estimated annual amortization expense of intangibles presently owned by the Company is approximately $4.5 million for the remainder of 2006, $8.7 million for 2007, $8.7
million in 2008 and $1.5 million in 2009.

(7) INCOME TAXES

As of July 2, 2006, the Company had approximately $312.0 million of U.S. federal tax net operating loss carryforwards that expire between 2016 and 2026 of which $103.5 million of such carryforwards are subject to
the provisions of Internal Revenue Code Section 382. The Companys deferred tax assets include federal and state net operating loss carryforwards as well as other future deductible amounts.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some 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 during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company reported pretax losses in both fiscal 2005 and 2004, and also reported a loss before income taxes and minority
interest for the twenty-six weeks ended July 2, 2006. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management concluded during the
thirteen weeks ended July 2, 2006 that it is more likely than not that the Company will not fully realize the benefits of its existing deductible differences. Accordingly, the Company recorded an income tax provision of approximately $105.0 million
during the thirteen weeks ended July 2, 2006 to establish a valuation allowance for deferred tax assets, including federal and state net operating loss carryforwards and other deferred tax assets. The amount of the deferred tax assets
considered realizable will be adjusted in future periods if estimates of future taxable income during the carryforward period are revised. Changes in the deferred tax asset valuation allowance in future periods will be included in the consolidated
statement of operations.



14



---

##### Table of Contents

The following reconciles the expected income tax benefit calculated based on the U.S. federal statutory
tax rate applied to the loss before income taxes and minority interest with the Companys actual income tax provision for the twenty-six weeks ended July 2, 2006 (in thousands):



|                                          |  |                                           |         |  
|----------------------------------------- |  | ----------------------------------------- | ------- | -
|                                          |  | For the twenty-sixweeks endedJuly 2, 2006 |        
|Income tax benefit at U.S. statutory rate |  | $                                         | (92,624 | )
|Increase in valuation allowance           |  |                                           | 104,974 |  
|Nondeductible goodwill                    |  |                                           | 43,335  |  
|State taxes, net of federal benefit       |  |                                           | (4,792  | )
|Foreign rate differential                 |  |                                           | (169    | )
|Other                                     |  |                                           | 4,154   |  
|                                          |  |                                           |         |  
|Income tax provision                      |  | $                                         | 54,878  |  
|                                          |  |                                           |         |  

(8) DEBT

Short-term debt and long-term debt, including amounts payable within one year, are as follows (in thousands):



|                                            |  |              |           |                 |   |          
|------------------------------------------- |  | ------------ | --------- | --------------- | - | ---------
|                                            |  | July 2, 2006 |           | January 1, 2006
|Short-term debt:                            |  |              |           |                 |   |          
|Yen-denominated short-term bank borrowings  |  | $            | 5,604     |                 | $ | 5,546    
|                                            |  |              |           |                 |   |          
|Long-term debt:                             |  |              |           |                 |   |          
|8.5% Senior Subordinated Notes (1)          |  | $            | 325,000   |                 | $ | 325,000  
|First Lien Facility  Term Loan (1)         |  |              | 635,375   |                 |   | 638,625  
|First Lien Facility  Revolver (1)          |  |              | 94,400    |                 |   | 61,700   
|Second Lien Facility (1)                    |  |              | 80,000    |                 |   |         
|Canadian Credit Facility  Term Loan        |  |              | 9,081     |                 |   | 9,514    
|Canadian Credit Facility  Revolver         |  |              |          |                 |   | 449      
|Capital lease obligations                   |  |              | 2,225     |                 |   | 2,447    
|                                            |  |              |           |                 |   |          
|Total long-term debt                        |  |              | 1,146,081 |                 |   | 1,037,735
|Less - Current maturities of long-term debt |  |              | 8,804     |                 |   | 8,726    
|                                            |  |              |           |                 |   |          
|Long-term debt, net of current maturities   |  | $            | 1,137,277 |                 | $ | 1,029,009
|                                            |  |              |           |                 |   |          

---

|(1) | See Note 16 with regard to related subsequent events.
|--- | -----------------------------------------------------

Second Lien Facility

On March 31, 2006, the Company and SCIC entered into a second lien credit agreement (Second
Lien Facility). The Second Lien Facility provides a secured term loan facility in the amount of $80 million (Second Term Loan). The Second Term Loan bears interest, at the option of the Company, at a rate equal to LIBOR plus
4.50% per annum; or 3.50% per annum plus the higher of (a) the Bank of America prime rate or (b) the Federal Funds rate plus 1/2of one percentage point. The principal amount will be due upon maturity in February 2012. The proceeds of the Second Term Loan were used to reduce amounts outstanding under the Companys domestic
revolving credit facility under its First Lien Facility, described below. As of July 2, 2006, the weighted average interest rate on the Second Lien Facility was 9.66%.



15



---

##### Table of Contents

First Lien Facility

Effective March 27, 2006, the Company and SCIC entered into an agreement (Amendment No. 3) to amend its Credit Agreement dated February 27, 2004, as amended by Amendment No. 1, dated as
of March 31, 2005, and by Amendment No. 2, dated as of October 14, 2005, collectively, the First Lien Facility. Amendment No. 3 was necessary to permit the Company to enter into the Second Lien Facility. Amendment
No. 3 also revised the ratios of the financial covenants that the Company is required to maintain by allowing lower ratios in certain quarters of Consolidated EBITDA to Consolidated Cash Interest Expense, and by allowing higher ratios in
certain quarters of Average Total Debt to Consolidated EBITDA.

As of July 2, 2006, the weighted average annual interest rate
applicable to Eurodollar rate loans was 7.12% and the weighted average annual interest rate applicable to base rate loans was 10.00%. During the thirteen weeks ended July 2, 2006, the weighted average annual interest rate for the First Lien
Facility was 7.05%, the interest rate on the term loan facility was 6.93%, and the interest rate on the revolving credit facility was 9.72%. As of July 2, 2006, $37.2 million was available under the First Lien Facility.

Canadian Credit Facility

Borrowings
under the revolving credit facility bear interest at the Canadian prime rate plus 0.50% or the Canadian bankers acceptance rate plus 1.75%, at the Companys option. Term loan borrowings bear interest at the Canadian prime rate plus 0.75% or the
Canadian bankers acceptance rate plus 2.00%, at the Companys option. As of July 2, 2006, borrowings under the revolving credit facility and the term loan carried effective interest rates of 6.18% and 6.43%, respectively. As of
July 2, 2006, CAD $16.4 million (approximately $14.7 million) was available under the Canadian revolving credit facility.

(9) LEASES

The Company leases certain transportation vehicles, warehouse and office facilities, and machinery and equipment under both cancelable
and non-cancelable operating leases, most of which expire within eighteen years and may be renewed by the Company. The full amount of lease rental payments is charged to expense using the straight-line method over the term of the lease. Future
minimum rental commitments under non-cancelable operating leases in effect at July 2, 2006 are as follows (in thousands):



|                             |  |   |        
|---------------------------- |  | - | -------
|Remainder of 2006            |  | $ | 16,104 
|2007                         |  |   | 27,991 
|2008                         |  |   | 24,881 
|2009                         |  |   | 23,297 
|2010                         |  |   | 21,398 
|Thereafter                   |  |   | 186,770
|                             |  |   |        
|Total minimum lease payments |  | $ | 300,441
|                             |  |   |        

(10) DERIVATIVES AND HEDGING ACTIVITIES

The First Lien Facility requires the Company to fix the interest rate for a portion of the borrowings. Accordingly, on March 10, 2004, to limit the
variability of a portion of the interest payments under the First Lien Facility, the Company entered into receive-variable, pay-fixed interest rate swaps with a total notional amount of $180.0 million. Under these interest rate swaps, the Company
receives variable interest rate payments and makes fixed interest rate payments; thereby effectively fixing the rate on a portion of the outstanding debt. The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid
is 2.375% to 2.376%. The swap agreements extend through March 31, 2007.

On June 23, 2005, 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 4.25%. The swap agreement is effective from
March 31, 2007 through March 31, 2010.



16



---

##### Table of Contents

On March 31, 2006, the Company entered into two receive-variable, pay-fixed interest rate swaps with
identical terms and a combined notional amount of $70.0 million. The swap agreements are effective from March 31, 2006 through March 31, 2009. The notional amount varies throughout the term of the agreements. The combined notional amount
decreases to $35.0 million on September 29, 2006, increases to $150.0 million on March 30, 2007, and decreases to $75.0 million on December 31, 2007 through maturity. The variable rate of interest received is the Eurodollar rate. The
fixed rate of interest paid is 5.15%.

The interest rate swap agreements described above are accounted for as cash flow hedges and their
fair values are included in other current assets and other assets in the Companys Consolidated Balance Sheets. The combined fair values of these swap agreements was $7.0 million and $5.9 million as of July 2, 2006 and January 1,
2006, respectively. Gains and losses are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings when the underlying interest payments are recognized. See Note 16 with regard to a related subsequent
event.

(11) 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 July 2,
2006   |        |   | Thirteen weeks ended July 3,
2005   |   |        | Thirteen weeks ended July 2,
2006   |  |   | Thirteen weeks ended July 3,
2005   |  
|Service cost                       |  | $                                   | 541    |   |                                     | $ | 437    |                                     |  | $ | 185                                 |   |  | $ | 206    |  
|Interest cost                      |  |                                     | 1,780  |   |                                     |   | 1,479  |                                     |  |   | 478                                 |   |  |   | 534    |  
|Expected return on plan assets     |  |                                     | (1,926 | ) |                                     |   | (1,438 | )                                   |  |   |                                    |   |  |   |       |  
|Amortization of prior service cost |  |                                     |        |   |                                     |   | 22     |                                     |  |   | (1,032                              | ) |  |   | (1,032 | )
|Amortization of net loss           |  |                                     | 17     |   |                                     |   |       |                                     |  |   | 207                                 |   |  |   | 227    |  
|                                   |  |                                     |        |   |                                     |   |        |                                     |  |   |                                     |   |  |   |        |  
|                                   |  |                                     | 412    |   |                                     |   | 500    |                                     |  |   | (162                                | ) |  |   | (65    | )
|Curtailment gains                  |  |                                     |       |   |                                     |   |       |                                     |  |   | (22,067                             | ) |  |   |       |  
|                                   |  |                                     |        |   |                                     |   |        |                                     |  |   |                                     |   |  |   |        |  
|Net periodic benefit cost (income) |  | $                                   | 412    |   |                                     | $ | 500    |                                     |  | $ | (22,229                             | ) |  | $ | (65    | )
|                                   |  |                                     |        |   |                                     |   |        |                                     |  |   |                                     |   |  |   |        |  
|                                   |  |                                    
|                                   |  | Pension Benefits                    |        |   | Other Postretirement Benefits       |  
|                                   |  | Twenty-six weeks ended July 2,
2006 |        |   | Twenty-six weeks ended July 3,
2005 |   |        | Twenty-six weeks ended July 2,
2006 |  |   | Twenty-six weeks ended July 3,
2005 |  
|Service cost                       |  | $                                   | 970    |   |                                     | $ | 864    |                                     |  | $ | 383                                 |   |  | $ | 411    |  
|Interest cost                      |  |                                     | 2,951  |   |                                     |   | 2,940  |                                     |  |   | 973                                 |   |  |   | 1,067  |  
|Expected return on plan assets     |  |                                     | (3,264 | ) |                                     |   | (2,859 | )                                   |  |   |                                    |   |  |   |       |  
|Amortization of prior service cost |  |                                     |        |   |                                     |   | 44     |                                     |  |   | (2,064                              | ) |  |   | (2,064 | )
|Amortization of net loss           |  |                                     | 35     |   |                                     |   |       |                                     |  |   | 414                                 |   |  |   | 453    |  
|                                   |  |                                     |        |   |                                     |   |        |                                     |  |   |                                     |   |  |   |        |  
|                                   |  |                                     | 692    |   |                                     |   | 989    |                                     |  |   | (294                                | ) |  |   | (133   | )
|Curtailment gains                  |  |                                     |       |   |                                     |   |       |                                     |  |   | (22,067                             | ) |  |   |       |  
|                                   |  |                                     |        |   |                                     |   |        |                                     |  |   |                                     |   |  |   |        |  
|Net periodic benefit cost (income) |  | $                                   | 692    |   |                                     | $ | 989    |                                     |  | $ | (22,361                             | ) |  | $ | (133   | )
|                                   |  |                                     |        |   |                                     |   |        |                                     |  |   |                                     |   |  |   |        |  

Through July 2, 2006, $5.3 million of contributions had been made to the Companys
pension and other postretirement benefit plans in 2006. The Company presently anticipates contributing an additional $7.5 million to fund its pension and other postretirement benefit plans in 2006 for a total of $12.8 million.

During the thirteen and twenty-six weeks ended July 2, 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.



17



---

##### Table of Contents

(12) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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



|                                                                |  |                                  |          |   |                                  |   |        |                                     |  |   |                                     |   |  |   |         |  
|--------------------------------------------------------------- |  | -------------------------------- | -------- | - | -------------------------------- | - | ------ | ----------------------------------- |  | - | ----------------------------------- | - |  | - | ------- | -
|                                                                |  | Thirteenweeks ended July 2, 2006 |          |   | Thirteenweeks ended July 3, 2005 |   |        | Twenty-six weeks ended July 2,
2006 |  |   | Twenty-six weeks ended July 3,
2005 |  
|                                                                |  |                                  |          |   | (As restated)                    |   |        |                                     |  |   | (As restated)                       |  
|Net loss                                                        |  | $                                | (299,364 | ) |                                  | $ | (2,787 | )                                   |  | $ | (319,519                            | ) |  | $ | (22,955 | )
|Foreign currency translation adjustment                         |  |                                  | 1,767    |   |                                  |   | (4,128 | )                                   |  |   | 2,283                               |   |  |   | (5,851  | )
|Unrealized investment gain, net of income taxes                 |  |                                  | 105      |   |                                  |   | 24     |                                     |  |   | 148                                 |   |  |   | 124     |  
|Unrealized gain (loss) on cash flow hedges, net of income taxes |  |                                  | 521      |   |                                  |   | (849   | )                                   |  |   | 678                                 |   |  |   | 343     |  
|                                                                |  |                                  |          |   |                                  |   |        |                                     |  |   |                                     |   |  |   |         |  
|Comprehensive loss                                              |  | $                                | (296,971 | ) |                                  | $ | (7,740 | )                                   |  | $ | (316,410                            | ) |  | $ | (28,339 | )
|                                                                |  |                                  |          |   |                                  |   |        |                                     |  |   |                                     |   |  |   |         |  

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



|                                                           |  |              |        |   |                 |   |        |  
|---------------------------------------------------------- |  | ------------ | ------ | - | --------------- | - | ------ | -
|                                                           |  | July 2, 2006 |        |   | January 1, 2006 |  
|Foreign currency translation adjustments                   |  | $            | 6,769  |   |                 | $ | 4,486  |  
|Minimum pension liability adjustments, net of income taxes |  |              | (8,867 | ) |                 |   | (8,867 | )
|Unrealized investment gain, net of income taxes            |  |              | 826    |   |                 |   | 678    |  
|Unrealized gain on cash flow hedge, net of income taxes    |  |              | 4,319  |   |                 |   | 3,641  |  
|                                                           |  |              |        |   |                 |   |        |  
|Accumulated other comprehensive income (loss)              |  | $            | 3,047  |   |                 | $ | (62    | )
|                                                           |  |              |        |   |                 |   |        |  

(13) 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.

As of July 2, 2006, 279,183 time-based options were exercisable and none of the performance-based options were exercisable. No
options have been exercised to date. The performance-based options are accounted for as variable options. In accordance with Accounting Principles Board Opinion No. 25, no compensation expense has been recorded related to these awards since the
grant dates because the performance goals have not been met and the underlying common stock has not increased in value.



18



---

##### Table of Contents

The following shows stock option activity for the two years ended July 2, 2006:



|                                                                            |  |                               |   |  |                                       |   |  |                           |  
|--------------------------------------------------------------------------- |  | ----------------------------- | - |  | ------------------------------------- | - |  | ------------------------- | -
|                                                                            |  | Shares under optionTime-based |   |  | Shares under option Performance-based |   |  | Total shares under option |  
|December 31, 2004                                                           |  | 749,558                       |   |  | 499,699                               |   |  | 1,249,257                 |  
|Granted with exercise price less than or equal to the grant date fair value |  | 94,240                        |   |  | 62,820                                |   |  | 157,060                   |  
|Forfeited                                                                   |  | (48,931                       | ) |  | (32,620                               | ) |  | (81,551                   | )
|                                                                            |  |                               |   |  |                                       |   |  |                           |  
|January 1, 2006                                                             |  | 794,867                       |   |  | 529,899                               |   |  | 1,324,766                 |  
|Forfeited                                                                   |  | (261,466                      | ) |  | (283,921                              | ) |  | (545,387                  | )
|                                                                            |  |                               |   |  |                                       |   |  |                           |  
|July 2, 2006                                                                |  | 533,401                       |   |  | 245,978                               |   |  | 779,379                   |  
|                                                                            |  |                               |   |  |                                       |   |  |                           |  

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (Revised 2004), Share-Based Payment (SFAS 123R). SFAS 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion
No. 25 (APB 25). The Company adopted SFAS 123R on January 2, 2006 under the prospective method. Under the provisions of SFAS 123, the Company calculated its pro forma disclosure using the minimum value method, which
excludes any effect of volatility on value; therefore, the prospective method of adopting SFAS 123R is required. Under the prospective method, compensation cost is recognized in the consolidated financial statements beginning with the
effective date, based on the requirements of SFAS 123R for all share-based payments granted, modified, repurchased or cancelled after that date. Since the adoption of SFAS 123R, the Company has not granted, modified, repurchased or cancelled any
options; therefore, no expense was recognized for stock options in the Companys Statement of Operations during the twenty-six weeks ended July 2, 2006.

(14) RELATED PARTY TRANSACTIONS

Robert L. Hulseman, who is John F. Hulsemans brother and the husband of Sheila M.
Hulseman, and who is the Chairman and Chief Executive Officer of the Company, received salary and benefits of $286,462 and $289,244 for the thirteen weeks ended July 2, 2006 and July 3, 2005, respectively. He received salary and benefits
of $562,862 and $565,428 for the twenty-six weeks ended July 2, 2006 and July 3, 2005, respectively. John F. Hulseman, who is Robert L. Hulsemans brother and the husband of Georgia S. Hulseman, and who is the Vice Chairman of the
Company, received salary and benefits of $273,600 and $276,382 for the thirteen weeks ended July 2, 2006 and July 3, 2005, respectively. He received salary and benefits of $550,000 and $552,566 for the twenty-six weeks ended July 2,
2006 and July 3, 2005, respectively. Robert L. and John F. Hulseman each hold 50.0% of the voting membership interests of SCC Holding, which owns 67.2% of the voting stock of SCIC. In addition, Robert L., Sheila M., John F., and Georgia S.
Hulseman and Robert M. Korzenski (effective April 17, 2006) are directors of the Company. The Company does not pay any directors fees.

Pursuant to the Stockholders Agreement dated February 27, 2004 by and among the Company, SCIC, Vestar and other parties (see Exhibit 10.18 to the Companys Registration Statement on Form S-4, File No. 333-116843), Vestar may
designate two directors of the Company. In 2004, Daniel S. OConnell and Norman W. Alpert were elected to the board. John R. Woodard replaced Norman W. Alpert in February 2006. Mr. OConnell and Mr. Woodard are both employees and
equity owners of Vestar. Vestar owns CPPS representing 32.7% of the voting stock of SCIC. On July 21, 2006, John R. Woodard, a director of the Company designated by Vestar Capital Partners (Vestar), resigned his position as a director of the
Company. Mr. Woodard was replaced by Norman W. Alpert who previously was Vestars designated Director of the Company from February 2004 until February 2006.

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. At the
same time, SCIC entered into a management agreement with Vestar pursuant to which SCIC will pay Vestar an $800,000 annual advisory fee, plus reimbursement of its expenses. Pursuant to these management agreements, the Company incurred $1.7 million
and $1.7 million of advisory fees to SCIC for the twenty-six weeks ended July 2, 2006 and July 3, 2005, respectively.



19



---

##### Table of Contents

(15) SEGMENTS

The Company manages and evaluates its operations in four reportable segments: North America, Europe, Asia-Pacific and Other. 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 Form 10-K/A for the fiscal year ended January 1, 2006. Segment operating results are measured based on operating income (loss). Intersegment net
sales are accounted for on an arms length pricing basis.

No individual customer accounted for greater than 10% of consolidated net
sales in fiscal years 2005 or 2004. It is not practical for the Company to report revenues from external customers for each product and service or each group of similar products.



20



---

##### Table of Contents

(15) SEGMENTS (Continued)



|                                    |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|----------------------------------- |  | ------------ | --------- | - | ------ | - | ------------ |  | - | ------ | - | ------------- | - | ----- | ------------ | - | --------- | ----- |  | - | ------- | - |  | - | --------- | -
|(in thousands)                      |  | NorthAmerica |           |   | Europe |   | Asia-Pacific |  |   | Other  |   | TotalSegments |   |       | Eliminations |   |           | Total | 
|Thirteen weeks ended July 2, 2006   |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales to external customers     |  | $            | 628,289   |   |        | $ | 23,540       |  | $ | 21,949 |   |               | $ | 2,877 |              | $ | 676,655   |       |  | $ | (6,358  | ) |  | $ | 670,297   |  
|Intersegment net sales              |  |              | 6,325     |   |        |   |             |  |   | 33     |   |               |   |      |              |   | 6,358     |       |  |   | (6,358  | ) |  |   |          |  
|Operating (loss) income             |  |              | (213,581  | ) |        |   | 1,039        |  |   | 1,041  |   |               |   | 84    |              |   | (211,417  | )     |  |   | 78      |   |  |   | (211,339  | )
|Depreciation and amortization       |  |              | 24,017    |   |        |   | 859          |  |   | 1,067  |   |               |   | 153   |              |   | 26,096    |       |  |   |        |   |  |   | 26,096    |  
|Capital expenditures                |  |              | 15,161    |   |        |   | 539          |  |   | 169    |   |               |   | 179   |              |   | 16,048    |       |  |   |        |   |  |   | 16,048    |  
|                                    |  |              |           |   |        |   |             
|Twenty-six weeks ended July 2, 2006 |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales to external customers     |  | $            | 1,156,519 |   |        | $ | 42,815       |  | $ | 42,631 |   |               | $ | 5,993 |              | $ | 1,247,958 |       |  | $ | (10,425 | ) |  | $ | 1,237,533 |  
|Intersegment net sales              |  |              | 10,364    |   |        |   |             |  |   | 61     |   |               |   |      |              |   | 10,425    |       |  |   | (10,425 | ) |  |   |          |  
|Operating (loss) income             |  |              | (226,546  | ) |        |   | 1,030        |  |   | (156   | ) |               |   | 364   |              |   | (225,308  | )     |  |   | (151    | ) |  |   | (225,459  | )
|Depreciation and amortization       |  |              | 48,810    |   |        |   | 1,683        |  |   | 2,134  |   |               |   | 311   |              |   | 52,938    |       |  |   |        |   |  |   | 52,938    |  
|Capital expenditures                |  |              | 28,230    |   |        |   | 684          |  |   | 424    |   |               |   | 226   |              |   | 29,564    |       |  |   |        |   |  |   | 29,564    |  
|                                    |  |              |           |   |        |   |             
|At July 2, 2006                     |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|Total assets                        |  | $            | 1,528,104 |   |        | $ | 66,547       |  | $ | 60,276 |   |               | $ | 9,209 |              | $ | 1,664,136 |       |  | $ | (44,866 | ) |  | $ | 1,619,270 |  
|                                    |  |              |           |   |        |   |             
|Thirteen weeks ended July 3, 2005   |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|(As restated)                       |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       | 
|Net sales to external customers     |  | $            | 600,809   |   |        | $ | 21,897       |  | $ | 27,315 |   |               | $ | 3,025 |              | $ | 653,046   |       |  | $ | (6,107  | ) |  | $ | 646,939   |  
|Intersegment net sales              |  |              | 5,875     |   |        |   |             |  |   |       |   |               |   | 232   |              |   | 6,107     |       |  |   | (6,107  | ) |  |   |          |  
|Operating income (loss)             |  |              | 12,423    |   |        |   | 1,148        |  |   | 2,245  |   |               |   | 115   |              |   | 15,931    |       |  |   | (26     | ) |  |   | 15,905    |  
|Depreciation and amortization       |  |              | 24,818    |   |        |   | 942          |  |   | 1,345  |   |               |   | 174   |              |   | 27,279    |       |  |   |        |   |  |   | 27,279    |  
|Capital expenditures                |  |              | 14,889    |   |        |   | 193          |  |   | 2,064  |   |               |   | 19    |              |   | 17,165    |       |  |   |        |   |  |   | 17,165    |  
|                                    |  |              |           |   |        |   |             
|Twenty-six weeks ended July 3, 2005 |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|(As restated)                       |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       | 
|Net sales to external customers     |  | $            | 1,108,015 |   |        | $ | 41,819       |  | $ | 50,074 |   |               | $ | 5,850 |              | $ | 1,205,758 |       |  | $ | (11,719 | ) |  | $ | 1,194,039 |  
|Intersegment net sales              |  |              | 11,173    |   |        |   |             |  |   |       |   |               |   | 546   |              |   | 11,719    |       |  |   | (11,719 | ) |  |   |          |  
|Operating (loss) income             |  |              | (3,598    | ) |        |   | 2,039        |  |   | 1,305  |   |               |   | 355   |              |   | 101       |       |  |   | 20      |   |  |   | 121       |  
|Depreciation and amortization       |  |              | 49,217    |   |        |   | 1,889        |  |   | 2,652  |   |               |   | 333   |              |   | 54,091    |       |  |   |        |   |  |   | 54,091    |  
|Capital expenditures                |  |              | 29,639    |   |        |   | 579          |  |   | 2,995  |   |               |   | 235   |              |   | 33,448    |       |  |   |        |   |  |   | 33,448    |  
|                                    |  |              |           |   |        |   |             
|At January 1, 2006                  |  |              |           |   |        |   |              |  |   |        |   |               |   |       |              |   |           |       |  |   |         |   |  |   |           |  
|Total assets                        |  | $            | 1,737,411 |   |        | $ | 81,072       |  | $ | 61,980 |   |               | $ | 8,925 |              | $ | 1,889,388 |       |  | $ | (44,715 | ) |  | $ | 1,844,673 |  

(Continued)



21



---

##### Table of Contents

(15) SEGMENTS (Continued)



|                                                                  |  |                                   |          |   |                                     |   |           |  
|----------------------------------------------------------------- |  | --------------------------------- | -------- | - | ----------------------------------- | - | --------- | -
|(in thousands)                                                    |  | Thirteen weeks ended July 2,
2006 |          |   | Twenty-six weeks ended July 2,
2006 |  
|Revenues:                                                         |  |                                   |          |   |                                     |   |           |  
|Total segments                                                    |  | $                                 | 676,655  |   |                                     | $ | 1,247,958 |  
|Eliminations of intersegment net sales                            |  |                                   | (6,358   | ) |                                     |   | (10,425   | )
|                                                                  |  |                                   |          |   |                                     |   |           |  
|Total consolidated net sales                                      |  | $                                 | 670,297  |   |                                     | $ | 1,237,533 |  
|                                                                  |  |                                   |          |   |                                     |   |           |  
|Operating loss:                                                   |  |                                   |          |   |                                     |   |           |  
|Total segments                                                    |  | $                                 | (211,417 | ) |                                     | $ | (225,308  | )
|Elimination of intersegment operating income (loss)               |  |                                   | 78       |   |                                     |   | (151      | )
|Interest expense, net of interest income of $40 and $138          |  |                                   | (22,010  | ) |                                     |   | (42,389   | )
|Foreign currency exchange gain, net                               |  |                                   | 2,676    |   |                                     |   | 3,710     |  
|Other expense, net                                                |  |                                   | (376     | ) |                                     |   | (503      | )
|                                                                  |  |                                   |          |   |                                     |   |           |  
|Total consolidated loss before income taxes and minority interest |  | $                                 | (231,049 | ) |                                     | $ | (264,641  | )
|                                                                  |  |                                   |          |   |                                     |   |           |  

|                                         |  |                 |           |  
|---------------------------------------- |  | --------------- | --------- | -
|                                         | 
|(in thousands)                           |  | At July 2, 2006 |          
|Assets:                                  |  |                 |           |  
|Total segments                           |  | $               | 1,664,136 |  
|Eliminations of intersegment receivables |  |                 | (44,866   | )
|                                         |  |                 |           |  
|Total consolidated assets                |  | $               | 1,619,270 |  
|                                         |  |                 |           |  

(16) SUBSEQUENT EVENTS

In July 2006, the Company received a neutral arbitrators final ruling on the Companys claims for indemnification arising from the SF Holdings Acquisition that awarded $5.5 million (including interest) to
the Company. The remaining $1.8 million in escrow will be disbursed to the stockholder representative for the seller in the SF Holdings Acquisition.

In July 2006, Executive Vice President and Chief Financial Officer Susan H. Marks decided to leave the Company to pursue other interests. Subsequently, Eric A. Simonsen was appointed interim Chief Financial Officer of
the Company.

In August 2006, Robert M. Korzenski was appointed Chief Executive Officer of the Company. In addition to assuming the Chief
Executive Officer role, Mr. Korzenski retained his responsibilities as the Companys President and Chief Operating Officer, positions to which he was appointed on April 17, 2006.

In August 2006, the Company announced that it would delay filing its Quarterly Report on Form 10-Q for the thirteen weeks ended July 2, 2006 as a result
of an accounting review undertaken when new management was appointed by the Board of Directors in the second and third quarters of 2006. As a result of the delay, the Company received notice on August 17, 2006 from the trustee under the indenture
for its 8.5 % Senior Subordinated Notes due 2014 that the Company failed to comply with the provisions of the indenture requiring that it provide quarterly financial information for the thirteen weeks ended July 2, 2006 to the holders of the notes
issued thereunder. Under the terms of the indenture, the Company had until October 16, 2006, the date of this filing, to comply with this requirement. By providing the required quarterly information, the Company has satisfied this obligation.

In September 2006, the Company terminated its existing interest rate swaps which are described in Note 10 and received approximately $5.1
million. The Company also 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 are in effect through September 14, 2007.



22



---

##### Table of Contents

In September 2006, the Company announced that it had determined to restate certain of its previously
issued consolidated financial statements and that the Companys consolidated financial data for previous annual and interim periods contained errors and should therefore not be relied upon. See Note 1 for further discussion regarding the
restatement. As a result of managements determination to restate certain of its consolidated financial statements, the Company informed the administrative agents under its First and Second Lien Facilities that it was in default under such
facilities. On October 13, 2006, the Company entered into a Waiver and Fourth Amendment to its First Lien Facility and a Waiver and First Amendment to its Second Lien Facility (collectively Waiver). The Waiver is effective with respect
to financial covenants through January 2, 2007. The Waiver generally waives the Companys noncompliance with the First and Second Lien Facilities for events of default resulting from the restatement for the periods restated. The Waiver also
provides that if the Company does not meet the financial covenant ratios for the first fiscal quarter of 2006 (or for prior fiscal periods) to the extent resulting from the restatement or for any reason does not meet the financial covenant ratios
for the second, third and fourth fiscal quarters of 2006 as set forth in the First and Second Lien Credit Facilities, it will not constitute an event of default under such facilities. By entering into the Waiver, the Company re-established its
ability to borrow additional amounts (up to the maximum permitted) under the terms of its $150.0 million revolving credit facility.

In
recent periods, the Companys net losses, adjusted for non-cash operating costs such as depreciation and amortization, have not provided sufficient cash flow to offset the Companys working capital needs. This has resulted in an overall
use of cash from operating activities. Additionally, investing activities have been a net use of cash. This has been the result primarily of the Companys capital expenditure programs, including the ongoing implementation of a new order
management system. As a result, the Company increased its borrowing availability through existing or new lending agreements such as the Second Lien Facility that was originated during the first quarter of 2006. These credit facilities, however, as
well as the indenture governing the notes described above, impose certain restrictions upon the Companys 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 mature.

However, the Company has taken, and continues to take, a number of steps to maximize
its near-term liquidity to meet its expected working capital needs, fund its capital expenditure requirements and fulfill its lease and debt service obligations over the longer term. For example, the Company has cured the default under the indenture
governing the notes, entered into the Waiver, and commenced negotiations with its lenders regarding amendments to its current financing structure. In addition, the Company is evaluating additional opportunities such as sales of non-strategic assets
and alternative financing strategies. The Company has also engaged an independent consulting firm to perform a thorough diagnostic review of its supply chain/operations designed to reduce costs and improve manufacturing efficiencies.

At July 2, 2006, the Companys outstanding borrowings under the First and Second Lien Facilities, the 8.5% Senior Subordinated Notes and foreign
borrowings in Canada and Japan in the aggregate is approximately $1,152 million. Waivers have been obtained though January 2, 2007 with respect to covenant violations that occurred in August and September 2006 under the First and Second Lien
facilities. Prior to that date, the Company must complete negotiations and close on a new amendment to the existing facilities that would, among other things, amend the covenants to achievable levels. Alternatively, the Company could replace the
First and/or Second Lien facilities with new borrowings. Management believes it is probable that one of those alternatives will be accomplished by January 2, 2007. Accordingly, it has classified the outstanding balance of the First and Second Lien
Facilities on its consolidated balance sheets based on their stated maturities.



23



---

##### Table of Contents

(17) 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 Delaware, Solo Management Company, 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:



|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|---------------------------------------------- |  | ---------------------------------------------------------------------------- | ------- | --------------- | - | --------- | -------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | --------- | -
|                                               |  | Condensed Consolidated Balance Sheet July 2, 2006 (In thousands)
(Unaudited) |        
|                                               |  | Solo Delaware                                                                |         | OtherGuarantors |   |           | Non-Guarantors |  | Eliminations |         |  | Consolidated |         
|Assets                                         |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|                                               |  |                                                                              |         |                 |  
|Current assets:                                |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Cash and cash equivalents                      |  | $                                                                            | 455     |                 | $ | 8,024     |                |  | $            | 8,747   |  | $            |         |   |  | $ | 17,226    |  
|Cash in escrow                                 |  |                                                                              | 7,274   |                 |   |          |                |  |              |        |  |              |         |   |  |   | 7,274     |  
|Accounts receivable:                           |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Trade                                          |  |                                                                              |        |                 |   | 217,664   |                |  |              | 42,405  |  |              |         |   |  |   | 260,069   |  
|Other                                          |  |                                                                              | 253,204 |                 |   | 38,080    |                |  |              | 650     |  |              | (264,551 | ) |  |   | 27,383    |  
|Inventories                                    |  |                                                                              |        |                 |   | 372,913   |                |  |              | 26,088  |  |              | (684     | ) |  |   | 398,317   |  
|Deferred income taxes                          |  |                                                                              | 963     |                 |   | 28,797    |                |  |              | 1,647   |  |              |         |   |  |   | 31,407    |  
|Prepaid expenses and other current assets      |  |                                                                              | 4,811   |                 |   | 31,838    |                |  |              | 5,583   |  |              |         |   |  |   | 42,232    |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Total current assets                           |  |                                                                              | 266,707 |                 |   | 697,316   |                |  |              | 85,120  |  |              | (265,235 | ) |  |   | 783,908   |  
|                                               |  |                                                                              |         |                 |  
|Property, plant and equipment, net             |  |                                                                              |        |                 |   | 671,159   |                |  |              | 67,394  |  |              |         |   |  |   | 738,553   |  
|Goodwill and intangible assets, net            |  |                                                                              | 18,988  |                 |   | 23,718    |                |  |              | 414     |  |              |         |   |  |   | 43,120    |  
|Other assets                                   |  |                                                                              | 87,227  |                 |   | 12,624    |                |  |              | 4,115   |  |              | (50,277  | ) |  |   | 53,689    |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Total assets                                   |  | $                                                                            | 372,922 |                 | $ | 1,404,817 |                |  | $            | 157,043 |  | $            | (315,512 | ) |  | $ | 1,619,270 |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Liabilities and Shareholders Equity           |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|                                               |  |                                                                              |         |                 |  
|Current liabilities:                           |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Accounts payable                               |  | $                                                                            | 794     |                 | $ | 374,916   |                |  | $            | 33,184  |  | $            | (264,556 | ) |  | $ | 144,338   |  
|Accrued expenses and other current liabilities |  |                                                                              | 14,169  |                 |   | 110,352   |                |  |              | 16,437  |  |              |         |   |  |   | 140,958   |  
|Short-term debt                                |  |                                                                              |        |                 |   |          |                |  |              | 5,604   |  |              |         |   |  |   | 5,604     |  
|Current maturities of long-term debt           |  |                                                                              | 6,500   |                 |   |          |                |  |              | 2,304   |  |              |         |   |  |   | 8,804     |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Total current liabilities                      |  |                                                                              | 21,463  |                 |   | 485,268   |                |  |              | 57,529  |  |              | (264,556 | ) |  |   | 299,704   |  
|                                               |  |                                                                              |         |                 |  
|Long-term debt, net of current maturities      |  |                                                                              | 285,601 |                 |   | 842,674   |                |  |              | 9,002   |  |              |         |   |  |   | 1,137,277 |  
|Deferred income taxes                          |  |                                                                              | 5,468   |                 |   | 42,700    |                |  |              | 3,897   |  |              |         |   |  |   | 52,065    |  
|Other liabilities                              |  |                                                                              |        |                 |   | 39,291    |                |  |              | 21,716  |  |              |         |   |  |   | 61,007    |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Total liabilities                              |  |                                                                              | 312,532 |                 |   | 1,409,933 |                |  |              | 92,144  |  |              | (264,556 | ) |  |   | 1,550,053 |  
|                                               |  |                                                                              |         |                 |  
|Shareholders equity:                          |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Common stock                                   |  |                                                                              |        |                 |   |          |                |  |              | 2,114   |  |              | (2,114   | ) |  |   |          |  
|Additional paid-in capital                     |  |                                                                              | 49,050  |                 |   | 209,120   |                |  |              | 39,168  |  |              | (39,168  | ) |  |   | 258,170   |  
|Retained earnings (accumulated deficit)        |  |                                                                              | 7,021   |                 |   | (208,783  | )              |  |              | 19,436  |  |              | (9,674   | ) |  |   | (192,000  | )
|Accumulated other comprehensive income (loss)  |  |                                                                              | 4,319   |                 |   | (5,453    | )              |  |              | 4,181   |  |              |         |   |  |   | 3,047     |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Total shareholders equity                     |  |                                                                              | 60,390  |                 |   | (5,116    | )              |  |              | 64,899  |  |              | (50,956  | ) |  |   | 69,217    |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  
|Total liabilities and shareholders equity     |  | $                                                                            | 372,922 |                 | $ | 1,404,817 |                |  | $            | 157,043 |  | $            | (315,512 | ) |  | $ | 1,619,270 |  
|                                               |  |                                                                              |         |                 |   |           |                |  |              |         |  |              |          |   |  |   |           |  

(Continued)



24



---

##### Table of Contents

(17) GUARANTOR NOTE (Continued)



|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|---------------------------------------------- |  | ------------------------------------------------------------------- | ------- | -------------- | - | --------- | --------------- |  | ------------ | ------- |  | ------------ | -------- | - |  | - | --------- | -
|                                               |  | Condensed Consolidated Balance Sheet January 1, 2006 (In
thousands) |        
|                                               |  | Solo Delaware                                                       |         | OtherGuarantor |   |           | Non- Guarantors |  | Eliminations |         |  | Consolidated |         
|Assets                                         |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|                                               |  |                                                                     |         |                |  
|Current assets:                                |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Cash and cash equivalents                      |  | $                                                                   | 422     |                | $ | 6,616     |                 |  | $            | 5,049   |  | $            |         |   |  | $ | 12,087    |  
|Cash in escrow                                 |  |                                                                     | 15,000  |                |   |          |                 |  |              |        |  |              |         |   |  |   | 15,000    |  
|Accounts receivable:                           |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Trade                                          |  |                                                                     |        |                |   | 182,995   |                 |  |              | 39,288  |  |              |         |   |  |   | 222,283   |  
|Other                                          |  |                                                                     | 178,742 |                |   | 34,012    |                 |  |              |        |  |              | (190,765 | ) |  |   | 21,989    |  
|Inventories                                    |  |                                                                     |        |                |   | 355,864   |                 |  |              | 25,996  |  |              | (596     | ) |  |   | 381,264   |  
|Deferred income taxes                          |  |                                                                     | 963     |                |   | 56,230    |                 |  |              | 1,864   |  |              |         |   |  |   | 59,057    |  
|Other current assets                           |  |                                                                     | 17      |                |   | 46,629    |                 |  |              | 5,266   |  |              |         |   |  |   | 51,912    |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total current assets                           |  |                                                                     | 195,144 |                |   | 682,346   |                 |  |              | 77,463  |  |              | (191,361 | ) |  |   | 763,592   |  
|                                               |  |                                                                     |         |                |  
|Property, plant and equipment, net             |  |                                                                     |        |                |   | 686,968   |                 |  |              | 69,217  |  |              |         |   |  |   | 756,185   |  
|Goodwill and intangible assets                 |  |                                                                     | 18,988  |                |   | 254,133   |                 |  |              | 491     |  |              |         |   |  |   | 273,612   |  
|Other assets                                   |  |                                                                     | 89,972  |                |   | 7,630     |                 |  |              | 3,960   |  |              | (50,278  | ) |  |   | 51,284    |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total assets                                   |  | $                                                                   | 304,104 |                | $ | 1,631,077 |                 |  | $            | 151,131 |  | $            | (241,639 | ) |  | $ | 1,844,673 |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Liabilities and Shareholders Equity           |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|                                               |  |                                                                     |         |                |  
|Current liabilities:                           |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Accounts payable                               |  | $                                                                   | 35,100  |                | $ | 284,667   |                 |  | $            | 34,637  |  | $            | (190,805 | ) |  | $ | 163,599   |  
|Accrued expenses and other current liabilities |  |                                                                     | 15,736  |                |   | 112,819   |                 |  |              | 13,521  |  |              |         |   |  |   | 142,076   |  
|Short-term debt                                |  |                                                                     |        |                |   |          |                 |  |              | 5,546   |  |              |         |   |  |   | 5,546     |  
|Current maturities of long-term debt           |  |                                                                     | 6,500   |                |   |          |                 |  |              | 2,226   |  |              |         |   |  |   | 8,726     |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total current liabilities                      |  |                                                                     | 57,336  |                |   | 397,486   |                 |  |              | 55,930  |  |              | (190,805 | ) |  |   | 319,947   |  
|                                               |  |                                                                     |         |                |  
|Long-term debt, less current maturities        |  |                                                                     | 176,151 |                |   | 842,674   |                 |  |              | 10,184  |  |              |         |   |  |   | 1,029,009 |  
|Deferred income taxes                          |  |                                                                     | 7,346   |                |   | 14,682    |                 |  |              | 3,801   |  |              |         |   |  |   | 25,829    |  
|Other liabilities                              |  |                                                                     |        |                |   | 62,052    |                 |  |              | 22,330  |  |              |         |   |  |   | 84,382    |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total liabilities                              |  |                                                                     | 240,833 |                |   | 1,316,894 |                 |  |              | 92,245  |  |              | (190,805 | ) |  |   | 1,459,167 |  
|                                               |  |                                                                     |         |                |  
|Shareholders equity:                          |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Common stock                                   |  |                                                                     |        |                |   |          |                 |  |              | 2,114   |  |              | (2,114   | ) |  |   |          |  
|Additional paid-in capital                     |  |                                                                     | 48,929  |                |   | 209,120   |                 |  |              | 39,168  |  |              | (39,168  | ) |  |   | 258,049   |  
|Retained earnings                              |  |                                                                     | 10,702  |                |   | 112,176   |                 |  |              | 14,193  |  |              | (9,552   | ) |  |   | 127,519   |  
|Accumulated other comprehensive loss           |  |                                                                     | 3,640   |                |   | (7,113    | )               |  |              | 3,411   |  |              |         |   |  |   | (62       | )
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total shareholders equity                     |  |                                                                     | 63,271  |                |   | 314,183   |                 |  |              | 58,886  |  |              | (50,834  | ) |  |   | 385,506   |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  
|Total liabilities and shareholders equity     |  | $                                                                   | 304,104 |                | $ | 1,631,077 |                 |  | $            | 151,131 |  | $            | (241,639 | ) |  | $ | 1,844,673 |  
|                                               |  |                                                                     |         |                |   |           |                 |  |              |         |  |              |          |   |  |   |           |  

(Continued)



25



---

##### Table of Contents

(17) GUARANTOR NOTE (Continued)



|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- | ------ | - | --------------- | - | -------- | --------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------- | -
|                                                        |  | Consolidated Statement of Operations Thirteen weeks ended July 2, 2006 (In thousands) (Unaudited)               |       
|                                                        |  | Solo Delaware                                                                                                   |        |   | OtherGuarantors |   |          | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                               |  | $                                                                                                               |       |   |                 | $ | 616,836  |                 |  | $ | 75,856       |   |  | $            | (22,395 | ) |  | $ | 670,297  |  
|Cost of goods sold                                      |  |                                                                                                                 |       |   |                 |   | 537,332  |                 |  |   | 63,501       |   |  |              | (22,524 | ) |  |   | 578,309  |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Gross profit                                            |  |                                                                                                                 |       |   |                 |   | 79,504   |                 |  |   | 12,355       |   |  |              | 129     |   |  |   | 91,988   |  
|                                                        |  |                                                                                                                 |        |   |                
|Selling, general and administrative expenses            |  |                                                                                                                 | 98     |   |                 |   | 68,144   |                 |  |   | 5,638        |   |  |              | (33     | ) |  |   | 73,847   |  
|Impairment of goodwill                                  |  |                                                                                                                 |       |   |                 |   | 228,537  |                 |  |   |             |   |  |              |        |   |  |   | 228,537  |  
|Loss on sale of property, plant and equipment           |  |                                                                                                                 |       |   |                 |   | 941      |                 |  |   | 2            |   |  |              |        |   |  |   | 943      |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Operating income (loss)                                 |  |                                                                                                                 | (98    | ) |                 |   | (218,118 | )               |  |   | 6,715        |   |  |              | 162     |   |  |   | (211,339 | )
|                                                        |  |                                                                                                                 |        |   |                
|Interest expense, net                                   |  |                                                                                                                 | 3,323  |   |                 |   | 18,266   |                 |  |   | 421          |   |  |              |        |   |  |   | 22,010   |  
|Foreign currency exchange (gain) loss, net              |  |                                                                                                                 |       |   |                 |   | (2,986   | )               |  |   | 310          |   |  |              |        |   |  |   | (2,676   | )
|Other (income) expense, net                             |  |                                                                                                                 |       |   |                 |   | 423      |                 |  |   | (47          | ) |  |              |        |   |  |   | 376      |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Income (loss) before income taxes                       |  |                                                                                                                 | (3,421 | ) |                 |   | (233,821 | )               |  |   | 6,031        |   |  |              | 162     |   |  |   | (231,049 | )
|                                                        |  |                                                                                                                 |        |   |                
|Income tax (benefit) provision                          |  |                                                                                                                 | (1,317 | ) |                 |   | 67,498   |                 |  |   | 2,134        |   |  |              |        |   |  |   | 68,315   |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Net income (loss)                                       |  | $                                                                                                               | (2,104 | ) |                 | $ | (301,319 | )               |  | $ | 3,897        |   |  | $            | 162     |   |  | $ | (299,364 | )
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|                                                        | 
|                                                        |  | Consolidated Statement of Operations Thirteen weeks ended July 3, 2005 (In thousands) (Unaudited) (As restated) |       
|                                                        |  | Solo Delaware                                                                                                   |        |   | OtherGuarantors |   |          | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                               |  | $                                                                                                               |       |   |                 | $ | 590,270  |                 |  | $ | 73,805       |   |  | $            | (17,136 | ) |  | $ | 646,939  |  
|Cost of goods sold                                      |  |                                                                                                                 |       |   |                 |   | 519,830  |                 |  |   | 62,040       |   |  |              | (17,070 | ) |  |   | 564,800  |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Gross profit                                            |  |                                                                                                                 |       |   |                 |   | 70,440   |                 |  |   | 11,765       |   |  |              | (66     | ) |  |   | 82,139   |  
|                                                        |  |                                                                                                                 |        |   |                
|Selling, general and administrative expenses            |  |                                                                                                                 | 42     |   |                 |   | 61,290   |                 |  |   | 4,956        |   |  |              | (61     | ) |  |   | 66,227   |  
|Loss (gain) on sale of property, plant and equipment    |  |                                                                                                                 |       |   |                 |   | 9        |                 |  |   | (2           | ) |  |              |        |   |  |   | 7        |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Operating income (loss)                                 |  |                                                                                                                 | (42    | ) |                 |   | 9,141    |                 |  |   | 6,811        |   |  |              | (5      | ) |  |   | 15,905   |  
|                                                        |  |                                                                                                                 |        |   |                
|Interest expense, net                                   |  |                                                                                                                 | 2,870  |   |                 |   | 14,696   |                 |  |   | 643          |   |  |              |        |   |  |   | 18,209   |  
|Foreign currency exchange loss (gain), net              |  |                                                                                                                 |       |   |                 |   | 2,553    |                 |  |   | (516         | ) |  |              |        |   |  |   | 2,037    |  
|Other (income) expense, net                             |  |                                                                                                                 |       |   |                 |   | 4        |                 |  |   | (62          | ) |  |              |        |   |  |   | (58      | )
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Income (loss) before income taxes and minority interest |  |                                                                                                                 | (2,912 | ) |                 |   | (8,112   | )               |  |   | 6,746        |   |  |              | (5      | ) |  |   | (4,283   | )
|                                                        |  |                                                                                                                 |        |   |                
|Income tax (benefit) provision                          |  |                                                                                                                 |        |   |                 |   | (3,677   | )               |  |   | 2,128        |   |  |              |        |   |  |   | (1,549   | )
|Minority interest                                       |  |                                                                                                                 |       |   |                 |   |         |                 |  |   | 53           |   |  |              |        |   |  |   | 53       |  
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  
|Net income (loss)                                       |  | $                                                                                                               | (2,912 | ) |                 | $ | (4,435   | )               |  | $ | 4,565        |   |  | $            | (5      | ) |  | $ | (2,787   | )
|                                                        |  |                                                                                                                 |        |   |                 |   |          |                 |  |   |              |   |  |              |         |   |  |   |          |  

(Continued)



26



---

##### Table of Contents

(17) GUARANTOR NOTE (Continued)



|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- | ------ | - | --------------- | - | --------- | --------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | --------- | -
|                                                        |  | Consolidated Statement of Operations Twenty-six weeks ended July 2, 2006 (In thousands) (Unaudited)               |       
|                                                        |  | Solo Delaware                                                                                                     |        |   | OtherGuarantors |   |           | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                               |  | $                                                                                                                 |       |   |                 | $ | 1,140,536 |                 |  | $ | 139,448      |   |  | $            | (42,451 | ) |  | $ | 1,237,533 |  
|Cost of goods sold                                      |  |                                                                                                                   |       |   |                 |   | 1,014,913 |                 |  |   | 119,087      |   |  |              | (42,276 | ) |  |   | 1,091,724 |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Gross profit                                            |  |                                                                                                                   |       |   |                 |   | 125,623   |                 |  |   | 20,361       |   |  |              | (175    | ) |  |   | 145,809   |  
|                                                        |  |                                                                                                                   |        |   |                
|Selling, general and administrative expenses            |  |                                                                                                                   | 295    |   |                 |   | 129,878   |                 |  |   | 10,804       |   |  |              | (53     | ) |  |   | 140,924   |  
|Impairment of goodwill                                  |  |                                                                                                                   |       |   |                 |   | 228,537   |                 |  |   |             |   |  |              |        |   |  |   | 228,537   |  
|Loss on sale of property, plant and equipment           |  |                                                                                                                   |       |   |                 |   | 1,664     |                 |  |   | 143          |   |  |              |        |   |  |   | 1,807     |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Operating income (loss)                                 |  |                                                                                                                   | (295   | ) |                 |   | (234,456  | )               |  |   | 9,414        |   |  |              | (122    | ) |  |   | (225,459  | )
|                                                        |  |                                                                                                                   |        |   |                
|Interest expense, net                                   |  |                                                                                                                   | 5,690  |   |                 |   | 35,782    |                 |  |   | 917          |   |  |              |        |   |  |   | 42,389    |  
|Foreign currency exchange loss (gain), net              |  |                                                                                                                   |       |   |                 |   | (3,683    | )               |  |   | (27          | ) |  |              |        |   |  |   | (3,710    | )
|Other (income) expense, net                             |  |                                                                                                                   |       |   |                 |   | 547       |                 |  |   | (44          | ) |  |              |        |   |  |   | 503       |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Income (loss) before income taxes and minority interest |  |                                                                                                                   | (5,985 | ) |                 |   | (267,102  | )               |  |   | 8,568        |   |  |              | (122    | ) |  |   | (264,641  | )
|                                                        |  |                                                                                                                   |        |   |                
|Income tax (benefit) provision                          |  |                                                                                                                   | (2,304 | ) |                 |   | 53,858    |                 |  |   | 3,324        |   |  |              |        |   |  |   | 54,878    |  
|Minority interest                                       |  |                                                                                                                   |       |   |                 |   |          |                 |  |   |             |   |  |              |        |   |  |   |          |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Net income (loss)                                       |  | $                                                                                                                 | (3,681 | ) |                 | $ | (320,960  | )               |  | $ | 5,244        |   |  | $            | (122    | ) |  | $ | (319,519  | )
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|                                                        | 
|                                                        |  | Consolidated Statement of Operations Twenty-six weeks ended July 3, 2005 (In thousands) (Unaudited) (As restated) |       
|                                                        |  | Solo Delaware                                                                                                     |        |   | OtherGuarantors |   |           | Non- Guarantors |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                               |  | $                                                                                                                 |       |   |                 | $ | 1,092,934 |                 |  | $ | 131,351      |   |  | $            | (30,246 | ) |  | $ | 1,194,039 |  
|Cost of goods sold                                      |  |                                                                                                                   |       |   |                 |   | 983,430   |                 |  |   | 112,152      |   |  |              | (29,782 | ) |  |   | 1,065,800 |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Gross profit                                            |  |                                                                                                                   |       |   |                 |   | 109,504   |                 |  |   | 19,199       |   |  |              | (464    | ) |  |   | 128,239   |  
|                                                        |  |                                                                                                                   |        |   |                
|Selling, general and administrative expenses            |  |                                                                                                                   | 73     |   |                 |   | 117,062   |                 |  |   | 10,675       |   |  |              | (87     | ) |  |   | 127,723   |  
|Loss on sale of property, plant and equipment           |  |                                                                                                                   |       |   |                 |   | 392       |                 |  |   | 3            |   |  |              |        |   |  |   | 395       |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Operating income (loss)                                 |  |                                                                                                                   | (73    | ) |                 |   | (7,950    | )               |  |   | 8,521        |   |  |              | (377    | ) |  |   | 121       |  
|                                                        |  |                                                                                                                   |        |   |                
|Interest expense, net                                   |  |                                                                                                                   | 5,580  |   |                 |   | 28,740    |                 |  |   | 962          |   |  |              |        |   |  |   | 35,282    |  
|Foreign currency exchange loss (gain), net              |  |                                                                                                                   |       |   |                 |   | 3,789     |                 |  |   | (945         | ) |  |              |        |   |  |   | 2,844     |  
|Other (income) expense, net                             |  |                                                                                                                   |       |   |                 |   | 3         |                 |  |   | (174         | ) |  |              |        |   |  |   | (171      | )
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Income (loss) before income taxes and minority interest |  |                                                                                                                   | (5,653 | ) |                 |   | (40,482   | )               |  |   | 8,678        |   |  |              | (377    | ) |  |   | (37,834   | )
|                                                        |  |                                                                                                                   |        |   |                
|Income tax (benefit) provision                          |  |                                                                                                                   | (2,141 | ) |                 |   | (15,161   | )               |  |   | 2,372        |   |  |              |         |   |  |   | (14,930   | )
|Minority interest                                       |  |                                                                                                                   |       |   |                 |   |          |                 |  |   | 51           |   |  |              |        |   |  |   | 51        |  
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  
|Net income (loss)                                       |  | $                                                                                                                 | (3,512 | ) |                 | $ | (25,321   | )               |  | $ | 6,255        |   |  | $            | (377    | ) |  | $ | (22,955   | )
|                                                        |  |                                                                                                                   |        |   |                 |   |           |                 |  |   |              |   |  |              |         |   |  |   |           |  



27



---

##### Table of Contents

(17) GUARANTOR NOTE (Continued)



|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------- | -------- | - | --------------- | - | ------- | -------------- |  | - | ------------ | - |  | - | ------- | -
|                                                              |  | Condensed Consolidated Statement of Cash
Flows Twenty-six weeks ended July 2, 2006 (In thousands) (Unaudited)              |         
|                                                              |  | Solo Delaware                                                                                                              |          |   | OtherGuarantors |   |         | Non-Guarantors |  |   | Consolidated |  
|CASH FLOWS FROM OPERATING ACTIVITIES                          |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net cash (used in) provided by operating activities           |  | $                                                                                                                          | (113,950 | ) |                 | $ | 27,160  |                |  | $ | 6,912        |   |  | $ | (79,878 | )
|                                                              |  |                                                                                                                            |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                          |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Purchase of property, plant and equipment                     |  |                                                                                                                            |         |   |                 |   | (28,171 | )              |  |   | (1,393       | ) |  |   | (29,564 | )
|Proceeds from sale of property, plant and equipment           |  |                                                                                                                            |         |   |                 |   | 2,290   |                |  |   |             |   |  |   | 2,290   |  
|Decrease in cash escrow                                       |  |                                                                                                                            | 7,726    |   |                 |   |        |                |  |   |             |   |  |   | 7,726   |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net cash provided by (used in) investing activities           |  |                                                                                                                            | 7,726    |   |                 |   | (25,881 | )              |  |   | (1,393       | ) |  |   | (19,548 | )
|                                                              |  |                                                                                                                            |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                          |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net borrowings (repayments) under revolving credit facilities |  |                                                                                                                            | 32,700   |   |                 |   |        |                |  |   | (575         | ) |  |   | 32,125  |  
|Borrowings under the term notes                               |  |                                                                                                                            | 80,000   |   |                 |   |        |                |  |   |             |   |  |   | 80,000  |  
|Repayments of the term notes                                  |  |                                                                                                                            | (3,250   | ) |                 |   |        |                |  |   | (852         | ) |  |   | (4,102  | )
|Repayments of other debt                                      |  |                                                                                                                            |         |   |                 |   |        |                |  |   | (425         | ) |  |   | (425    | )
|Debt issuance costs                                           |  |                                                                                                                            | (3,193   | ) |                 |   |        |                |  |   | (22          | ) |  |   | (3,215  | )
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities           |  |                                                                                                                            | 106,257  |   |                 |   |        |                |  |   | (1,874       | ) |  |   | 104,383 |  
|                                                              |  |                                                                                                                            |          |  
|Effect of exchange rate changes on cash                       |  |                                                                                                                            |         |   |                 |   | 129     |                |  |   | 53           |   |  |   | 182     |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                     |  |                                                                                                                            | 33       |   |                 |   | 1,408   |                |  |   | 3,698        |   |  |   | 5,139   |  
|                                                              |  |                                                                                                                            |          |  
|Cash and cash equivalents, beginning of period                |  |                                                                                                                            | 422      |   |                 |   | 6,616   |                |  |   | 5,049        |   |  |   | 12,087  |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Cash and cash equivalents, end of period                      |  | $                                                                                                                          | 455      |   |                 | $ | 8,024   |                |  | $ | 8,747        |   |  | $ | 17,226  |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|                                                              | 
|                                                              |  | Condensed Consolidated Statement of Cash FlowsTwenty-six
weeks ended July 3, 2005 (In thousands) (Unaudited) (As restated) |         
|                                                              |  | Solo Delaware                                                                                                              |          |   | OtherGuarantors |   |         | Non-Guarantors |  |   | Consolidated |  
|CASH FLOWS FROM OPERATING ACTIVITIES                          |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net cash (used in) provided by operating activities           |  | $                                                                                                                          | (80,192  | ) |                 | $ | 18,466  |                |  | $ | 11,490       |   |  | $ | (50,236 | )
|                                                              |  |                                                                                                                            |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                          |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|                                                              |  |                                                                                                                            |          |  
|Purchase of property, plant and equipment                     |  |                                                                                                                            |         |   |                 |   | (28,262 | )              |  |   | (5,186       | ) |  |   | (33,448 | )
|Proceeds from sale of property, plant and equipment           |  |                                                                                                                            |         |   |                 |   | 6,122   |                |  |   | 6            |   |  |   | 6,128   |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net cash used in investing activities                         |  |                                                                                                                            |         |   |                 |   | (22,140 | )              |  |   | (5,180       | ) |  |   | (27,320 | )
|                                                              |  |                                                                                                                            |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                          |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|                                                              |  |                                                                                                                            |          |  
|Net borrowings under revolving credit facilities              |  |                                                                                                                            | 88,300   |   |                 |   | (27     | )              |  |   | (502         | ) |  |   | 87,771  |  
|Contribution of capital from parent                           |  |                                                                                                                            | 100      |   |                 |   |        |                |  |   |             |   |  |   | 100     |  
|Return of capital to parent                                   |  |                                                                                                                            | (1,267   | ) |                 |   |        |                |  |   |             |   |  |   | (1,267  | )
|Repayments of the term notes                                  |  |                                                                                                                            | (3,250   | ) |                 |   | 6       |                |  |   | (1,175       | ) |  |   | (4,419  | )
|Net repayments of other debt                                  |  |                                                                                                                            |         |   |                 |   |        |                |  |   | (850         | ) |  |   | (850    | )
|Debt issuance costs                                           |  |                                                                                                                            | (1,098   | ) |                 |   |        |                |  |   | (2           | ) |  |   | (1,100  | )
|Decrease in restricted cash                                   |  |                                                                                                                            |         |   |                 |   | 1,905   |                |  |   |             |   |  |   | 1,905   |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities           |  |                                                                                                                            | 82,785   |   |                 |   | 1,884   |                |  |   | (2,529       | ) |  |   | 82,140  |  
|                                                              |  |                                                                                                                            |          |  
|Effect of exchange rate changes on cash                       |  |                                                                                                                            |         |   |                 |   | (83     | )              |  |   | (134         | ) |  |   | (217    | )
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS          |  |                                                                                                                            | 2,593    |   |                 |   | (1,873  | )              |  |   | 3,647        |   |  |   | 4,367   |  
|                                                              |  |                                                                                                                            |          |  
|Cash and cash equivalents, beginning of period                |  |                                                                                                                            | 1,513    |   |                 |   | 8,028   |                |  |   | 6,314        |   |  |   | 15,855  |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  
|Cash and cash equivalents, end of period                      |  | $                                                                                                                          | 4,106    |   |                 | $ | 6,155   |                |  | $ | 9,961        |   |  | $ | 20,222  |  
|                                                              |  |                                                                                                                            |          |   |                 |   |         |                |  |   |              |   |  |   |         |  



28



---

##### Table of Contents

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

The
following Managements Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set forth under the heading Forward-Looking Statements below and elsewhere in this report. 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 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, which are being filed concurrently with this Form 10-Q.

Restatement of Previously Issued Consolidated Financial Statements

On September 19, 2006, we filed a Current Report on Form 8-K with the SEC in which we announced that we would be restating certain consolidated financial statements as a result of the findings of an accounting
review undertaken when new management was appointed by the Board of Directors in the second and third quarters of 2006. Since that time, we have completed our accounting review and determined that certain of the errors resulted from deficiencies in
our internal control over financial reporting. See Item 4. Controls and Procedures. We have not filed a Form 10-Q/A for the thirteen weeks ended July 3, 2005 and the consolidated financial statements and related financial information
contained in that report should no longer be relied upon.

Background on the Restatement - The errors identified in our previously
issued consolidated financial statements are described below. For more information on the impact of these errors, see Note 1 to consolidated financial statement included in this Form 10-Q. See Item 4. Controls and Procedures.



| | Timely Recognition of Certain Credits to Customers
|- | --------------------------------------------------

We did not properly account for (i) sales incentives offered to customers; (ii) cash discounts offered to customers; and (iii) credit memoranda issued to customers.



| | Timely Recognition of Certain Credits from Vendors
|- | --------------------------------------------------

We failed to timely and properly accrue for certain rebates received from certain vendors.



| | Timely Recognition of Certain Accrued Expenses
|- | ----------------------------------------------

We
did not recognize certain expenses in the appropriate period.



| | Accrued Payroll and Other Related Costs
|- | ---------------------------------------

We failed
to properly account for (i) vacation pay earned by certain employees, and (ii) a reimbursement of a deposit with an insurance provider.



| | Accrued Freight
|- | ---------------

We determined that an employee,
who is no longer with the Company, failed to record a portion of our freight expense despite receiving information that the methodology used to calculate the recorded freight expense was flawed.



| | Inventory Valuation
|- | -------------------

We failed to properly value
certain scrap inventory at the lower of cost or market value in accordance with its accounting policies.



29



---

##### Table of Contents

General

We are a leading global producer and marketer of disposable foodservice products and have served our industry for 70 years. We manufacture one of the broadest product lines of cups, lids, food containers, plates, bowls, portion cups,
stirrers, straws, cutlery, napkins, placemats, tablecovers and food packaging containers in the industry, with products available in plastic, paper and foam. We are recognized for product innovation and customer service, and 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®, Trophy®, Hoffmaster®, Sensations®and Creative
Expressions®. 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, Japan, the United Kingdom
and Panama, and we sell our products worldwide.

Thirteen Weeks Ended July 2, 2006 Compared to the Thirteen Weeks Ended July 3, 2005



|                                               |  |                                 |          |   |                                  |   |         |                         |  |   |          |   |  |       |  
|---------------------------------------------- |  | ------------------------------- | -------- | - | -------------------------------- | - | ------- | ----------------------- |  | - | -------- | - |  | ----- | -
|(in thousands)                                 |  | Thirteenweeks endedJuly 2, 2006 |          |   | Thirteenweeks ended July 3, 2005 |   |         | Favorable (Unfavorable) | 
|                                               |  |                                 | $        |   |                                  | % |        
|                                               |  |                                 |          |   | (As restated)                    |   |         |                         |  |   |          |  
|Net sales                                      |  | $                               | 670,297  |   |                                  | $ | 646,939 |                         |  | $ | 23,358   |   |  | 3.6   | %
|Cost of goods sold                             |  |                                 | 578,309  |   |                                  |   | 564,800 |                         |  |   | (13,509  | ) |  | (2.4  | )
|                                               |  |                                 |          |   |                                  |   |         |                         |  |   |          |   |  |       |  
|Gross profit                                   |  |                                 | 91,988   |   |                                  |   | 82,139  |                         |  |   | 9,849    |   |  | 12.0  |  
|                                               |  |                                 |          |  
|Selling, general and administrative expenses   |  |                                 | 73,847   |   |                                  |   | 66,227  |                         |  |   | (7,620   | ) |  | (11.5 | )
|Impairment of goodwill                         |  |                                 | 228,537  |   |                                  |   |        |                         |  |   | (228,537 | ) |  | *     |  
|Loss on sale of property, plant and equipment  |  |                                 | 943      |   |                                  |   | 7       |                         |  |   | (936     | ) |  | *     |  
|                                               |  |                                 |          |   |                                  |   |         |                         |  |   |          |   |  |       |  
|Operating (loss) income                        |  |                                 | (211,339 | ) |                                  |   | 15,905  |                         |  |   | (227,244 | ) |  | *     |  
|                                               |  |                                 |          |  
|Interest expense, net                          |  |                                 | 22,010   |   |                                  |   | 18,209  |                         |  |   | (3,801   | ) |  | (20.9 | )
|Foreign currency exchange (gain) loss, net     |  |                                 | (2,676   | ) |                                  |   | 2,037   |                         |  |   | 4,713    |   |  | *     |  
|Other expense (income), net                    |  |                                 | 376      |   |                                  |   | (58     | )                       |  |   | (434     | ) |  | *     |  
|                                               |  |                                 |          |   |                                  |   |         |                         |  |   |          |   |  |       |  
|Loss before income taxes and minority interest |  |                                 | (231,049 | ) |                                  |   | (4,283  | )                       |  |   | (226,766 | ) |  | *     |  
|                                               |  |                                 |          |  
|Income tax provision (benefit)                 |  |                                 | 68,315   |   |                                  |   | (1,549  | )                       |  |   | (69,864  | ) |  | *     |  
|Minority interest                              |  |                                 |         |   |                                  |   | 53      |                         |  |   | 53       |   |  | *     |  
|                                               |  |                                 |          |   |                                  |   |         |                         |  |   |          |   |  |       |  
|Net loss                                       |  | $                               | (299,364 | ) |                                  | $ | (2,787  | )                       |  | $ | (296,577 | ) |  | *     |  
|                                               |  |                                 |          |   |                                  |   |         |                         |  |   |          |   |  |       |  

---

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

Net sales increased $23.4 million, or
3.6%, for the thirteen weeks ended July 2, 2006 compared to the prior year period. The increase in net sales reflected a 6.5% increase in average realized sales price partially offset by a 2.9% decrease in sales volume compared to the thirteen
weeks ended July 3, 2005. The increase in average realized sales price reflects price increases implemented during the second half of 2005 and the first half of 2006 in response to higher raw material costs. The volume decrease primarily
reflects pricing pressure in the marketplace and, to a lesser extent, our decision to eliminate certain less profitable business.

Cost of
goods sold increased $13.5 million, or 2.4%, for the thirteen weeks ended July 2, 2006 compared to the prior year period. The increase in cost of goods sold for the thirteen weeks ended July 2, 2006 included an additional $9.8 million
reserve for spare parts and inventory obsolescence due to changes in estimation methodology related to the valuation of these assets. These increases in cost of goods sold were offset by $22.1 million of curtailment gains related to negotiated
changes in postretirement benefits for certain active employees. The remaining increase in cost of goods sold was a result of increases in raw material and transportation costs. We continue to experience fluctuations in raw material prices.

For the thirteen weeks ended July 2, 2006, gross profit increased $9.8 million compared to the prior year period. As a percentage of
net sales, gross profit was 13.7% in the second quarter of 2006 versus 12.7% in the second quarter of 2005. Excluding the additional $9.8 million reserve for spare parts and inventory obsolescence and $22.1 million in curtailment gains related to
postretirement benefits, the gross profit percentage would have been 11.9% for the thirteen weeks ended July 2, 2006.



30



---

##### Table of Contents

Selling, general and administrative expenses increased $7.6 million for the thirteen weeks ended
July 2, 2006 compared to the thirteen weeks ended July 3, 2005. The increase was primarily driven by severance related to our reduction-in-force announced in April 2006 as well as the departure of certain senior executives. As a percentage
of net sales, selling, general and administrative expenses were 11.0% in the second quarter of 2006 versus 10.2% in the second quarter of 2005.

Impairment of goodwill for the thirteen weeks ended July 2, 2006 was $228.5 million. See Critical Accounting Estimates below.

For the thirteen weeks ended July 2, 2006, interest expense, net, increased $3.8 million compared to the prior year period. This increase is primarily attributable to amounts outstanding under our Second Lien
Facility entered into in March 2006 and higher outstanding balances under our domestic revolving credit facility. To a lesser extent, the increase is due to higher interest rates compared to the prior year period.

For the thirteen weeks ended July 2, 2006, foreign currency exchange (gain) loss, net, was a gain of $2.7 million compared to a loss of $2.0 million
for the thirteen weeks ended July 3, 2005. This change is primarily attributed to currency fluctuations in the United Kingdom pound sterling denominated inter-company debt.

For the thirteen weeks ended July 2, 2006, the income tax provision of $68.3 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.

During the
thirteen weeks ended July 2, 2006, we prepared an updated analysis of the recoverability of our deferred tax assets considering recent developments in our operations and financial condition, including, among other things, our continued net losses,
and the impact of raw material and petroleum cost increases on our cost of goods sold. As a result of these events, and considering the level of historical taxable income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, our management concluded that it is more likely than not we will not fully realize the benefits of its existing deductible differences. Accordingly, we recorded an additional provision for income taxes during the
second fiscal quarter of 2006 to increase the valuation allowance for our deferred tax assets by $105.0 million.

Twenty-Six Weeks Ended July 2,
2006 Compared to the Twenty-Six Weeks Ended July 3, 2005



|                                               |  |                                     |           |   |                                     |   |           |                         |  |   |          |   |  |       |  
|---------------------------------------------- |  | ----------------------------------- | --------- | - | ----------------------------------- | - | --------- | ----------------------- |  | - | -------- | - |  | ----- | -
|(in thousands)                                 |  | Twenty-six weeks ended July 2,
2006 |           |   | Twenty-six weeks ended July 3,
2005 |   |           | Favorable (Unfavorable) | 
|                                               |  |                                     | $         |   |                                     | % |          
|                                               |  |                                     |           |   | (As restated)                       |   |           |                         |  |   |          |  
|Net sales                                      |  | $                                   | 1,237,533 |   |                                     | $ | 1,194,039 |                         |  | $ | 43,494   |   |  | 3.6   | %
|Cost of goods sold                             |  |                                     | 1,091,724 |   |                                     |   | 1,065,800 |                         |  |   | (25,924  | ) |  | (2.4  | )
|                                               |  |                                     |           |   |                                     |   |           |                         |  |   |          |   |  |       |  
|Gross profit                                   |  |                                     | 145,809   |   |                                     |   | 128,239   |                         |  |   | 17,570   |   |  | 13.7  |  
|                                               |  |                                     |           |  
|Selling, general and administrative expenses   |  |                                     | 140,924   |   |                                     |   | 127,723   |                         |  |   | (13,201  | ) |  | (10.3 | )
|                                               |  |                                     |           |  
|Impairment of goodwill                         |  |                                     | 228,537   |   |                                     |   |          |                         |  |   | (228,537 | ) |  | *     |  
|Loss on sale of property, plant and equipment  |  |                                     | 1,807     |   |                                     |   | 395       |                         |  |   | (1,412   | ) |  | *     |  
|                                               |  |                                     |           |   |                                     |   |           |                         |  |   |          |   |  |       |  
|Operating (loss) income                        |  |                                     | (225,459  | ) |                                     |   | 121       |                         |  |   | (225,580 | ) |  | *     |  
|                                               |  |                                     |           |  
|Interest expense, net                          |  |                                     | 42,389    |   |                                     |   | 35,282    |                         |  |   | (7,107   | ) |  | (20.1 | )
|Foreign currency exchange (gain) loss, net     |  |                                     | (3,710    | ) |                                     |   | 2,844     |                         |  |   | 6,554    |   |  | *     |  
|Other expense (income), net                    |  |                                     | 503       |   |                                     |   | (171      | )                       |  |   | (674     | ) |  | *     |  
|                                               |  |                                     |           |   |                                     |   |           |                         |  |   |          |   |  |       |  
|Loss before income taxes and minority interest |  |                                     | (264,641  | ) |                                     |   | (37,834   | )                       |  |   | (226,807 | ) |  | *     |  
|                                               |  |                                     |           |  
|Income tax provision (benefit)                 |  |                                     | 54,878    |   |                                     |   | (14,930   | )                       |  |   | (69,808  | ) |  | *     |  
|Minority interest                              |  |                                     |          |   |                                     |   | 51        |                         |  |   | 51       |   |  | *     |  
|                                               |  |                                     |           |   |                                     |   |           |                         |  |   |          |   |  |       |  
|Net loss                                       |  | $                                   | (319,519  | ) |                                     | $ | (22,955   | )                       |  | $ | (296,564 | ) |  | *     |  
|                                               |  |                                     |           |   |                                     |   |           |                         |  |   |          |   |  |       |  

---

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

Net sales increased $43.5 million, or
3.6%, for the twenty-six weeks ended July 2, 2006 compared to the prior year period. The increase in net sales reflected a 4.9% increase in average realized sales price partially offset by a 1.3% decrease in sales volume compared to the
twenty-six weeks ended July 3, 2005. The increase in average realized sales price reflects price increases implemented during the second half of 2005 and the first half of 2006 in response to higher raw material costs. The volume decrease
primarily reflects pricing pressure in the marketplace and, to a lesser extent, our decision to eliminate certain less profitable business.



31



---

##### Table of Contents

Cost of goods sold increased $25.9 million, or 2.4%, for the twenty-six weeks ended July 2, 2006
compared to the prior year period. The increase in cost of goods sold for the twenty-six weeks ended July 2, 2006 included an additional $9.8 million reserve for spare parts and inventory obsolescence. These increases in cost of goods sold were
offset by $22.1 million of curtailment gains related to negotiated changes in postretirement benefits for certain active employees. The remaining increase in cost of goods sold was a result of increases in raw material and transportation costs.

For the twenty-six weeks ended July 2, 2006, gross profit increased $17.6 million compared to the prior year period. As a percentage
of net sales, gross profit was 11.8% for the twenty-six weeks ended July 2, 2006 versus 10.7% for the twenty-six weeks ended July 3, 2005. Excluding the additional $9.8 million reserve for obsolescence and $22.1 million in curtailment
gains, the gross profit percentage would have been 10.8% for the twenty-six weeks ended July 2, 2006.

Selling, general and administrative
expenses increased $13.2 million for the twenty-six weeks ended July 2, 2006 compared to the twenty-six weeks ended July 3, 2005. The increase was primarily driven by (i) severance related to our reduction-in-force announced in April 2006
as well as the departure of certain senior executives, and (ii) increased costs associated with the expansion and upgrade of our order management system. As a percentage of net sales, selling, general and administrative expenses were 11.4% for the
twenty-six weeks ended July 2, 2006 versus 10.7% for the twenty-six weeks ended July 3, 2005

Impairment of goodwill for the
twenty-six weeks ended July 2, 2006 was $228.5 million. See Critical Accounting Estimates below.

For the twenty-six weeks
ended July 2, 2006, interest expense, net, increased $7.1 million compared to the prior year period. This increase is primarily attributable to amounts outstanding under our Second Lien Facility entered into in March 2006 and higher outstanding
balances under our domestic revolving credit facility. To a lesser extent, the increase is due to higher interest rates compared to the prior year period.

For the twenty-six weeks ended July 2, 2006, foreign currency exchange (gain) loss, net, was a gain of $3.7 million compared to a loss of $2.8 million for the twenty-six weeks ended July 3, 2005. This change
is primarily attributed to currency fluctuations in the United Kingdom pound sterling denominated inter-company debt.

For the twenty-six
weeks ended July 2, 2006, the income tax provision of $54.9 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.

During the twenty-six weeks ended July 2, 2006, we prepared an updated analysis of the recoverability of our deferred tax
assets considering recent developments in our operations and financial condition, including, among other things, our continued net losses and the impact of raw material and petroleum cost increases on our cost of goods sold. As a result of these
events, and considering the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, our management concluded that it is more likely than not we will not fully
realize the benefits of its existing deductible differences. Accordingly, we recorded an additional provision for income taxes during the second fiscal quarter of 2006 to increase the valuation allowance for our deferred tax assets by $105.0
million.

Liquidity and Capital Resources

Historically, the Company has relied on cash flows from operations and revolving credit borrowings to finance our working capital requirements and capital expenditures.

Net cash used in operating activities during the twenty-six weeks ended July 2, 2006 was $79.9 million compared to $50.2 million during the
twenty-six weeks ended July 3, 2005. Working capital increased $40.6 million to $484.2 million at July 2, 2006 from $443.6 million at January 1, 2006. The increase primarily relates to a reduction in accounts payable resulting from
our efforts to take advantage of discounts offered by certain vendors and an increase in accounts receivable.

Net cash used in investing
activities during the twenty-six weeks ended July 2, 2006 was $19.5 million compared to $27.3 million during the twenty-six weeks ended July 3, 2005. The decrease was primarily driven by a release of cash in escrow of $7.7 million for a
working capital adjustment related to the SF Holdings Acquisition.

Capital expenditures during the twenty-six weeks ended July 2,
2006 were $29.6 million compared to $33.4 million during the twenty-six weeks ended July 3, 2005. Capital expenditures during the twenty-six weeks ended July 2, 2006 included new production equipment routine capital improvements and
expansion and upgrade of our order management system.

Net cash provided by financing activities during the twenty-six weeks ended
July 2, 2006 was $104.4 million compared to $82.1 million during the twenty-six weeks ended July 3, 2005. The net cash provided by financing activities during the twenty-six weeks ended July 2, 2006 primarily includes $80.0 million of
borrowings under the Second Lien Facility and total net incremental borrowings of $32.1 million on our revolving credit facilities.



32



---

##### Table of Contents

Short-term debt

At July 2, 2006, we had approximately 641.7 million Yen (approximately $5.6 million) of short-term borrowings with Japanese banks. These borrowings have various termination dates and have no restrictive
covenants. The interest rate on these borrowings ranges between 0.71% and 1.375% per annum.

Long-term debt

The following is a summary of our long-term debt at July 2, 2006 (in thousands):



|                                            |  |              |          
|------------------------------------------- |  | ------------ | ---------
|                                            |  | July 2, 2006
|Long-term debt:                             |  |              |          
|8.5% Senior Subordinated Notes              |  | $            | 325,000  
|First Lien Facility  Term Loan             |  |              | 635,375  
|First Lien Facility  Revolver              |  |              | 94,400   
|Second Lien Facility                        |  |              | 80,000   
|Canadian Credit Facility  Term Loan        |  |              | 9,081    
|Canadian Credit Facility  Revolver         |  |              |         
|Capital lease obligations                   |  |              | 2,225    
|                                            |  |              |          
|Total long-term debt                        |  |              | 1,146,081
|Less - Current maturities of long-term debt |  |              | 8,804    
|                                            |  |              |          
|Long-term debt, net of current maturities   |  | $            | 1,137,277
|                                            |  |              |          

The following is a summary of our committed revolving credit facilities at July 2, 2006 (in
thousands):



|                          |  |                  |         |                    |   |                      |  |                |        |  |   |       
|------------------------- |  | ---------------- | ------- | ------------------ | - | -------------------- |  | -------------- | ------ |  | - | ------
|                          |  | CommitmentAmount |         | AmountsOutstanding |   | Letters ofCredit (1) |  | UnusedCapacity
|First Lien Facility:      |  |                  |         |                    |   |                      |  |                |        |  |   |       
|Revolving facility        |  | $                | 150,000 |                    | $ | 94,400               |  | $              | 18,367 |  | $ | 37,233
|Canadian Credit Facility: |  |                  |         |                    |   |                      |  |                |        |  |   |       
|Revolving facility        |  |                  | 14,681  |                    |   |                     |  |                |       |  |   | 14,681
|                          |  |                  |         |                    |   |                      |  |                |        |  |   |       
|                          |  | $                | 164,681 |                    | $ | 94,400               |  | $              | 18,367 |  | $ | 51,914
|                          |  |                  |         |                    |   |                      |  |                |        |  |   |       

---

|(1) | Availability of the credit facilities is reduced by letters of credit issued under the facilities.
|--- | --------------------------------------------------------------------------------------------------

Second Lien Facility

On
March 31, 2006, the Company and SCIC entered into a second lien credit agreement (Second Lien Facility). The Second Lien Facility provided a secured term loan facility in the amount of $80.0 million (Second Term Loan).
The Second Term Loan bears interest, at the option of the Company, at a rate equal to LIBOR plus 4.50% per annum; or 3.50% per annum plus the higher of (a) the Bank of America prime rate or (b) the Federal Funds rate plus 1/2of one percentage point. The principal amount will be due upon maturity in February 2012. The proceeds of the
Second Term Loan were used to reduce amounts outstanding under the Companys domestic revolving credit facility under its First Lien Facility, described below.

The Second Lien Facility contains customary affirmative and negative covenants substantially similar to those contained in the First Lien Facility and
financial covenants less restrictive than those in the First Lien Facility. During the term of the Second Lien Facility, the negative covenants restrict the Companys ability to do certain things, including but not limited to:



| |  |  | incur additional indebtedness, including guarantees;
| | - |  | ----------------------------------------------------



| |  |  | create, incur, assume or permit to exist liens on property and assets;
| | - |  | ----------------------------------------------------------------------



| |  |  | make loans and investments and enter into acquisitions and joint ventures;
| | - |  | --------------------------------------------------------------------------



| |  |  | engage in sales, transfers and other dispositions of our property or assets;
| | - |  | ----------------------------------------------------------------------------



| |  |  | prepay, redeem or repurchase our debt, or amend or modify the terms of certain material debt or certain other agreements;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



33



---

##### Table of Contents

| |  |  | declare or pay dividends to, make distributions to, or make redemptions and repurchases from, equity holders; and
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | restrict the ability of our subsidiaries to pay dividends and make distributions.
| | - |  | ---------------------------------------------------------------------------------

The Second Lien Facility includes the following financial covenants:



| |  |  | maximum consolidated leverage ratio;
| | - |  | ------------------------------------



| |  |  | maximum capital expenditures; and
| | - |  | ---------------------------------



| |  |  | minimum consolidated interest coverage ratio.
| | - |  | ---------------------------------------------

The Second
Lien Facility borrowings are secured by substantially all the assets of the Company, subject to an Intercreditor Agreement between lenders under the First Lien Facility and lenders under the Second Lien Facility. The Second Lien Facility borrowings
are guaranteed by SCIC and the Companys domestic subsidiaries and the Company may prepay the borrowings under certain conditions. Customary events of default are also included in the loan documentation including, but not limited to, cross
defaults to the Companys other material debt and certain change of control events.

As of July 2, 2006, the weighted average
annual interest rate applicable to the Second Lien Facility was 9.66%.

On September 20, 2006, as a result of the restatement of our
consolidated financial statements, we informed the administrative agents under our First and Second Lien Facilities that we were in default under such facilities. On October 13, 2006, we entered into a Waiver and Fourth Amendment to our First
Lien Facility and a Waiver and First Amendment to our Second Lien Facility (collectively Waiver). The Waiver is effective with respect to financial covenant ratios through January 2, 2007. The Waiver generally waives the Companys
noncompliance with the First and Second Lien Facilities for events of default resulting from the restatement for the periods restated. The Waiver also provides that if we do not meet the financial covenant ratios for the first fiscal quarter of
2006, (or prior fiscal periods) to the extent resulting from the restatement, or for any reason does not meet the financial covenant ratios for the second, third and fourth fiscal quarters of 2006 as set forth in the First and Second Lien Credit
Facilities it will not constitute an event of default under such facilities. The Waiver also provides that the interest rate paid under the term based loan in our First Lien Facility will immediately increase to LIBOR plus 3.25% (from LIBOR plus
2.50%) for its Eurodollar rate loans and to LIBOR plus 2.25% (from LIBOR plus 1.50%) for base rate loans; and the interest rate paid under the Second Lien Facility will immediately increase to LIBOR plus 6.0% (from LIBOR plus 4.5%). Interest on
revolving credit loans and letters of credit also increased based upon a revised consolidated leverage pricing grid interest paid under the revolving loans and letters of credit increases to LIBOR plus 3.25% (from LIBOR plus 2.50%).

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 in 2011. The revolver is principally used for working capital
purposes, and the term loan was used to finance the SF Holdings acquisition and related transactions.

Effective March 27, 2006, the
Company and SCIC entered into an agreement (Amendment No. 3) to amend its Credit Agreement dated February 27, 2004, as amended by Amendment No. 1, dated as of March 31, 2005, and by Amendment No. 2, dated as of
October 14, 2005, collectively, the First Lien Facility. Amendment No. 3 was necessary to permit the Company to enter into the Second Lien Facility. Amendment No. 3 also revised the ratios of the financial covenants that
the Company is required to maintain by allowing lower ratios in certain quarters of Consolidated EBITDA to Consolidated Cash Interest Expense, and by allowing higher ratios in certain quarters of Average Total Debt to Consolidated EBITDA.

As of July 2, 2006, the weighted average annual interest rate applicable to Eurodollar rate loans was 7.12% and the weighted average
annual interest rate applicable to base rate loans was 10.00%. During the thirteen weeks ended July 2, 2006, the weighted average annual interest rate for the First Lien Facility was 7.05%, the interest rate on the term loan facility was 6.93%,
and the interest rate on the revolving credit facility was 9.72%. There was $37.2 million available under the First Lien Facility. As discussed above, beginning October 13, 2006, the Companys interest rate paid under the term based loan
in its First Lien Facility increased to LIBOR plus 3.25% (from LIBOR plus 2.50%) for its Eurodollar rate loans and to LIBOR plus 2.25% (from LIBOR plus 1.50%) for base rate loans.

All mandatory quarterly prepayments have been made to date.



34



---

##### Table of Contents

A commitment fee of 0.50% on the unused portion of the credit facilities is payable on a quarterly basis.

We may make optional prepayments to either the revolver or the term loan in million dollar increments with a minimum prepayment of $10.0
million. We have not made any such optional prepayments.

We are required to make a mandatory annual prepayment of the term loan facility
and the revolving credit facility in an amount equal to 50.0% of excess cash flow, as defined, when the consolidated leverage ratio, as defined, is 3.5x or greater, or 25.0% of excess cash flow when the Companys consolidated leverage ratio is
less than 3.5x. In addition, we are required to make a mandatory prepayment of the term loan facility and the revolving credit facility with, among other things: (i) 100.0% of the net cash proceeds of any property or asset sale, subject to
certain exceptions and reinvestment requirements; (ii) 100.0% of the net cash proceeds of any extraordinary receipts, as defined, subject to certain exceptions and reinvestment requirements; (iii) 100.0% of the net cash proceeds of certain
debt issuances, subject to certain exceptions; and (iv) 50.0% of the net cash proceeds from the issuance of additional equity interests when the consolidated leverage ratio is 3.5x or greater, or 25.0% of such proceeds when the consolidated
leverage ratio is less than 3.5x.

During the thirteen weeks ended July 2, 2006, we were not required to make a mandatory annual
prepayment or any prepayments based on excess cash flow, dispositions of assets or extraordinary receipts.

The First Lien Facility
requires us to fix the interest rate for a portion of the borrowings. Accordingly, on March 10, 2004, the Company entered into interest rate swap agreements to hedge the cash flows associated with the interest payments on $180.0 million of the
Eurodollar rate based borrowings for three years. In June 2005, we 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 4.25%. The swap agreement is effective from March 31, 2007 through March 31, 2010.

On
March 31, 2006, we entered into two receive-variable, pay-fixed interest rate swaps with identical terms and a combined notional amount of $70.0 million. The swap agreements are effective March 31, 2006 through March 31, 2009. The
notional amount varies throughout the term of the agreements. The combined notional amount decreases to $35.0 million on September 29, 2006, increases to $150.0 million on March 30, 2007, and decreases to $75.0 million from
December 31, 2007 through maturity. The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid is 5.15%.

In September 2006, we terminated our existing interest rate swaps which are described above and received approximately $5.1 million. The Company also 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 Eurodollar rate rises above 6.0%. These agreements are in effect through September 14, 2007.

Canadian Credit Facility

Borrowings
under the revolving credit facility bear interest at the Canadian prime rate plus 0.50% or Canadian bankers acceptance rate plus 1.75%, at our option. Term loan borrowings bear interest at the Canadian prime rate plus 0.75% or Canadian bankers
acceptance rate plus 2.00%, at our option. As of July 2, 2006, borrowings under the revolving credit facility and the term loan carried effective interest rates of 6.18% and 6.43%, respectively. As of July 2, 2006, CAD $16.4 million
(approximately $14.7 million) was available under the revolving facility and the term loan balance was CAD $ 10.1 million (approximately $9.1 million).

We were in compliance with all covenants under the Canadian Credit Facility during the quarter ended July 2, 2006.

8.5% Senior Subordinated Notes

In August 2006, we announced that we would delay filing our Quarterly
Report of Form 10-Q for the thirteen weeks ended July 2, 2006 as a result of an accounting review we initiated to address possible accounting matters. As a result of the delay, we received notice on August 17, 2006 from the trustee under
the indenture for our 8.5% Senior Subordinated Notes due 2014 that we failed to comply with the provisions of the indenture requiring us to provide quarterly financial information for the thirteen weeks ended July 2, 2006 to the holders of the
notes issued thereunder. Under the terms of the indenture, we had until October 16, 2006 to comply with this requirement. By providing the required quarterly information, we have satisfied this obligation.



35



---

##### Table of Contents

Outlook

In recent periods, our net losses, adjusted for non-cash operating costs such as depreciation and amortization, have not provided sufficient cash flow to offset our working capital needs. This has resulted in an
overall use of cash from operating activities. Additionally, our investing activities have been a net use of cash. This has been the result primarily of our capital expenditure programs, including the ongoing implementation of a new order management
system. As a result, we increased our borrowing availability through existing or new lending agreements such as the Second Lien Facility that was originated during the first quarter of 2006. These credit facilities, however, as well as the indenture
governing the notes described above, 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 mature.

In response, we have taken, and continue to take, 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. For example, as noted above, we have satisfied our obligations under the indenture governing the
notes, entered into the Waiver, and commenced negotiations with our lenders regarding amendments to our current financing structure. In addition, we are evaluating additional opportunities such as sales of non-strategic assets and alternative
financing strategies. We also engaged an independent consulting firm to perform a thorough diagnostic review of our supply chain/operations designed to reduce costs and improve manufacturing efficiencies.

At July 2, 2006, we have outstanding borrowings under the First and Second Lien facilities, the 8.5% Senior Subordinated Notes and foreign borrowings in
Canada and Japan aggregating approximately $1,152.0 million. Waivers have been obtained though January 2, 2007 with respect to covenant violations arising as a result of our delay in filing our interim report for the thirteen weeks ended July 2,
2006 and our restatement under the First and Second Lien Facilities. Prior to that date, we must complete negotiations and close on a new amendment to the existing facilities that would, among other things, amend our covenants to achievable levels.
Alternatively, we could replace the First and/or Second Lien Facilities with new borrowings. Management believes it is probable that one of those alternatives will be accomplished by January 2, 2007. Accordingly, we have classified the outstanding
balance of the First and Second Lien facilities on the consolidated balance sheet based on their stated maturities.

Management believes
that the implementation of these initiatives will help ensure that we are able to continue to generate positive cash flow from operations which, together with existing cash balances and borrowing capacity, will provide adequate resources to fund
ongoing operating requirements.

Net Operating Loss Carryforwards

As of July 2, 2006, we had approximately $312.0 million of U.S. federal tax net operating loss carry-forwards that expire between 2016 and 2026. Approximately $103.5 million of such carry-forwards are subject to
the provisions of Internal Revenue Code Section 382.

During the thirteen weeks ended July 2, 2006, we
prepared an updated analysis of the recoverability of our deferred tax assets considering recent developments in our operations and financial condition, including, among other things, our continued net losses driven by the impact of significant raw
material price increases on our gross margins. Additionally, recent changes in market conditions together with a reduction in credit ratings from Moodys and Standard and Poors has reduced some of the opportunities we previously
identified to help ensure a more complete realization of our deferred tax assets. As a result of these events, and considering the level of historical taxable income and projections for future taxable income over the periods in which the deferred
tax assets are deductible, our management concluded that it is more likely than not that we will not fully realize the benefits of its existing deductible differences. Accordingly, we recorded an additional charge for income taxes during the second
quarter of 2006 to increase the valuation allowance for our deferred tax assets by $105.0 million.

The amount of the deferred tax assets
considered realizable will be adjusted in future periods if estimates of future taxable income during the carryforward period are revised. Changes in the deferred tax asset valuation allowance in future periods will be included in the consolidated
statement of operations.

Critical Accounting Estimates

The Companys critical accounting estimates are described in our Form 10-K filed with the SEC on March 30, 2006. In addition to those estimates, we are adding a critical accounting estimate for goodwill impairment, which is
described below.



36



---

##### Table of Contents

Goodwill impairment

Due to acquisitions, goodwill has historically constituted a significant portion of our long-term assets. We perform our goodwill impairment test annually, on October 31, and when an event occurs or circumstances
change such that it is reasonably possible that an impairment may exist. We test goodwill for impairment by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting
unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting
units goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that
excess.

Our estimates of fair value are determined based on a discounted cash flow model using inputs from our annual long-term planning,
which is based on our best estimate of future sales and operating costs, contracts with suppliers, labor agreements, and general market conditions. The annual long-range plan is also subject to review and approval by our senior management and Board
of Directors. Changes in these forecasts could significantly change the amount of impairment recorded. We also makes estimates of growth assumptions and other factors.

Our forecasts of future cash flows are adjusted by an appropriate discount rate derived from the weighted average cost of capital for the Company built up through a comparable company analysis, as well as a study of
the internal rate of return on our cash flows, as of the valuation date. Therefore, changes in the discount rate selected may also affect the amount of impairment recorded.

During the thirteen weeks ended July 2, 2006, the Company initiated a goodwill impairment test. This occurred as a result of (i) the
Companys continuing net losses, (ii) significant increases in raw material costs and the impact of such increases on working capital and gross margin, and (iii) changes in the executive management team. As a result of these events, the Company
determined that an impairment test of its North America and Europe reporting units should be performed. The impairment test was performed as of July 2, 2006. As a result, we recorded an impairment charge of approximately $228.5 million relating
to goodwill.



37



---

##### 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 Form 10-K for the fiscal year ended January 1, 2006 and incorporated herein by reference and in our other filings made from time to time with the SEC. 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:



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



| |  |  | impact on our liquidity as a result of our ability to re-negotiate with our lenders to revise the financial covenant terms and conditions in our credit facilities and our ability to
meet any new terms and conditions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | ability to obtain additional capital and financing on commercially reasonable terms;
| | - |  | ------------------------------------------------------------------------------------



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



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



| |  |  | realization of cost savings, synergies or revenue enhancement that we anticipated when we acquired SF Holdings;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | impact of competitive products and pricing;
| | - |  | -------------------------------------------



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



| |  |  | impact on our ability to manage and grow our business 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 costs;
| | - |  | ----------------------------------------------------



| |  |  | increases in energy and other manufacturing costs;
| | - |  | --------------------------------------------------



| |  |  | fluctuations in demand for the Companys products;
| | - |  | --------------------------------------------------



| |  |  | effect of changing federal, state, foreign and local environmental and occupational health and safety laws and regulations;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



38



---

##### 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 consists 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 Second Lien Facility consists of a term loan facility, which also bears 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 term loan, the margin
varies from 2.25% to 2.50% on the Eurodollar rate borrowing and from 1.25% to 1.50% on the base rate borrowings depending on the Companys public debt ratings. At July 2, 2006, the variable rate on borrowings excluding the effect of the
interest rate swaps was 7.12% and the interest rate on borrowings under the revolving credit facility was 10.00%.

The term loan under the
Second Lien Facility bears interest, at the option of the Company, at a rate equal to LIBOR plus 4.50% per annum; or 3.50% per annum plus the higher of (a) the Bank of America prime rate or (b) the Federal Funds rate plus 1/2of one percentage point. As of July 2, 2006, the interest rate on the Second Lien Facility was 9.66%.

The Canadian revolving facility bears interest at the Canadian prime rate plus 0.50% or Canadian bankers acceptance rate plus
1.75%, at the Companys option, and the term loan bears interest at the Canadian prime rate plus 0.75% or Canadian bankers acceptance rate plus 2.00%, at the Companys option. As of July 2, 2006, borrowings under the revolving credit
facility and the term loan carried effective interest rates of 6.18% and 6.43%, respectively.

The First Lien Facility requires us to hedge
a portion of the borrowings. On March 10, 2004, with an effective date of March 31, 2004, we entered into interest rate swap agreements to hedge $180.0 million of Eurodollar rate loans at an average rate of 2.375% plus applicable margin
for three years. In June 2005, 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 4.25%. The swap agreement is effective March 31, 2007 through March 31, 2010.

On March 31, 2006, we
entered into two receive-variable, pay-fixed interest rate swaps with identical terms and a combined notional amount of $70.0 million. The swap agreements are effective March 31, 2006 through March 31, 2009. The notional amount varies
throughout the term of the agreements. The combined notional amount decreases to $35.0 million on September 29, 2006, increases to $150.0 million on March 30, 2007, and decreases to $75.0 million on December 31, 2007 through maturity.
The variable rate of interest received is the Eurodollar rate. The fixed rate of interest paid is 5.15%. As of July 2, 2006, the combined fair values of these swap agreements was $ 0.78 million.

As of July 2, 2006, the outstanding indebtedness under the First Lien Facility was $729.8 million and $37.2 million was available under the First
Lien Facility. As of July 2, 2006, the outstanding indebtedness under the Second Lien Facility was $80.0 million. As of July 2, 2006, the outstanding indebtedness under the Canadian Credit facility was CAD $10.1 million (approximately $9.1
million) and CAD $16.4 million (approximately $14.7 million) was available under the Canadian Credit Facility. Based upon the information above, the Companys annual pre-tax income would change by approximately $5.0 million for each
one-percentage point change in the interest rates applicable to the variable rate debt after giving effect to the interest rate swap 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.



39



---

##### Table of Contents

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures

In April 2006, with the change in our management, an internal review of our business and operations was initiated which revealed that certain of our
accounting practices and procedures may not have been as well-developed and/or as rigorously and consistently applied as they should have been. As soon as the issues were identified, an extensive review of our financial accounting and reporting was
conducted in order to assess the full extent and impact of the identified accounting issues. The review included a focus on our accounting policies and practices, accounting records, and supporting documents. In August 2006, we announced a temporary
delay in the filing of this report on Form 10-Q for the thirteen weeks ended July 2, 2006, and in September 2006, we announced that we would be restating certain consolidated financial statements. Our management, including our chief executive
officer and interim chief financial officer, 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 of the end of the period covered
by this report. Based on such evaluation, our chief executive officer and our interim chief financial officer have concluded that, as of July 2, 2006, our disclosure controls and procedures were not effective because of certain material
weaknesses described below.

A material weakness in internal control over financial reporting (as defined in paragraph 140 of Auditing
Standard No. 2 of the Public Company Accounting Oversight Board) is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim
consolidated financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects a companys ability to initiate, authorize, record, process,
or report external financial data reliably in accordance with generally accepted accounting principles (GAAP) such that there is more than a remote likelihood that a misstatement of the companys annual or interim consolidated financial
statements that is more than inconsequential will not be prevented or detected.

In assessing the effectiveness of our disclosure controls
and procedures, management identified the following material weaknesses in our internal control over financial reporting as of July 2, 2006:



| |  |  | Control environment: We did not maintain an effective control environment. The control environment is the atmosphere in which a companys internal control
procedures operate. Specifically, at our Company, the culture in the finance and accounting group did not promote open dialogue or the sharing of knowledge and information among colleagues, nor did it encourage team members to challenge or question
the assumptions and rationale of the accounting leadership. In addition, certain corporate governance practices were not adequately established or consistently followed, such as insufficient independence in certain key reporting lines, excessive
amounts of unilateral decision making authority in the accounting department and minimal visibility to financial decision making across the senior management team. Additional deficiencies in our control environment included the failure to:
(i) formally document and distribute accounting policies, practices and procedures to ensure accounting methods and assumptions were adequately documented and consistently applied across the Company; (ii) establish adequate controls over
the selection, application and documentation of our accounting policies to ensure all accounting policies were in accordance with GAAP; and (iii) adequately train our personnel in the application of GAAP commensurate with our financial
reporting requirements. This material weakness contributed to the additional material weaknesses noted below.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Controls over review and reconciliation of period end balances:We did not have effective policies and procedures to review and reconcile certain accrued liabilities and
valuation reserves. This deficiency resulted in errors in the (i) accrued vacation balances; (ii) accrued freight charges; (iii) prepaid expenses; and (iv) valuation of scrap inventory.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



---

##### Table of Contents

| |  |  | Controls over accounts payable cutoff: After the acquisition of SF Holdings, we consolidated the accounts payable function and implemented a new accounts payable system;
however, we did not implement effective policies and procedures to appropriately transition relevant information and knowledge of existing staff to the remaining and new staff. This deficiency resulted in errors in cost of goods sold and selling,
general and administrative expenses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Controls over timely recognition of credits to customers: We did not establish appropriate policies and procedures and did not take steps to ensure accounting personnel
possessed the necessary level of technical competence or training to properly account for sales credits issued to customers. Specifically, we determined that we did not have adequate policies and procedures to appropriately evaluate and review
(i) sales incentives offered to customers; (ii) cash discounts taken by customers; and (iii) credit memoranda issued to customers. This deficiency resulted in errors in net sales.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Controls over the spare parts inventory valuation:We did not establish appropriate policies and procedures to ensure the accounting for the reserve for obsolete spare parts
inventory was consistent among all accounting entities at the time of the SF Holdings acquisition. In addition, we did not establish appropriate policies and procedures to ensure that the required entries were recorded or that the existing reserve
balances were reconciled to the appropriate amount. This deficiency resulted in adjustments to our cost of goods sold.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These
material weaknesses resulted in managements failure to prevent or detect errors in the Companys consolidated financial statements. As a result, the Company has restated its financial statements for the thirteen weeks ended April 2, 2006,
the fiscal years ended January 1, 2006 and December 31, 2004 and 2003, and interim periods within the fiscal years ended January 1, 2006 and December 31, 2004.

In light of the material weaknesses 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 below under sections (b) and (c). 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.

As part of our accounting review, certain information came to managements attention that indicated certain
errors may have been the result of intentional actions. We have concluded our investigation of these matters and determined that an employee, who is no longer with the Company, failed to record a portion of the Companys freight expense for
fiscal year 2005 despite receiving information that the methodology used to calculate the freight expense was flawed. This employee was not a member of executive management but was a key employee involved in the performance of the Companys
disclosure controls and procedures. As a result, our cost of goods sold was understated by approximately $4.1 million for the fiscal year ended January 1, 2006.

(b) Changes in Internal Control Over Financial Reporting

In connection with the identification of
the material weaknesses described in section (a) above and the remediation of such material weaknesses described in section (c) below, we have made significant improvements and changes to our internal control over financial reporting
through October 16, 2006 (the filing date of this document), including:



| |  |  | We have hired or promoted critical new senior personnel in the finance and accounting department, including a new interim chief financial officer, a corporate controller and two
vice presidents of finance, to provide new leadership and to set the appropriate tone at the top, and realigned certain key reporting relationships.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have established procedures for senior management to review financial information in a timely fashion to allow for visibility and to proactively comment thereon prior to issuance
of our consolidated financial statements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



---

##### Table of Contents

| |  |  | We have established procedures that require the accounting leadership team to formally review and reconcile all material balance sheet accounts as part of the monthly close process
and formally document their review.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We reorganized our department responsible for reviewing credit memos. The reorganization included the implementation of procedures to research customer claims and operate more
efficiently. In addition, we have hired additional personnel to timely reconcile credit memos to outstanding accounts receivable balances and resolve discrepancies between our records and customer claims.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have established accounting procedures related to recognition of sales incentives provided to our customers. We also reviewed the accounting treatment for these transactions with
the appropriate accounting and management personnel to ensure sales incentives are identified and accounted for appropriately.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We restructured the accounts payable department by hiring a new manager, realigning responsibilities within the department, hiring additional personnel and implementing new
procedures.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have initiated a periodic process through which the accounting, legal and human resources departments conduct a coordinated review of the calculation of the liability for accrued
vacation pay in order to ensure the liability complies with the Companys policies as well as requirements legally mandated by certain jurisdictions in which the Company operates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(c) Remediation Plan

Management is committed to
improving the overall disclosure controls and procedures within our organization to remediate the material weaknesses identified in section (a) above, and ensure mitigating controls are in place where necessary. Therefore, in response to the
foregoing and as part of our remediation efforts, our Board of Directors has approved and adopted the following remediation plan:

1. We will reinforce our Code of Conduct and Ethics Helpline, which we formally adopted and implemented in January 2006 among all employees, emphasizing that questionable actions must be reported and that alleged violations of the code are
unacceptable and will not be tolerated. In that regard, we will re-emphasize our expectation that all business activities are conducted in compliance with our internal controls and Code of Conduct. In addition, we will review and revise our
corporate governance practices including establishing appropriate reporting relationships among key employees, senior management and the Board of Directors.

2. We will revise and formally document our accounting policies and procedures by implementing a policies and procedures manual which we
expect to complete by fiscal year end 2006 and fully implement during the first quarter 2007. These policies and procedures will be designed to ensure appropriate internal controls are in place and effective and to ensure a consistent approach for
accounting and financial reporting. These policies will address all key financial reporting risk areas in our business, including the areas in which we have noted errors above. Among others, the policies will:



| |  |  | require accounting management to formally review and reconcile all material balance sheet accounts as part of the monthly close process and to formally document their review;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | revise and refine our disclosure controls and procedures to ensure that the process is conducted in an open environment and that our resulting disclosures are
subject to
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42



---

##### Table of Contents

| | adequate outside review and a rigorous vetting process prior to finalizing and releasing our financial statements;
| | ------------------------------------------------------------------------------------------------------------------



| |  |  | establish formal policies and procedures to account for sales discounts and related incentives offered to the Companys customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | document standard procedures to research customer claims;
| | - |  | ---------------------------------------------------------



| |  |  | establish a liability for freight charges that have been incurred through the use of a standardized report that monitors this activity and initiate a regular review of the activity
by appropriate supply chain and operations personnel;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require the accounting department to conduct a coordinated review of the accounting entries that require support and information from other departments, including legal, human
resources, supply chain, operations and sales, in order to ensure the balances recorded comply with the Companys policies, actual experience and legal requirements, and properly account for the related transactions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establish a formal methodology and calculation of the reserve for obsolete spare parts inventory that will apply consistently among all operating units; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | establish a formal methodology and calculation to reserve for excess and obsolete finished goods inventory that the Company will apply consistently among all operating units.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the Company will provide training on the application of the new policies on a company-wide basis, as needed.

3. As noted above, during 2006, we hired and/or promoted key senior personnel within the accounting and finance department,
including a new interim chief financial officer, a corporate controller and two vice presidents of finance. We intend to continue to identify strong talent both within the organization and externally in order to promote and recruit individuals with
the critical skills necessary to enrich the department. Part of that effort includes the ongoing search for a permanent chief financial officer. We have also restructured the accounts payable department by hiring a new manager, realigning
responsibilities within the department, hiring additional personnel and implementing new procedures. Specifically, the department has initiated several activities designed to help ensure accuracy in accounting and reporting, including:
(i) developing new reports and a tracking matrix to improve communication within the Company; (ii) identifying key performance indicators and processes to track various statistics to allow for the recognition of developing issues in a
rapid manner; (iii) working as part of a cross-functional team to develop a standardized receiving process manual; (iv) realigning work assignments so that individuals are assigned to certain categories of accounts payable; and
(v) developing a process to estimate and track accounts payable for non-purchase order related invoices.



43



---

##### 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 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.

Our Form 10-K for the fiscal year ended January 1, 2006 includes
Risk Factors under Item 1A of Part I. The following discussion is intended to update certain matters discussed therein.

We have determined that certain material weaknesses existed in our internal control over financial reporting including our disclosure controls and procedures, which, if not remedied effectively, could have an adverse effect on our
business and result in further material misstatements in our consolidated financial statements in future periods.

Our failure to
maintain adequate control over financial reporting processes and procedures has resulted in adjustments to our previously issued consolidated financial statements related to accounting for and reporting of the timely recognition of certain credits
to customers, accounts payable and accrued expenses and the valuation of certain assets.

We previously identified possible accounting
issues and initiated an accounting review that we disclosed in our current reports filed on Form 8-K and the press releases attached as Exhibit 99.1 thereto on August 16, 2006 and September 19, 2006. Since that time, we have completed the
accounting review of and have determined that certain of the errors resulted from deficiencies in our disclosure controls and procedures. Our management has determined that those deficiencies resulted in material weaknesses in our internal control
over financial reporting and resulted in the Company amending and restating certain of our annual and interim consolidated financial statements. See Item 4. Controls and Procedures. A material weakness in internal control over financial
reporting is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or
detected.

We have taken steps to remediate the material weaknesses, and plan to take additional remedial actions during the remainder of
2006. Although we believe the actions we have already taken and our remediation plan will address the material weaknesses, we continue to evaluate our disclosure controls and procedures and our internal control over financial reporting, and may
modify, enhance or supplement them in the future. Any modifications, enhancements or supplements to our control systems could be costly to prepare or implement, divert the attention of our management from operating our business, and cause our
operating expenses to increase. If we fail to maintain adequate internal controls, including any failure to implement required new or improved controls, or we encounter difficulties in their implementation, our business and operating results could
be harmed, additional significant deficiencies could be identified, we may fail to meet our periodic reporting obligations and/or future consolidated financial statements may contain material misstatements that could result in further restatements
of our financial statements. The occurrence of any of the foregoing could harm our business, operating results and reputation and cause our investors and lenders to lose confidence in our reported information.

Our liquidity will be impacted by our ability to re-negotiate with our lenders to revise the financial covenant terms and conditions in our credit facilities and
our ability to meet any new terms and conditions.

On October 13, 2006, we entered into a Waiver and Fourth Amendment to our
First Lien Facility and a Waiver and First Amendment to its Second Lien Facility (collectively Waiver). The Waiver generally provides that if we do not meet the financial covenant ratios for the first fiscal quarter of 2006 (or for prior
fiscal periods) to the extent resulting from the restatement for the periods restated, or for any reason, we do not meet the financial covenant ratios for the second, third or fourth fiscal quarters of 2006 as set forth in the First and Second Lien
Credit Facilities, it will not constitute an event of default. If we are unable to agree to terms and conditions mutually agreeable or enter into new borrowings to replace our First and/or Second Lien Facilities by January 2, 2007, then the



44



---

##### Table of Contents

participating banks under each facility could declare an event of default and accelerate the debt under the First and
Second Facility by declaring each immediately due and payable. Additionally, any acceleration under the facilities would trigger an event of default under the indenture for our 8.5% Senior Subordinated Notes due 2014 and the note holders could
accelerate payment due under the notes by declaring them immediately due and payable. If debt under the First and Second Lien Facilities and the indenture governing such notes were both accelerated, the aggregate amount immediately due and payable
as of October 13, 2006 would be approximately $1,132.0 million. If these debt obligations were accelerated, we would not have sufficient liquidity to repay these borrowings. Additionally, we may not be able to borrow money from other
lenders to enable us to refinance the indebtedness.

We face risks related to the restatement of our consolidated financial statements that could
have a material adverse impact on our operations, including increased costs and an increased possibility of legal or regulatory proceedings.

We determined that our (i) consolidated balance sheets as of April 2, 2006, January 1, 2006 and December 31, 2004; (ii) consolidated statements of operations, consolidated statements of shareholders equity and
consolidated statements of cash flows for the thirteen weeks ended April 2, 2006, and fiscal years ended January 1, 2006 and December 31, 2004 and 2003; (iii) certain financial data for the quarterly periods ended
March 31, July 3, October 2, 2005 and January 1, 2006 and March 31, June 30, September 30, 2004 and December 31, 2004; (iv) selected financial data for the years ended January 1, 2006,
December 31, 2004, 2003, 2002 and 2001, should be restated. As a result of the restatement, we have become subject to additional risks and uncertainties. These include unanticipated costs for accounting and legal fees and the increased
possibility of legal or regulatory proceedings against us. We may also have difficulty obtaining other financing such as letters of credit or raising equity capital. Additionally, our vendors may require us to pay cash in advance or obtain letters
of credit as a condition to selling us their products and services. Any of these risks and uncertainties could have an affect on our operations and cash flow management.

Companies that restate their financial statements may face litigation claims and/or SEC proceedings following such a restatement of financial results. The defense of any such claims or proceedings may divert our
managements attention and resources and we may be required to pay damages if any such claims or proceedings are not resolved in our favor. Even if resolved in our favor, any litigation or proceedings brought against us, could cause us to incur
significant legal and other expenses.

We may be limited in our ability to obtain additional capital and financing on commercially reasonable terms.

Although we believe existing cash, funds generated by operations, working capital management, asset sales and amounts available
under our credit facilities collectively provide adequate resources to fund ongoing operating requirements, we may be required to seek additional financing to compete effectively in our market. Our public debt ratings affect the interest rate that
is charged under our existing credit facilities. Our corporate ratings as of October 13, 2006, were B3 for Moodys and B from Standard & Poors. Any downgrades may affect our ability to obtain additional financing and
capital.

Our significant debt could adversely affect our financial health and our operating flexibility is limited in significant respects by the
restrictive covenants in our credit facilities and the indenture governing our notes.

We have a significant amount of debt. As of
July 2, 2006, we had total long-term debt of $1,146.1 million, of which $325.0 million consisted of our 8.5% Senior Subordinated Notes and $818.9 million consisted of borrowings under our credit facilities.

The credit facilities and the indenture governing the notes impose restrictions upon our operations that could increase our vulnerability to adverse
economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and industry. Our high level of debt and the restrictive covenants we operate under could also have important consequences to our
note holders, including the following:



| |  |  | requiring that we use a large portion of our cash flow to pay principal and interest on the notes, the credit facilities and our other debt, which will reduce the availability of
cash to fund working capital, capital expenditures, research and development and other business activities;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restricting us from making strategic acquisitions or exploiting business opportunities;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | making it more difficult for us to satisfy our obligations with respect to the notes and our other debt;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | placing us at a competitive disadvantage relative to competitors that have less debt; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | limiting our ability to borrow additional funds, dispose of assets or pay cash dividends.
| | - |  | -----------------------------------------------------------------------------------------



45



---

##### Table of Contents

In addition, a substantial portion of our debt bears interest at variable rates. If market interest rates
increase, debt service on our variable-rate debt will rise, which would adversely affect our cash flow. Although our credit facilities require us to employ hedging strategies such that not less than 50% of our total debt carries a fixed rate of
interest for a period of three years following the consummation of the transactions (through February 2007), any hedging agreements put in place may not offer complete protection from this risk. Additionally, the remaining portion of the credit
facilities is not hedged and, therefore, is subject to changes in interest rates.

We also may incur substantial additional debt in the
future. Although the indenture governing the notes and the terms of our credit facilities contain restrictions on our ability to incur additional debt, these restrictions are subject to a number of qualifications and exceptions, and debt incurred in
compliance with these restrictions could be substantial. In addition, we may refinance all or a portion of our debt, including borrowings under our credit facilities, and incur more debt as a result. At October 13, 2006, our credit facilities
permitted additional borrowing of up to $35.7 million (after giving effect to outstanding letters of credit). If we incur new debt or amend our existing debt terms and conditions which we anticipate completing by January 2, 2007, the
significant risks described above would intensify. Our ability to make payments on and refinance our indebtedness will depend on our ability to generate cash flow from operations. Our ability to generate cash flow from operations is highly dependent
on general, economic, competitive, legislative and regulatory factors and other factors, which are beyond our control. We may not be able to generate enough cash flow from operations to service our debt or fund our planned capital expenditures.



46



---

##### Table of Contents

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.

On July 26, 2006, SCIC and SCOC entered into an Amendment No. 1
to the Employment Agreement with each of each of Robert M. Korzenski, Hans H. Heinsen, Thomas A. Pasqualini and Jan Stern Reed (collectively, the Initial Amendments). The following description of the Initial Amendments, is qualified in
its entirety by reference to the complete text of the Initial Amendments with Ms. Reed and each of Mssrs. Korzenski, Heinsen and Pasqualini, copies of which are filed as Exhibit 10.4, Exhibit 10.5, Exhibit 10.3, and Exhibit 10.6, respectively
that are filed with this Form 10-Q.

The Initial Amendments modify the EBITDA targets in the Employment Agreements used to determine
whether an employee may be eligible for a performance bonus and the amount of bonus that each employee is eligible to receive based upon the Companys EBITDA performance.

On October 11, 2006, SCIC and SCOC entered into an Amendment No. 2 to the Employment Agreement with each of Robert M. Korzenski and Jan Stern
Reed (collectively, the Subsequent Amendments). The following description of the Subsequent Amendments, is qualified in its entirety by reference to the complete text of the Subsequent Amendments with each of Mr. Korzenski and
Ms. Reed, copies of which are filed as Exhibit 10.8 and Exhibit 10.7, respectively, to this Form 10-Q. The Subsequent Amendments extend the initial term of the Employment Agreements from April 14, 2007 (for Mr. Korzenski) and November 30,
2007 (for Ms. Reed) to April 14, 2008. Each of the Subsequent Amendments also increases the amount of severance paid to the employee upon certain terminations to two and one-half times salary.

Item 6. Exhibits.



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1 |  | Amendment No. 4 and Waiver, dated as of October 13, 2006, to the Credit Agreement, dated as of February 27, 2004, as amended, among Solo Cup
Company, a Delaware corporation, Solo Cup Investment Corporation, Bank of America, N.A., as Administrative Agent and Swing Line Lender and as an L/C Issuer, Banc of America Securities LLC and Citigroup Global Markets Inc., as Joint Lead Arrangers
and Joint Book Running Managers, Citicorp North America, Inc., as Syndication Agent, Harris Trust and Savings Bank, as Documentation Agent and as an L/C Issuer, and various lending parties named therein
|     | 
|10.2 |  | Amendment No. 1 and Waiver, dated as of October 13, 2006 to Second Lien Credit Agreement, dated as of March 31, 2006, among Solo Cup Company, a Delaware corporation, Solo Cup Investment
Corporation, and Bank of America, N.A., as Administrative Agent, Banc of America Securities LLC, as Sole Lead Arranger and Sole Bookrunning Manager and other lending parties therein                                                                                                                                                                                                                               
|     | 
|10.3 |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation, Solo Cup Operating Corporation, a Delaware corporation
(successor by merger to Solo Cup Company, an Illinois corporation) and Hans H. Heinsen                                                                                                                                                                                                                                                                                                                            
|     | 
|10.4 |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation, Solo Cup Operating Corporation, a Delaware corporation
(successor by merger to Solo Cup Company, an Illinois corporation) and Jan Stern Reed                                                                                                                                                                                                                                                                                                                             
|     | 
|10.5 |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation, Solo Cup Operating Corporation, a Delaware corporation
(successor by merger to Solo Cup Company, an Illinois corporation) and Robert M. Korzenski                                                                                                                                                                                                                                                                                                                        
|     | 
|10.6 |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation, Solo Cup Operating Corporation, a Delaware corporation
(successor by merger to Solo Cup Company, an Illinois corporation) and Tom Pasqualini                                                                                                                                                                                                                                                                                                                             
|     | 
|10.7 |  | Amendment No. 2 to Employment Agreement dated October 11, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation, Solo Cup Operating Corporation, a Delaware corporation
(successor by merger to Solo Cup Company, an Illinois corporation) and Jan Stern Reed                                                                                                                                                                                                                                                                                                                          
|     | 
|10.8 |  | Amendment No. 2 to Employment Agreement dated October 11, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation, Solo Cup Operating Corporation, a Delaware corporation
(successor by merger to Solo Cup Company, an Illinois corporation) and Robert M. Korzenski                                                                                                                                                                                                                                                                                                                     



47



---

##### Table of Contents

|     |  |                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|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.



48



---

##### 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: October 16, 2006 |  |  |  | By:              |  | /s/ Eric A. Simonsen                                
|                       |  |  |  |                  |  | Eric A. Simonsen                                    
|                       |  |  |  |                  |  | Interim Chief Financial Officer                     
|                       |  |  | 
|                       |  |  |  |                  |  | (Principal Financial and Accounting Officer and Duly
|                       |  |  |  |                  |  | Authorized Officer)                                 



49



---

##### 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 JULY 2, 2006



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.1        |  | Amendment No. 4 and Waiver, dated as of October 13, 2006, to the Credit Agreement, dated as of February 27, 2004, as amended, among Solo Cup Company, a Delaware corporation, Solo Cup
Investment Corporation, Bank of America, N.A., as Administrative Agent and Swing Line Lender and as an L/C Issuer, Banc of America Securities LLC and Citigroup Global Markets Inc., as Joint Lead Arrangers and Joint Book Running Managers, Citicorp
North America, Inc., as Syndication Agent, Harris Trust and Savings Bank, as Documentation Agent and as an L/C Issuer, and various lending parties named therein
|            | 
|10.2        |  | Amendment No. 1 and Waiver, dated as of October 13, 2006 to Second Lien Credit Agreement, dated as of March 31, 2006, among Solo Cup Company, a Delaware corporation, Solo Cup Investment
Corporation, and Bank of America, N.A., as Administrative Agent, Banc of America Securities LLC, as Sole Lead Arranger and Sole Bookrunning Manager and other lending parties therein                                                                                                                                                                                                                               
|            | 
|10.3        |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation,Solo Cup Operating Corporation, a Delaware
corporation (successor by merger to Solo Cup Company, an Illinois corporation) and Hans H. Heinsen                                                                                                                                                                                                                                                                                                                             
|            | 
|10.4        |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation,Solo Cup Operating Corporation, a Delaware
corporation (successor by merger to Solo Cup Company, an Illinois corporation) and Jan Stern Reed                                                                                                                                                                                                                                                                                                                              
|            | 
|10.5        |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation,Solo Cup Operating Corporation, a Delaware
corporation (successor by merger to Solo Cup Company, an Illinois corporation) and Robert M. Korzenski                                                                                                                                                                                                                                                                                                                         
|            | 
|10.6        |  | Amendment No. 1 to Employment Agreement dated July 26, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation,Solo Cup Operating Corporation, a Delaware
corporation (successor by merger to Solo Cup Company, an Illinois corporation) and Tom Pasqualini                                                                                                                                                                                                                                                                                                                              
|            | 
|10.7        |  | Amendment No. 2 to Employment Agreement dated October 11, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation,Solo Cup Operating Corporation, a Delaware
corporation (successor by merger to Solo Cup Company, an Illinois corporation) and Jan Stern Reed                                                                                                                                                                                                                                                                                                                           
|            | 
|10.8        |  | Amendment No. 2 to Employment Agreement dated October 11, 2006, by and between Solo Cup Investment Corporation, a Delaware corporation,Solo Cup Operating Corporation, a Delaware
corporation (successor by merger to Solo Cup Company, an Illinois corporation) and Robert M. Korzenski                                                                                                                                                                                                                                                                                                                      
|            | 
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                            



50