---

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 quarterly period ended March 31, 2005



| ̈ | 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  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (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 May 12, 2005:

Common Stock, $0.01 par value - 100 shares



---



---

PART I - FINANCIAL INFORMATION



Item 1. Financial Statements.



SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                     |  |               |           |                  |   |          
|---------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                                                                                     |  | March 31,2005 |           | December 31,2004
|                                                                                                     |  | (Unaudited)   |           |                 
|Assets                                                                                               |  |               |           |                  |   |          
|Current assets:                                                                                      |  |               |           |                  |   |          
|Cash and cash equivalents                                                                            |  | $             | 16,975    |                  | $ | 15,855   
|Cash in escrow                                                                                       |  |               | 15,000    |                  |   | 15,000   
|Accounts receivable:                                                                                 |  |               |           |                  |   |          
|Trade, less allowance for doubtful accounts of $6,773 and $6,295                                     |  |               | 240,865   |                  |   | 222,546  
|Other                                                                                                |  |               | 23,253    |                  |   | 26,954   
|Inventories                                                                                          |  |               | 375,150   |                  |   | 352,377  
|Spare parts                                                                                          |  |               | 30,035    |                  |   | 31,556   
|Deferred income taxes                                                                                |  |               | 52,754    |                  |   | 52,594   
|Prepaid expenses                                                                                     |  |               | 12,540    |                  |   | 12,222   
|Other current assets                                                                                 |  |               | 5,285     |                  |   | 3,433    
|                                                                                                     |  |               |           |                  |   |          
|Total current assets                                                                                 |  |               | 771,857   |                  |   | 732,537  
|                                                                                                     |  |              
|Property, plant and equipment, net                                                                   |  |               | 808,810   |                  |   | 828,750  
|Spare parts                                                                                          |  |               | 12,368    |                  |   | 11,067   
|Goodwill                                                                                             |  |               | 256,569   |                  |   | 239,768  
|Intangible assets, net                                                                               |  |               | 35,182    |                  |   | 37,512   
|Restricted cash                                                                                      |  |               |          |                  |   | 1,905    
|Deferred financing fees, net                                                                         |  |               | 29,439    |                  |   | 29,619   
|Other assets                                                                                         |  |               | 18,954    |                  |   | 22,628   
|                                                                                                     |  |               |           |                  |   |          
|Total assets                                                                                         |  | $             | 1,933,179 |                  | $ | 1,903,786
|                                                                                                     |  |               |           |                  |   |          
|Liabilities and Shareholders Equity                                                                 |  |               |           |                  |   |          
|Current liabilities:                                                                                 |  |               |           |                  |   |          
|Accounts payable                                                                                     |  | $             | 179,133   |                  | $ | 150,483  
|Accrued payroll and related costs                                                                    |  |               | 68,106    |                  |   | 68,391   
|Accrued customer allowances                                                                          |  |               | 31,828    |                  |   | 30,868   
|Accrued expenses and other current liabilities                                                       |  |               | 49,387    |                  |   | 62,496   
|Short-term debt                                                                                      |  |               | 1,455     |                  |   | 3,603    
|Current maturities of long-term debt                                                                 |  |               | 8,724     |                  |   | 9,778    
|Income taxes payable                                                                                 |  |               | 1,684     |                  |   | 5,419    
|                                                                                                     |  |               |           |                  |   |          
|Total current liabilities                                                                            |  |               | 340,317   |                  |   | 331,038  
|                                                                                                     |  |              
|Long-term debt, net of current maturities                                                            |  |               | 1,052,384 |                  |   | 1,004,747
|Deferred income taxes                                                                                |  |               | 35,028    |                  |   | 58,430   
|Pensions and other postretirement benefits                                                           |  |               | 73,964    |                  |   | 76,275   
|Other liabilities                                                                                    |  |               | 22,153    |                  |   | 5,073    
|                                                                                                     |  |               |           |                  |   |          
|Total liabilities                                                                                    |  |               | 1,523,846 |                  |   | 1,475,563
|                                                                                                     |  |              
|Minority interest                                                                                    |  |               | 993       |                  |   | 1,073    
|                                                                                                     |  |              
|Shareholders equity:                                                                                |  |               |           |                  |   |          
|Common stock - Par value $0.01 per share; 1,000 shares authorized; 100 shares issued and outstanding |  |               |          |                  |   |         
|Additional paid-in capital                                                                           |  |               | 259,269   |                  |   | 259,080  
|Retained earnings                                                                                    |  |               | 142,913   |                  |   | 161,481  
|Accumulated other comprehensive income                                                               |  |               | 6,158     |                  |   | 6,589    
|                                                                                                     |  |               |           |                  |   |          
|Total shareholders equity                                                                           |  |               | 408,340   |                  |   | 427,150  
|                                                                                                     |  |               |           |                  |   |          
|Total liabilities and shareholders equity                                                           |  | $             | 1,933,179 |                  | $ | 1,903,786
|                                                                                                     |  |               |           |                  |   |          



See accompanying Notes
to Consolidated Financial Statements.



2



---

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME
(LOSS)

(Unaudited, in thousands)



|                                                                 |  |                             |         |   |      |   |         |  
|---------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                 |  | Three months endedMarch 31, |        
|                                                                 |  | 2005                        |         |   | 2004 |  
|Net sales                                                        |  | $                           | 546,093 |   |      | $ | 327,296 |  
|Cost of goods sold                                               |  |                             | 497,598 |   |      |   | 290,372 |  
|                                                                 |  |                             |         |   |      |   |         |  
|Gross profit                                                     |  |                             | 48,495  |   |      |   | 36,924  |  
|                                                                 |  |                            
|Selling, general and administrative expenses                     |  |                             | 60,904  |   |      |   | 45,685  |  
|Loss on sale of property, plant and equipment                    |  |                             | 774     |   |      |   | 3       |  
|                                                                 |  |                             |         |   |      |   |         |  
|Operating loss                                                   |  |                             | (13,183 | ) |      |   | (8,764  | )
|                                                                 |  |                            
|Interest expense, net of interest income of $89 and $89          |  |                             | 17,073  |   |      |   | 8,346   |  
|Prepayment penalties                                             |  |                             |        |   |      |   | 30,690  |  
|Loss on debt extinguishment                                      |  |                             |        |   |      |   | 916     |  
|Foreign currency exchange loss (gain), net                       |  |                             | 807     |   |      |   | (1,374  | )
|Other (income) expense, net                                      |  |                             | (113    | ) |      |   | 768     |  
|                                                                 |  |                             |         |   |      |   |         |  
|Loss before income taxes and minority interest                   |  |                             | (30,950 | ) |      |   | (48,110 | )
|                                                                 |  |                            
|Income tax (benefit) provision                                   |  |                             | (12,380 | ) |      |   | 10,548  |  
|Minority interest                                                |  |                             | (2      | ) |      |   | 11      |  
|                                                                 |  |                             |         |   |      |   |         |  
|Net loss                                                         |  | $                           | (18,568 | ) |      | $ | (58,669 | )
|                                                                 |  |                             |         |   |      |   |         |  
|Comprehensive income (loss):                                     |  |                             |         |   |      |   |         |  
|                                                                 |  |                            
|Net loss                                                         |  | $                           | (18,568 | ) |      | $ | (58,669 | )
|Foreign currency translation adjustment                          |  |                             | (1,723  | ) |      |   | 2,296   |  
|Unrealized investment gain (net of income taxes of $68)          |  |                             | 100     |   |      |   |        |  
|Unrealized gain on cash flow hedge (net of income taxes of $746) |  |                             | 1,192   |   |      |   |        |  
|                                                                 |  |                             |         |   |      |   |         |  
|Comprehensive loss                                               |  | $                           | (18,999 | ) |      | $ | (56,373 | )
|                                                                 |  |                             |         |   |      |   |         |  



See accompanying Notes
to Consolidated Financial Statements.



3



---

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

(In thousands, except
share amounts)



|                                                                   |  |              |  |                          |   |                  |   |         |                                            |   |         |                          |  |   |        |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------ |  | ------------------------ | - | ---------------- | - | ------- | ------------------------------------------ | - | ------- | ------------------------ |  | - | ------ | - |  | - | ------- | -
|                                                                   |  | Common stock |  | Additionalpaid-incapital |   | Retainedearnings |   |         | Accumulatedothercomprehensiveincome (loss) |   |         | Totalshareholdersequity | 
|                                                                   |  | Shares       |  | Amount                   |   |                  |   |        
|Balance at December 31, 2004                                       |  | 100          |  | $                        |  |                  | $ | 259,080 |                                            | $ | 161,481 |                          |  | $ | 6,589  |   |  | $ | 427,150 |  
|Net loss (Unaudited)                                               |  |             |  |                          |  |                  |   |        |                                            |   | (18,568 | )                        |  |   |       |   |  |   | (18,568 | )
|Contributed capital from parent (Unaudited)                        |  |             |  |                          |  |                  |   | 100     |                                            |   |        |                          |  |   |       |   |  |   | 100     |  
|Compensation expense on CPUs (Unaudited)                           |  |             |  |                          |  |                  |   | 89      |                                            |   |        |                          |  |   |       |   |  |   | 89      |  
|Foreign currency translation adjustment (Unaudited)                |  |             |  |                          |  |                  |   |        |                                            |   |        |                          |  |   | (1,723 | ) |  |   | (1,723  | )
|Unrealized investment gain, net of tax of $68 (Unaudited)          |  |             |  |                          |  |                  |   |        |                                            |   |        |                          |  |   | 100    |   |  |   | 100     |  
|Unrealized gain on cash flow hedge, net of tax of $746 (Unaudited) |  |             |  |                          |  |                  |   |        |                                            |   |        |                          |  |   | 1,192  |   |  |   | 1,192   |  
|                                                                   |  |              |  |                          |   |                  |   |         |                                            |   |         |                          |  |   |        |   |  |   |         |  
|Balance at March 31, 2005 (Unaudited)                              |  | 100          |  | $                        |  |                  | $ | 259,269 |                                            | $ | 142,913 |                          |  | $ | 6,158  |   |  | $ | 408,340 |  
|                                                                   |  |              |  |                          |   |                  |   |         |                                            |   |         |                          |  |   |        |   |  |   |         |  



See accompanying Notes
to Consolidated Financial Statements.



4



---

SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



|                                                                            |  |                             |         |   |      |   |          |  
|--------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | -------- | -
|                                                                            |  | Three months endedMarch 31, |        
|                                                                            |  | 2005                        |         |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |  |                             |         |   |      |   |          |  
|Net loss                                                                    |  | $                           | (18,568 | ) |      | $ | (58,669  | )
|                                                                            |  |                            
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |         |   |      |   |          |  
|Depreciation and amortization                                               |  |                             | 25,587  |   |      |   | 15,450   |  
|Deferred finance fee amortization                                           |  |                             | 1,226   |   |      |   | 362      |  
|Loss on sale of property, plant and equipment                               |  |                             | 774     |   |      |   | 3        |  
|Loss on debt extinguishment                                                 |  |                             |        |   |      |   | 916      |  
|Minority interest                                                           |  |                             | (2      | ) |      |   | 11       |  
|Deferred income taxes                                                       |  |                             | (12,669 | ) |      |   | 9,390    |  
|Foreign currency exchange loss (gain), net                                  |  |                             | 807     |   |      |   | (1,374   | )
|Changes in operating assets and liabilities (net of business acquisitions): |  |                             |         |   |      |   |          |  
|Accounts receivable                                                         |  |                             | (15,806 | ) |      |   | (10,532  | )
|Inventories                                                                 |  |                             | (25,019 | ) |      |   | (11,296  | )
|Prepaid expenses, other current assets and other assets                     |  |                             | 5,912   |   |      |   | (5,020   | )
|Accounts payable                                                            |  |                             | 29,038  |   |      |   | (23,794  | )
|Accrued expenses and other current liabilities                              |  |                             | (22,766 | ) |      |   | 4,792    |  
|Other liabilities                                                           |  |                             | (2,573  | ) |      |   | 2,737    |  
|Other, net                                                                  |  |                             | 135     |   |      |   | 296      |  
|                                                                            |  |                             |         |   |      |   |          |  
|Net cash used in operating activities                                       |  |                             | (33,924 | ) |      |   | (76,728  | )
|                                                                            |  |                            
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |  |                             |         |   |      |   |          |  
|                                                                            |  |                            
|Payment for business acquisitions, net of cash acquired                     |  |                             |        |   |      |   | (869,814 | )
|Purchase of property, plant and equipment                                   |  |                             | (16,283 | ) |      |   | (9,852   | )
|Proceeds from sale of property, plant and equipment                         |  |                             | 5,614   |   |      |   | 927      |  
|Increase in cash in escrow                                                  |  |                             |        |   |      |   | (4,997   | )
|                                                                            |  |                             |         |   |      |   |          |  
|Net cash used in investing activities                                       |  |                             | (10,669 | ) |      |   | (883,736 | )
|                                                                            |  |                            
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |  |                             |         |   |      |   |          |  
|                                                                            |  |                            
|Net borrowings under revolving credit facilities                            |  |                             | 49,429  |   |      |   | 53,000   |  
|Borrowings under the term notes                                             |  |                             |        |   |      |   | 650,000  |  
|Borrowings under the 8.5% Senior Subordinated Notes                         |  |                             |        |   |      |   | 325,000  |  
|Borrowings under the Securitization Facility                                |  |                             |        |   |      |   | 5,000    |  
|Borrowings under the 364-day revolving credit agreement                     |  |                             |        |   |      |   | 16,500   |  
|Proceeds from sale of common stock                                          |  |                             |        |   |      |   | 229,627  |  
|Contribution of capital from parent                                         |  |                             | 100     |   |      |   |         |  
|Repayments of the 7.08% Senior Notes                                        |  |                             |        |   |      |   | (160,000 | )
|Repayments of the 3.67% Yen-denominated Senior Notes                        |  |                             |        |   |      |   | (44,170  | )
|Repayments of the interest rate swap                                        |  |                             |        |   |      |   | (1,656   | )
|Repayments of the Securitization Facility                                   |  |                             |        |   |      |   | (27,800  | )
|Repayments of the 364-day revolving credit agreement                        |  |                             |        |   |      |   | (29,500  | )
|Repayments of the term notes                                                |  |                             | (2,406  | ) |      |   |         |  
|Repayments of other debt                                                    |  |                             | (2,233  | ) |      |   | (250     | )
|Debt issuance costs                                                         |  |                             | (1,046  | ) |      |   | (30,584  | )
|Dividends paid                                                              |  |                             |        |   |      |   | (13,000  | )
|Decrease in restricted cash                                                 |  |                             | 1,905   |   |      |   | 234      |  
|                                                                            |  |                             |         |   |      |   |          |  
|Net cash provided by financing activities                                   |  |                             | 45,749  |   |      |   | 972,401  |  
|                                                                            |  |                            
|Effect of exchange rate changes on cash                                     |  |                             | (36     | ) |      |   | 58       |  
|                                                                            |  |                             |         |   |      |   |          |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                   |  |                             | 1,120   |   |      |   | 11,995   |  
|                                                                            |  |                            
|CASH AND CASH EQUIVALENTS, beginning of period                              |  |                             | 15,855  |   |      |   | 3,269    |  
|                                                                            |  |                             |         |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, end of period                                    |  | $                           | 16,975  |   |      | $ | 15,264   |  
|                                                                            |  |                             |         |   |      |   |          |  
|SUPPLEMENTAL CASH FLOW DISCLOSURES:                                         |  |                             |         |   |      |   |          |  
|Interest paid                                                               |  | $                           | 24,633  |   |      | $ | 2,597    |  
|                                                                            |  |                             |         |   |      |   |          |  
|Income taxes paid                                                           |  | $                           | 2,989   |   |      | $ | 720      |  
|                                                                            |  |                             |         |   |      |   |          |  



See accompanying Notes
to Consolidated Financial Statements.



5



---

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 Company, an Illinois corporation (Solo Illinois), and its subsidiaries and SF Holdings
Group, Inc. and its subsidiaries (SF Holdings), including Sweetheart Cup Company Inc. (Sweetheart). 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.



Effective February 22, 2004, the predecessor company, Solo Illinois, became a
wholly-owned subsidiary of Solo Delaware. Solo Delaware is a holding company, the material assets of which are 100% of the capital stock of Solo Illinois and 100% of the capital stock of SF Holdings.



On February 27, 2004, with an effective date of February 22, 2004, the
Company acquired 100.0% of the outstanding stock of SF Holdings. The results of operations for the Company include the accounts of SF Holdings from February 22, 2004.



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 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 consolidated financial statements and notes thereto of the Company for the
year ended December 31, 2004 included in its annual report on Form 10-K.



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).



(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). SF Holdings is one of the largest converters and marketers of plastic and paper disposable foodservice and food packaging products in North America. The
results of operations of SF Holdings are included in the consolidated financial statements of the Company from February 22, 2004.



The aggregate purchase price was $917.2 million of which $15.0 million is being held in an escrow account pending the final working capital adjustment and
resolution of claims for indemnification. The $15.0 million held in escrow is not included in the allocation of the cost of the assets acquired and liabilities assumed as it represents contingent consideration for which the contingency has not been
resolved. The consideration was applied to the purchase of all common stock and common stock equivalents of SF Holdings, as well as the repayment of all outstanding debt of SF Holdings and the repurchase and cancellation of its preferred stock. In
addition, the Company purchased from a lessor certain leased manufacturing equipment and other assets that SF Holdings uses in its operations for an aggregate purchase price of $209.1 million, plus $8.0 million of accrued rent on the leases and the
payment of documentation expenses. These amounts are included in the $917.2 million of aggregate consideration paid.



The funding of the SF Holdings Acquisition was made through bank financing, bonds and private investment. The SF Holdings Acquisition resulted in goodwill
of $158.0 million that is not tax deductible and $45.0 million of acquired intangible assets with a weighted average useful life of approximately five years. These intangible assets consisted of trademarks and trade names of $22.2 million with an
estimated useful life of five years, Trophy manufacturing technology valued at $21.1 million with an estimated useful life of five years, and $1.7 million of other intangible assets with an estimated useful life of three years.



6



---

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



|                                                              |  |   |         |  
|------------------------------------------------------------- |  | - | ------- | -
|Purchase price                                                |  | $ | 917.2   |  
|Less cash in escrow                                           |  |   | (15.0   | )
|                                                              |  |   |         |  
|Adjusted purchase price                                       |  | $ | 902.2   |  
|                                                              |  |   |         |  
|Cash                                                          |  | $ | 34.2    |  
|Accounts receivable                                           |  |   | 131.2   |  
|Inventories                                                   |  |   | 211.6   |  
|Other current assets                                          |  |   | 51.0    |  
|Property, plant and equipment                                 |  |   | 568.7   |  
|Intangible assets                                             |  |   | 45.0    |  
|Other assets                                                  |  |   | 16.3    |  
|                                                              |  |   |         |  
|Total assets                                                  |  | $ | 1,058.0 |  
|                                                              |  |   |         |  
|Current liabilities                                           |  | $ | 210.5   |  
|Other liabilities                                             |  |   | 103.3   |  
|                                                              |  |   |         |  
|Total liabilities                                             |  | $ | 313.8   |  
|                                                              |  |   |         |  
|Excess of purchase price over assets and liabilities acquired |  | $ | 158.0   |  
|                                                              |  |   |         |  



The finalization of
the purchase price is pending adjustments to working capital and resolution of claims for indemnification.



The following are the pro forma results assuming that the acquisition had occurred as of January 1, 2003 (in thousands):



|          |  |                             |         |   |      |   |         |  
|--------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|          |  | Three months endedMarch 31, |        
|          |  | 2005                        |         |   | 2004 |  
|Net sales |  | $                           | 546,093 |   |      | $ | 494,818 |  
|          |  |                             |         |   |      |   |         |  
|Net loss  |  | $                           | (18,568 | ) |      | $ | (17,410 | )
|          |  |                             |         |   |      |   |         |  



In the third quarter
of 2004, management committed to a plan to sell the property for a plant closed in connection with the integration of SF Holdings. The net book value of approximately $1.9 million is classified in other current assets in the Companys
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004. In the first quarter of 2005, management committed to a plan to sell the property for another plant closed in connection with the integration of SF Holdings. The net book value
of approximately $2.3 million is classified in other current assets in the Companys Consolidated Balance Sheet as of March 31, 2005.



(3) INVENTORIES



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



|                           |  |               |         |                   |   |        
|-------------------------- |  | ------------- | ------- | ----------------- | - | -------
|                           |  | March 31,2005 |         | December 31, 2004
|Finished goods             |  | $             | 274,193 |                   | $ | 259,919
|Work in process            |  |               | 16,074  |                   |   | 13,569 
|Raw materials and supplies |  |               | 84,883  |                   |   | 78,889 
|                           |  |               |         |                   |   |        
|Total inventories          |  | $             | 375,150 |                   | $ | 352,377
|                           |  |               |         |                   |   |        





7



---

(4) PROPERTY, PLANT AND EQUIPMENT, NET



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



|                                    |  |               |           |   |                   |   |           |  
|----------------------------------- |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                    |  | March 31,2005 |           |   | December 31, 2004 |  
|Land                                |  | $             | 52,401    |   |                   | $ | 54,152    |  
|Buildings and improvements          |  |               | 304,658   |   |                   |   | 319,531   |  
|Machinery and equipment             |  |               | 896,742   |   |                   |   | 887,875   |  
|Construction in progress            |  |               | 27,128    |   |                   |   | 21,394    |  
|                                    |  |               |           |   |                   |   |           |  
|Total property, plant and equipment |  |               | 1,280,929 |   |                   |   | 1,282,952 |  
|Less accumulated depreciation       |  |               | (472,119  | ) |                   |   | (454,202  | )
|                                    |  |               |           |   |                   |   |           |  
|Property, plant and equipment, net  |  | $             | 808,810   |   |                   | $ | 828,750   |  
|                                    |  |               |           |   |                   |   |           |  



Depreciation of
property, plant and equipment was $23.3 million and $14.5 million for the three months ended March 31, 2005 and 2004, respectively. Capitalized interest was $0.1 million for the three months ended March 31, 2005 and 2004, respectively.



(5) GOODWILL AND INTANGIBLE ASSETS



The following is a rollforward of the carrying values of goodwill by
business segment (in thousands):



|                                  |  |              |         |        |   |        |               |  |   |       |   |  |   |        
|--------------------------------- |  | ------------ | ------- | ------ | - | ------ | ------------- |  | - | ----- | - |  | - | -------
|                                  |  | NorthAmerica |         | Europe |   |        | Asia Pacific |  |   | Total
|Balance at December 31, 2004      |  | $            | 198,385 |        | $ | 41,157 |               |  | $ | 226   |   |  | $ | 239,768
|SF Holdings Acquisition (Note 2)  |  |              | 16,020  |        |   |       |               |  |   |      |   |  |   | 16,020 
|Erving Paper Products acquisition |  |              | 287     |        |   |       |               |  |   |      |   |  |   | 287    
|Translation adjustment            |  |              | 1,088   |        |   | (584   | )             |  |   | (10   | ) |  |   | 494    
|                                  |  |              |         |        |   |        |               |  |   |       |   |  |   |        
|Balance at March 31, 2005         |  | $            | 215,780 |        | $ | 40,573 |               |  | $ | 216   |   |  | $ | 256,569
|                                  |  |              |         |        |   |        |               |  |   |       |   |  |   |        



As of December 31,
2004, the carrying value of goodwill in North America includes $142.0 million related to the SF Holdings Acquisition (Note 2).



The gross carrying amount of nonamortizable intangible assets as of March 31, 2005 and December 31, 2004 was $0.3 million. The following are the carrying
values of amortizable intangible assets (in thousands):



|                            |  |                     |        |                         |   |                     |  |                         |        |  |   |      
|--------------------------- |  | ------------------- | ------ | ----------------------- | - | ------------------- |  | ----------------------- | ------ |  | - | -----
|                            |  | March 31, 2005      |        | December 31, 2004      
|                            |  | GrossCarryingAmount |        | AccumulatedAmortization |   | GrossCarryingAmount |  | AccumulatedAmortization
|Trademarks and tradenames   |  | $                   | 22,200 |                         | $ | 4,810               |  | $                       | 22,200 |  | $ | 3,700
|Manufacturing technology    |  |                     | 21,100 |                         |   | 4,572               |  |                         | 21,100 |  |   | 3,517
|Patents, licenses and other |  |                     | 1,760  |                         |   | 788                 |  |                         | 1,760  |  |   | 629  
|                            |  |                     |        |                         |   |                     |  |                         |        |  |   |      
|                            |  | $                   | 45,060 |                         | $ | 10,170              |  | $                       | 45,060 |  | $ | 7,846
|                            |  |                     |        |                         |   |                     |  |                         |        |  |   |      



Amortization expense
related to intangible assets was $2.3 million and $0 during the three months ended March 31, 2005 and 2004, respectively. The estimated annual amortization expense of intangibles presently owned by the Company is approximately $7 million for the
remainder of 2005, $9 million for 2006 through 2008 and $1 million in 2009.



8



---

(6) DEBT



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



|                                            |  |               |           |                  |   |          
|------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                            |  | March 31,2005 |           | December 31,2004
|Short-term debt:                            |  |               |           |                  |   |          
|Yen-denominated short-term bank borrowings  |  | $             | 1,455     |                  | $ | 3,603    
|                                            |  |              
|Long-term debt:                             |  |               |           |                  |   |          
|8.5% Senior Subordinated Notes              |  | $             | 325,000   |                  | $ | 325,000  
|Senior Credit Facility  Term Loan          |  |               | 643,500   |                  |   | 645,125  
|Senior Credit Facility  Revolver           |  |               | 78,500    |                  |   | 28,700   
|Canadian Credit Facility  Term Loan        |  |               | 10,321    |                  |   | 11,214   
|Canadian Credit Facility  Revolver         |  |               | 618       |                  |   | 1,010    
|Capital lease obligations                   |  |               | 3,169     |                  |   | 3,476    
|                                            |  |               |           |                  |   |          
|Total long-term debt                        |  |               | 1,061,108 |                  |   | 1,014,525
|Less - Current maturities of long-term debt |  |               | 8,724     |                  |   | 9,778    
|                                            |  |               |           |                  |   |          
|Long-term debt, net of current maturities   |  | $             | 1,052,384 |                  | $ | 1,004,747
|                                            |  |               |           |                  |   |          



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 March 31, 2005, borrowings under the revolving credit facility and the term loan carried effective interest rates of 4.32% and 4.57%, respectively. As of March 31, 2005, CAD 9.1 million (approximately
$7.5 million) was available under the revolving credit facility.



Senior Credit Facility



On March 31, 2005, the
Company and SCIC entered into an agreement to amend the term loan facility under its Credit Agreement, dated as of February 27, 2004 (the Senior Credit Facility). The amendment changes the borrowing margin used to calculate interest on
the term loans under the Senior Credit Facility. For purposes of calculating interest, term loans under the Senior Credit Facility are designated as Eurodollar rate loans or, in certain circumstances, base rate loans. Under the original agreement,
Eurodollar rate loans bore interest at the British Bankers Association Interest Settlement Rate for deposits in dollars plus a borrowing margin. Base rate loans bore interest at (a) the greater of (i) the rate most recently announced by Bank of
America as its prime rate or (ii) the Federal Funds Rate plus 1⁄2 of 1% per annum, plus (b) a borrowing margin. The margin for term loans was a range based on the Companys leverage ratio. For Eurodollar rate loans, the range was
2.25% to 2.50%. For base rate loans, the range was 1.25% to 1.50%. The terms of the amendment provide that the borrowing margin for term loans be 2.00% on Eurodollar rate loans and 1.00% on base rate loans.



The amendment also changes the schedule for quarterly principal payments. The
original agreement provided scheduled principal payments of $1.625 million per quarter through February 27, 2006, $6.25 million per quarter from May 27, 2006 through February 27, 2008, and $12.5 million per quarter from May 27, 2008 through November
27, 2010, with a balloon payment of $449.5 million due on February 27, 2011. The terms of the amendment provide for scheduled principal payments of $1.625 million per quarter through November 27, 2010, with a balloon payment of $606.125 million due
on February 27, 2011. All mandatory quarterly prepayments have been made to date.



As of March 31, 2005, the weighted average annual interest rate applicable to Eurodollar rate loans was 5.63% and the weighted average annual interest rate applicable to base rate loans was 7.50%. During the quarter
ended March 31, 2005, the weighted average annual interest rate for the Senior Credit Facility was 5.14%. At March 31, 2005, the interest rate on the term loan facility was 5.63% and 6.50% on the revolving credit facility. As of March 31, 2005,
$57.9 million was available under the Senior Credit Facility.



9



---

Debt Extinguishment



On February 27, 2004, the Company extinguished $160.0 million of 7.08% Senior Notes due June 30, 2011 and $44.2 million of
3.67% Yen-denominated senior notes due July 16, 2008 resulting in prepayment penalties of $26.9 million and $3.8 million, respectively. As a result of the early extinguishment of debt, the Company incurred a $0.9 million loss from the write off of
deferred financing fees. The following sets forth the payments made in connection with the termination of the debt instruments outstanding on February 27, 2004 (in thousands):



|                                   |  |           |         |                     |   |          |  |                     |       |       |   |     |  |   |        
|---------------------------------- |  | --------- | ------- | ------------------- | - | -------- |  | ------------------- | ----- | ----- | - | --- |  | - | -------
|                                   |  | Principal |         | PrepaymentPenalties |   | Interest |  | ForeignExchangeLoss |       | Total
|Interest rate swap                 |  | $         | 1,656   |                     | $ |         |  | $                   |      |       | $ |    |  | $ | 1,656  
|Securitization facility            |  |           | 27,800  |                     |   |         |  |                     | 34    |       |   |    |  |   | 27,834 
|364-day revolving credit agreement |  |           | 29,500  |                     |   |         |  |                     |      |       |   |    |  |   | 29,500 
|7.08% Senior Notes                 |  |           | 160,000 |                     |   | 26,920   |  |                     | 1,713 |       |   |    |  |   | 188,633
|3.67% Yen-denominated Senior Notes |  |           | 44,170  |                     |   | 3,770    |  |                     | 228   |       |   | 679 |  |   | 48,847 
|                                   |  |           |         |                     |   |          |  |                     |       |       |   |     |  |   |        
|Total                              |  | $         | 263,126 |                     | $ | 30,690   |  | $                   | 1,975 |       | $ | 679 |  | $ | 296,470
|                                   |  |           |         |                     |   |          |  |                     |       |       |   |     |  |   |        



(7) 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 ten 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 March 31, 2005 are as follows (in thousands):



|                  |  |   |        
|----------------- |  | - | -------
|Remainder of 2005 |  | $ | 23,547 
|2006              |  |   | 30,548 
|2007              |  |   | 25,522 
|2008              |  |   | 21,563 
|2009              |  |   | 20,104 
|2010              |  |   | 24,545 
|Thereafter        |  |   | 190,895
|                  |  |   |        
|Total             |  | $ | 336,724
|                  |  |   |        



(8) DERIVATIVES AND HEDGING
ACTIVITIES



The Senior Credit 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 Senior Credit 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 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. The fair value of these swap agreements was $6.1 million and $4.2 million as
of March 31, 2005 and December 31, 2004, respectively. They are accounted for as cash flow hedges and their fair value is included in other assets in the Companys consolidated balance sheet.



On June 1, 2004, the Company entered into an interest rate cap agreement with
a total notional amount of $30.0 million. Under this interest rate cap agreement, the Company receives variable interest rate payments when the three-month Eurodollar rate rises above 4.0%. At December 31, 2004, the fair value of this interest rate
cap was $0. This interest rate cap agreement expired on March 31, 2005. On March 31, 2005, the Company entered into a new interest rate cap agreement with a total notional amount of $35.0 million. Under this interest rate cap agreement, the Company
receives variable interest rate payments when the three-month Eurodollar rate rises above 5.0%. This interest rate cap agreement is in effect through March 31, 2006. At March 31, 2005, the fair value of this interest rate cap was approximately $3
thousand and is included in other assets in the Companys consolidated balance sheet.



10



---

(9) INCOME TAXES



As of January 1, 2004, Solo Illinois revoked its subchapter S status and became a subchapter C Corporation subject to United States federal and state
income tax. Consequently, the Company, pursuant to generally accepted accounting principles in the United States, recorded a one-time, $29.8 million non-cash tax expense to establish a $29.8 million net deferred income tax liability for the future
tax consequences attributable to differences between the financial statement and income tax bases of Solo Illinois assets and liabilities as of January 1, 2004. As of December 31, 2004, the net deferred income tax liability was reduced to
$28.3 million.



(10) PENSIONS AND OTHER POSTRETIREMENT BENEFITS



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



|                                   |  |                             |        |   |      |   |      |  
|---------------------------------- |  | --------------------------- | ------ | - | ---- | - | ---- | -
|                                   |  | Three months endedMarch 31, |       
|                                   |  | 2005                        |        |   | 2004 |  
|Pension Benefits                   |  |                             |        |   |      |   |      |  
|Service cost                       |  | $                           | 160    |   |      | $ | 63   |  
|Interest cost                      |  |                             | 1,211  |   |      |   | 413  |  
|Expected return on plan assets     |  |                             | (1,213 | ) |      |   | (464 | )
|Amortization of prior service cost |  |                             | 22     |   |      |   |     |  
|Amortization of net loss           |  |                             | 1      |   |      |   |     |  
|                                   |  |                             |        |   |      |   |      |  
|Net periodic benefit cost          |  | $                           | 181    |   |      | $ | 12   |  
|                                   |  |                             |        |   |      |   |      |  
|Other Postretirement Benefits      |  |                             |        |   |      |   |      |  
|Service cost                       |  | $                           | 191    |   |      | $ | 106  |  
|Interest cost                      |  |                             | 516    |   |      |   | 261  |  
|Amortization of prior service cost |  |                             | (1,032 | ) |      |   |     |  
|Amortization of net loss           |  |                             | 227    |   |      |   |     |  
|                                   |  |                             |        |   |      |   |      |  
|Net periodic benefit cost          |  | $                           | (98    | ) |      | $ | 367  |  
|                                   |  |                             |        |   |      |   |      |  



As of March 31, 2005,
$1.5 million of contributions had been made to the Companys pension plans. The Company presently anticipates contributing an additional $5.1 million to fund its pension plans in 2005 for a total of $6.6 million.



(11) EQUITY TRANSACTIONS



On February 27, 2004, the Company received net proceeds of $229.6 million
from the issuance of 100 shares of Common Stock to SCIC and the retirement of all outstanding shares of Solo Illinois Class A and Class B common stock. In order to fund this purchase of stock in the Company, SCIC issued $240.0 million of
convertible participating preferred stock (CPPS) to Vestar. The CPPS pays cash dividends at a rate of 10.0% per annum on an amount equal to the sum of the original purchase price of the CPPS plus all accrued and unpaid dividends.
Dividends will accumulate to the extent not paid, whether or not earned or declared. SCIC is required to redeem the CPPS for an amount in cash equal to its original purchase price plus all accrued and unpaid dividends on the eleventh anniversary of
its issuance, and is subject to other accelerated redemption clauses. The Company, at its option and election, may redeem in whole or in part the outstanding shares of CPPS or other securities issued by SCIC on or after the third anniversary through
the seventh anniversary of its issuance. The CPPS may be converted into common shares of SCIC at any time, subject to certain limitations, at the option of the holders. Mandatory conversion occurs upon the closing of an Initial Public Offering. The
Company provides no guarantees with respect to these obligations of SCIC.



During 2004, $4.1 million of capital was contributed to the Company by SCIC. This includes $0.8 million of proceeds that were received by SCIC from certain Company employees upon the issuance of SCICs CPPS. The
remaining $3.3 million represents the issuance of 3,283 Convertible Preferred Units (CPUs) to certain Company employees in settlement of deferred compensation liabilities (Note 12).



11



---

(12) STOCK-BASED COMPENSATION



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 1.4 million shares of common stock, and 5,000 shares of CPPS for issuance. The accounting impact of this plan is recorded in the financial statements of the Company as the plan relates to employees of
the Company.



CPUs



During the second quarter of 2004, SCIC issued 3,283 CPUs to certain Company
employees in settlement of $3.3 million of deferred compensation liabilities. During the three months ended March 31, 2005, the Company recorded compensation expense and additional paid-in capital of $89 thousand reflecting dividends declared by
SCIC on those instruments. The fair value of the CPUs granted by SCIC was linked to the fair market value of one share of CPPS. For CPUs, compensation expense is recognized periodically based on changes in the fair value of the CPU relative to the
grant-date fair value of the CPU.



Based on an independent
third party valuation and a conversion rate of 21.13 shares of common stock for each share of CPPS, the fair market value of SCIC common stock as of March 31, 2005 was $40.99 per share. CPUs do not have voting rights and are in certain circumstances
convertible to SCIC common stock or CPPS. The issuance of CPUs by SCIC in settlement of deferred compensation liabilities of the Company totaling $3.3 million was recorded as additional paid in capital in 2004.



Stock Options



During 2004, SCIC granted to employees 1,249,255 options to purchase shares
of SCIC common stock with an exercise price equal to the fair market value of the common stock at the date of grant of $47.32. Included in these grants were 499,698 options that are conditional upon the Company achieving certain defined performance
targets. The time-based options vest over a period of four years and the performance-based options vest over a period of five years. All options expire 10 years after the grant date. As of March 31, 2005, 56,543 of time-based options were
exercisable. During the three months ended March 31, 2005, 37,696 time-based options and 25,130 performance-based options were forfeited. No options have been exercised to date.



The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. No stock-based employee compensation cost
for options is reflected in the reported net loss, as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company currently expects to adopt SFAS No. 123 (Revised 2004),
Share-Based Payment in the first quarter of 2006, but has not yet determined which of the adoption methods it will use.



The following table illustrates the effect on net loss assuming the Company had applied the fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to all awards of common stock options (in thousands):



|                                                                                                                             |  |                             |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                             |  | Three months endedMarch 31, |        
|                                                                                                                             |  | 2005                        |         |   | 2004 |  
|Net loss, as reported                                                                                                        |  | $                           | (18,568 | ) |      | $ | (58,669 | )
|Add: Total stock-based employee compensation expense included in net loss, net of related tax effects                        |  |                             | 61      |   |      |   |        |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method, net of related tax effects |  |                             | (533    | ) |      |   | (69     | )
|                                                                                                                             |  |                             |         |   |      |   |         |  
|Pro forma net loss                                                                                                           |  | $                           | (19,040 | ) |      | $ | (58,738 | )
|                                                                                                                             |  |                             |         |   |      |   |         |  



12



---

(12) STOCK-BASED COMPENSATION (Continued)



The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions:



|                                               |  |   |       |  
|---------------------------------------------- |  | - | ----- | -
|Risk-free interest rate                        |  |   | 3.8   | %
|Stock volatility                               |  |   |      |  
|Expected life in years                         |  |   | 7     |  
|Expected dividend yield                        |  |   |      |  
|Weighted-average fair value of options granted |  | $ | 11.08 |  



(13) ACCUMULATED OTHER
COMPREHENSIVE INCOME (LOSS)



The components of accumulated
other comprehensive income (loss) are as follows (in thousands):



|                                                  |  |               |        |   |                   |   |        |  
|------------------------------------------------- |  | ------------- | ------ | - | ----------------- | - | ------ | -
|                                                  |  | March 31,2005 |        |   | December 31, 2004 |  
|Foreign currency translation adjustments          |  | $             | 8,781  |   |                   | $ | 10,504 |  
|Minimum pension liability adjustments, net of tax |  |               | (6,902 | ) |                   |   | (6,902 | )
|Unrealized investment gain, net of tax            |  |               | 535    |   |                   |   | 435    |  
|Unrealized gain on cash flow hedge, net of tax    |  |               | 3,744  |   |                   |   | 2,552  |  
|                                                  |  |               |        |   |                   |   |        |  
|Accumulated other comprehensive income            |  | $             | 6,158  |   |                   | $ | 6,589  |  
|                                                  |  |               |        |   |                   |   |        |  



(14) RELATED PARTY TRANSACTIONS



Robert L. Hulseman, who is John F. Hulsemans
brother and the husband of Sheila M. Hulseman, and is the Chairman and Chief Executive Officer of the Company, received salary and benefits of $276,184 for the three months ended March 31, 2005 and 2004. John F. Hulseman, who is Robert L.
Hulsemans brother and the husband of Georgia S. Hulseman, and is the Vice Chairman of the Company, received salary and benefits of $276,184 for the three months ended March 31, 2005 and 2004.



In the first quarter of 2004, SCIC paid to Vestar a one-time $4.0 million
advisory fee and reimbursed specified out of pocket expenses of Vestar. Also 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 $0.8 million and $0.1 million of expense for advisory fees for the quarter ended March 31, 2005 and 2004, respectively.



For the quarter ended March 31, 2005, the Company paid $0 of dividends. For the quarter ended March 31, 2004, the Company paid dividends of $13.0 million
to shareholders of Solo Illinois.



13



---

(15) SEGMENTS



The Company manages and evaluates its operations in three reportable segments: North America, Europe and Asia-Pacific. All of these segments produce a
broad array of disposable food service products, which are available in paper, plastic and foam. The operating segments are managed separately based on the products and requirements of the different markets. North America includes all U.S. entities,
Canada, Mexico, Corporate and Puerto Rico; Europe includes all U.K. entities and Denmark; and Asia-Pacific includes all Japanese entities and Australia; 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 2004 Form 10-K. Segment operating results are measured based on operating income (loss). Intersegment net sales are accounted for on an arms length pricing basis.



|                                     |  |              |           |   |        |   |              |  |   |        |   |               |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|------------------------------------ |  | ------------ | --------- | - | ------ | - | ------------ |  | - | ------ | - | ------------- | - | ------ | ------------ | - | --------- | ----- |  | - | ------- | - |  | - | --------- | -
|(in thousands)                       |  | NorthAmerica |           |   | Europe |   | Asia-Pacific |  |   | Other  |   | TotalSegments |   |        | Eliminations |   |           | Total | 
|For the quarter ended March 31, 2005 |  |              |           |   |        |   |              |  |   |        |   |               |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales from external customers    |  | $            | 506,199   |   |        | $ | 19,922       |  | $ | 22,759 |   |               | $ | 2,825  |              | $ | 551,705   |       |  | $ | (5,612  | ) |  | $ | 546,093   |  
|Intersegment net sales               |  |              | 5,298     |   |        |   |             |  |   |       |   |               |   | 314    |              |   | 5,612     |       |  |   | (5,612  | ) |  |   |          |  
|Operating income (loss)              |  |              | (13,420   | ) |        |   | 891          |  |   | (940   | ) |               |   | 240    |              |   | (13,229   | )     |  |   | 46      |   |  |   | (13,183   | )
|Depreciation and amortization        |  |              | 24,401    |   |        |   | 947          |  |   | 1,307  |   |               |   | 158    |              |   | 26,813    |       |  |   |        |   |  |   | 26,813    |  
|Capital expenditures                 |  |              | 14,750    |   |        |   | 386          |  |   | 931    |   |               |   | 216    |              |   | 16,283    |       |  |   |        |   |  |   | 16,283    |  
|                                     |  |              |           |   |        |   |             
|For the quarter ended March 31, 2004 |  |              |           |   |        |   |              |  |   |        |   |               |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Net sales from external customers    |  | $            | 288,266   |   |        | $ | 17,080       |  | $ | 23,227 |   |               | $ | 3,027  |              | $ | 331,600   |       |  | $ | (4,304  | ) |  | $ | 327,296   |  
|Intersegment net sales               |  |              | 3,944     |   |        |   |             |  |   |       |   |               |   | 360    |              |   | 4,304     |       |  |   | (4,304  | ) |  |   |          |  
|Operating income (loss)              |  |              | (11,034   | ) |        |   | 1,382        |  |   | 660    |   |               |   | 228    |              |   | (8,764    | )     |  |   |        |   |  |   | (8,764    | )
|Depreciation and amortization        |  |              | 13,347    |   |        |   | 923          |  |   | 1,351  |   |               |   | 191    |              |   | 15,812    |       |  |   |        |   |  |   | 15,812    |  
|Capital expenditures                 |  |              | 7,768     |   |        |   | 64           |  |   | 1,964  |   |               |   | 56     |              |   | 9,852     |       |  |   |        |   |  |   | 9,852     |  
|                                     |  |              |           |   |        |   |             
|At March 31, 2005                    |  |              |           |   |        |   |              |  |   |        |   |               |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Total assets                         |  | $            | 1,809,581 |   |        | $ | 89,726       |  | $ | 70,241 |   |               | $ | 12,259 |              | $ | 1,981,807 |       |  | $ | (48,628 | ) |  | $ | 1,933,179 |  
|                                     |  |              |           |   |        |   |             
|At December 31, 2004                 |  |              |           |   |        |   |              |  |   |        |   |               |   |        |              |   |           |       |  |   |         |   |  |   |           |  
|Total assets                         |  | $            | 1,771,207 |   |        | $ | 90,269       |  | $ | 78,762 |   |               | $ | 11,822 |              | $ | 1,952,060 |       |  | $ | (48,274 | ) |  | $ | 1,903,786 |  



(Continued)



14



---

(15) SEGMENTS (Continued)



|                                                                  |  |                                   |           |  
|----------------------------------------------------------------- |  | --------------------------------- | --------- | -
|(in thousands)                                                    |  | Three months ended March 31, 2005 |          
|Revenues:                                                         |  |                                   |           |  
|Total segments and other net sales                                |  | $                                 | 551,705   |  
|Eliminations of intersegment net sales                            |  |                                   | (5,612    | )
|                                                                  |  |                                   |           |  
|Total consolidated net sales                                      |  | $                                 | 546,093   |  
|                                                                  |  |                                   |           |  
|Operating loss:                                                   |  |                                   |           |  
|Total segment operating loss                                      |  | $                                 | (13,183   | )
|Interest expense, net of interest income of $89                   |  |                                   | (17,073   | )
|Foreign currency exchange loss, net                               |  |                                   | (807      | )
|Other income (expense), net                                       |  |                                   | 113       |  
|                                                                  |  |                                   |           |  
|Total consolidated loss before income taxes and minority interest |  | $                                 | (30,950   | )
|                                                                  |  |                                   |           |  
|                                                                  | 
|(in thousands)                                                    |  | At March 31, 2005                 |          
|Assets:                                                           |  |                                   |           |  
|Total segments                                                    |  | $                                 | 1,981,807 |  
|Eliminations of intersegment receivables                          |  |                                   | (48,628   | )
|                                                                  |  |                                   |           |  
|Total consolidated assets                                         |  | $                                 | 1,933,179 |  
|                                                                  |  |                                   |           |  





15



---

(16) GUARANTOR NOTE



On February 27, 2004, with an effective date of February 22, 2004, the Company acquired SF Holdings. The Company partially funded this acquisition through
the issuance of the 8.5% Senior Subordinated Notes. The 8.5% Senior Subordinated Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of the Companys subsidiaries. The consolidated guarantors include: Solo
Cup Company; Solo Management Company; P.R. SOLO CUP, INC.; SOLO TEXAS LLC; SF Holdings Group, Inc.; Sweetheart Cup Company, Inc.; Lily-Canada Holding Corporation; Cupcorp, Inc.; Newcup LLC; EMERALD LADY INC.; 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 March 31, 2005 (In thousands)
|                                               |  | Guarantors                                                         |           | Non- Guarantors |   | Eliminations |  |   | Consolidated
|Assets                                         |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Current assets:                                |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                                                                  | 8,689     |                 | $ | 8,286        |  | $ |             |   |  | $ | 16,975   
|Cash in escrow                                 |  |                                                                    | 15,000    |                 |   |             |  |   |             |   |  |   | 15,000   
|Accounts receivable:                           |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Trade                                          |  |                                                                    | 203,248   |                 |   | 37,617       |  |   |             |   |  |   | 240,865  
|Other                                          |  |                                                                    | 35,931    |                 |   |             |  |   | (12,678      | ) |  |   | 23,253   
|Inventories                                    |  |                                                                    | 350,546   |                 |   | 25,501       |  |   | (897         | ) |  |   | 375,150  
|Deferred income taxes                          |  |                                                                    | 51,334    |                 |   | 1,420        |  |   |             |   |  |   | 52,754   
|Prepaid expenses and other current assets      |  |                                                                    | 42,431    |                 |   | 5,429        |  |   |             |   |  |   | 47,860   
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Total current assets                           |  |                                                                    | 707,179   |                 |   | 78,253       |  |   | (13,575      | ) |  |   | 771,857  
|                                               |  |                                                                    |           |                
|Property, plant and equipment, net             |  |                                                                    | 733,614   |                 |   | 75,196       |  |   |             |   |  |   | 808,810  
|Goodwill and intangible assets, net            |  |                                                                    | 288,704   |                 |   | 3,047        |  |   |             |   |  |   | 291,751  
|Other assets                                   |  |                                                                    | 108,685   |                 |   | 3,765        |  |   | (51,689      | ) |  |   | 60,761   
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Total assets                                   |  | $                                                                  | 1,838,182 |                 | $ | 160,261      |  | $ | (65,264      | ) |  | $ | 1,933,179
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Liabilities and Shareholders Equity           |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Current liabilities:                           |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Accounts payable                               |  | $                                                                  | 157,819   |                 | $ | 34,286       |  | $ | (12,972      | ) |  | $ | 179,133  
|Accrued expenses and other current liabilities |  |                                                                    | 135,951   |                 |   | 15,054       |  |   |             |   |  |   | 151,005  
|Short-term debt                                |  |                                                                    |          |                 |   | 1,455        |  |   |             |   |  |   | 1,455    
|Current maturities of long-term debt           |  |                                                                    | 6,500     |                 |   | 2,224        |  |   |             |   |  |   | 8,724    
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Total current liabilities                      |  |                                                                    | 300,270   |                 |   | 53,019       |  |   | (12,972      | ) |  |   | 340,317  
|                                               |  |                                                                    |           |                
|Long-term debt, net of current maturities      |  |                                                                    | 1,024,731 |                 |   | 27,653       |  |   |             |   |  |   | 1,052,384
|Deferred income taxes                          |  |                                                                    | 29,114    |                 |   | 5,914        |  |   |             |   |  |   | 35,028   
|Other liabilities                              |  |                                                                    | 88,670    |                 |   | 20,966       |  |   | (13,519      | ) |  |   | 96,117   
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Total liabilities                              |  |                                                                    | 1,442,785 |                 |   | 107,552      |  |   | (26,491      | ) |  |   | 1,523,846
|                                               |  |                                                                    |           |                
|Minority interest                              |  |                                                                    |          |                 |   | 993          |  |   |             |   |  |   | 993      
|                                               |  |                                                                    |           |                
|Shareholders equity:                          |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Common stock                                   |  |                                                                    |          |                 |   | 2,114        |  |   | (2,114       | ) |  |   |         
|Additional paid-in capital                     |  |                                                                    | 259,269   |                 |   | 27,250       |  |   | (27,250      | ) |  |   | 259,269  
|Retained earnings                              |  |                                                                    | 134,002   |                 |   | 18,320       |  |   | (9,409       | ) |  |   | 142,913  
|Accumulated other comprehensive income         |  |                                                                    | 2,126     |                 |   | 4,032        |  |   |             |   |  |   | 6,158    
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Total shareholders equity                     |  |                                                                    | 395,397   |                 |   | 51,716       |  |   | (38,773      | ) |  |   | 408,340  
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          
|Total liabilities and shareholders equity     |  | $                                                                  | 1,838,182 |                 | $ | 160,261      |  | $ | (65,264      | ) |  | $ | 1,933,179
|                                               |  |                                                                    |           |                 |   |              |  |   |              |   |  |   |          



(Continued)



16



---

(16) GUARANTOR NOTE (Continued)



|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|---------------------------------------------- |  | --------------------------------------------------------------------- | --------- | -------------- | - | ------------ |  | - | ------------ | - |  | - | ---------
|                                               |  | Condensed Consolidated Balance Sheet December 31, 2004 (In thousands)
|                                               |  | Guarantors                                                            |           | Non-Guarantors |   | Eliminations |  |   | Consolidated
|Assets                                         |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Current assets:                                |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Cash and cash equivalents                      |  | $                                                                     | 9,541     |                | $ | 6,314        |  | $ |             |   |  | $ | 15,855   
|Cash in escrow                                 |  |                                                                       | 15,000    |                |   |             |  |   |             |   |  |   | 15,000   
|Accounts receivable:                           |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Trade                                          |  |                                                                       | 183,583   |                |   | 38,963       |  |   |             |   |  |   | 222,546  
|Other                                          |  |                                                                       | 31,606    |                |   | 2,385        |  |   | (7,037       | ) |  |   | 26,954   
|Inventories                                    |  |                                                                       | 332,725   |                |   | 19,820       |  |   | (168         | ) |  |   | 352,377  
|Deferred income taxes                          |  |                                                                       | 51,333    |                |   | 1,261        |  |   |             |   |  |   | 52,594   
|Prepaid expenses and other current assets      |  |                                                                       | 40,884    |                |   | 6,327        |  |   |             |   |  |   | 47,211   
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Total current assets                           |  |                                                                       | 664,672   |                |   | 75,070       |  |   | (7,205       | ) |  |   | 732,537  
|                                               |  |                                                                       |           |               
|Property, plant and equipment, net             |  |                                                                       | 758,204   |                |   | 70,546       |  |   |             |   |  |   | 828,750  
|Goodwill and intangible assets                 |  |                                                                       | 274,047   |                |   | 3,233        |  |   |             |   |  |   | 277,280  
|Restricted cash                                |  |                                                                       | 1,905     |                |   |             |  |   |             |   |  |   | 1,905    
|Other assets                                   |  |                                                                       | 110,923   |                |   | 6,852        |  |   | (54,461      | ) |  |   | 63,314   
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Total assets                                   |  | $                                                                     | 1,809,751 |                | $ | 155,701      |  | $ | (61,666      | ) |  | $ | 1,903,786
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Liabilities and Shareholders Equity           |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Current liabilities:                           |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Accounts payable                               |  | $                                                                     | 131,621   |                | $ | 25,903       |  | $ | (7,041       | ) |  | $ | 150,483  
|Accrued expenses and other current liabilities |  |                                                                       | 150,725   |                |   | 16,449       |  |   |             |   |  |   | 167,174  
|Short-term debt                                |  |                                                                       |          |                |   | 3,603        |  |   |             |   |  |   | 3,603    
|Current maturities of long-term debt           |  |                                                                       | 6,500     |                |   | 3,278        |  |   |             |   |  |   | 9,778    
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Total current liabilities                      |  |                                                                       | 288,846   |                |   | 49,233       |  |   | (7,041       | ) |  |   | 331,038  
|                                               |  |                                                                       |           |               
|Long-term debt, less current maturities        |  |                                                                       | 975,992   |                |   | 28,755       |  |   |             |   |  |   | 1,004,747
|Deferred income taxes                          |  |                                                                       | 56,405    |                |   | 2,025        |  |   |             |   |  |   | 58,430   
|Other liabilities                              |  |                                                                       | 73,419    |                |   | 34,773       |  |   | (26,844      | ) |  |   | 81,348   
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Total liabilities                              |  |                                                                       | 1,394,662 |                |   | 114,786      |  |   | (33,885      | ) |  |   | 1,475,563
|                                               |  |                                                                       |           |               
|Minority interest                              |  |                                                                       |          |                |   | 1,073        |  |   |             |   |  |   | 1,073    
|                                               |  |                                                                       |           |               
|Shareholders equity:                          |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Common stock                                   |  |                                                                       |          |                |   | 2,114        |  |   | (2,114       | ) |  |   |         
|Additional paid-in capital                     |  |                                                                       | 259,080   |                |   | 16,630       |  |   | (16,630      | ) |  |   | 259,080  
|Retained earnings                              |  |                                                                       | 153,887   |                |   | 16,631       |  |   | (9,037       | ) |  |   | 161,481  
|Accumulated other comprehensive income         |  |                                                                       | 2,122     |                |   | 4,467        |  |   |             |   |  |   | 6,589    
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Total shareholders equity                     |  |                                                                       | 415,089   |                |   | 39,842       |  |   | (27,781      | ) |  |   | 427,150  
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          
|Total liabilities and shareholders equity     |  | $                                                                     | 1,809,751 |                | $ | 155,701      |  | $ | (61,666      | ) |  | $ | 1,903,786
|                                               |  |                                                                       |           |                |   |              |  |   |              |   |  |   |          



(Continued)



17



---

(16) GUARANTOR NOTE (Continued)



|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | ------- | - | -------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------- | -
|                                                        |  | Consolidated Statement of Operations and Comprehensive Income (Loss) Three months ended March 31,
2005 (In thousands) |        
|                                                        |  | Guarantors                                                                                                            |         |   | Non-Guarantors |   |        | Eliminations |  |   | Consolidated |  
|Net sales                                               |  | $                                                                                                                     | 501,657 |   |                | $ | 57,546 |              |  | $ | (13,110      | ) |  | $ | 546,093 |  
|Cost of goods sold                                      |  |                                                                                                                       | 460,198 |   |                |   | 50,112 |              |  |   | (12,712      | ) |  |   | 497,598 |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Gross profit                                            |  |                                                                                                                       | 41,459  |   |                |   | 7,434  |              |  |   | (398         | ) |  |   | 48,495  |  
|                                                        |  |                                                                                                                       |         |  
|Selling, general and administrative expenses            |  |                                                                                                                       | 55,211  |   |                |   | 5,719  |              |  |   | (26          | ) |  |   | 60,904  |  
|Loss on sale of property, plant and equipment           |  |                                                                                                                       | 768     |   |                |   | 6      |              |  |   |             |   |  |   | 774     |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Operating income (loss)                                 |  |                                                                                                                       | (14,520 | ) |                |   | 1,709  |              |  |   | (372         | ) |  |   | (13,183 | )
|                                                        |  |                                                                                                                       |         |  
|Interest expense, net                                   |  |                                                                                                                       | 16,754  |   |                |   | 319    |              |  |   |             |   |  |   | 17,073  |  
|Foreign currency exchange loss (gain), net              |  |                                                                                                                       | 1,236   |   |                |   | (429   | )            |  |   |             |   |  |   | 807     |  
|Other (income) expense, net                             |  |                                                                                                                       | (1      | ) |                |   | (112   | )            |  |   |             |   |  |   | (113    | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Income before income taxes and minority interest        |  |                                                                                                                       | (32,509 | ) |                |   | 1,931  |              |  |   | (372         | ) |  |   | (30,950 | )
|                                                        |  |                                                                                                                       |         |  
|Income tax (benefit) provision                          |  |                                                                                                                       | (12,624 | ) |                |   | 244    |              |  |   |              |   |  |   | (12,380 | )
|Minority interest                                       |  |                                                                                                                       |        |   |                |   | (2     | )            |  |   |             |   |  |   | (2      | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Net income (loss)                                       |  | $                                                                                                                     | (19,885 | ) |                | $ | 1,689  |              |  | $ | (372         | ) |  | $ | (18,568 | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Other comprehensive income (loss):                      |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Net income (loss)                                       |  | $                                                                                                                     | (19,885 | ) |                | $ | 1,689  |              |  | $ | (372         | ) |  | $ | (18,568 | )
|Other comprehensive (loss) income                       |  |                                                                                                                       | (2,367  | ) |                |   | 1,936  |              |  |   |             |   |  |   | (431    | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Comprehensive income (loss)                             |  | $                                                                                                                     | (22,252 | ) |                | $ | 3,625  |              |  | $ | (372         | ) |  | $ | (18,999 | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|                                                        | 
|                                                        |  | Consolidated Statement of Operations and Comprehensive Income (Loss) Three months ended March 31,
2004 (In thousands) |        
|                                                        |  | Guarantors                                                                                                            |         |   | Non-Guarantors |   |        | Eliminations |  |   | Consolidated |  
|Net sales                                               |  | $                                                                                                                     | 294,356 |   |                | $ | 37,616 |              |  | $ | (4,676       | ) |  | $ | 327,296 |  
|Cost of goods sold                                      |  |                                                                                                                       | 263,326 |   |                |   | 31,615 |              |  |   | (4,569       | ) |  |   | 290,372 |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Gross profit                                            |  |                                                                                                                       | 31,030  |   |                |   | 6,001  |              |  |   | (107         | ) |  |   | 36,924  |  
|                                                        |  |                                                                                                                       |         |  
|Selling, general and administrative expenses            |  |                                                                                                                       | 41,843  |   |                |   | 3,875  |              |  |   | (30          | ) |  |   | 45,688  |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Operating income (loss)                                 |  |                                                                                                                       | (10,813 | ) |                |   | 2,126  |              |  |   | (77          | ) |  |   | (8,764  | )
|                                                        |  |                                                                                                                       |         |  
|Interest expense, net                                   |  |                                                                                                                       | 8,047   |   |                |   | 299    |              |  |   |             |   |  |   | 8,346   |  
|Prepayment penalties                                    |  |                                                                                                                       | 30,690  |   |                |   |       |              |  |   |             |   |  |   | 30,690  |  
|Foreign currency exchange gain, net                     |  |                                                                                                                       | (1,042  | ) |                |   | (332   | )            |  |   |             |   |  |   | (1,374  | )
|Other expense, net                                      |  |                                                                                                                       | 960     |   |                |   | 724    |              |  |   |             |   |  |   | 1,684   |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Income (loss) before income taxes and minority interest |  |                                                                                                                       | (49,468 | ) |                |   | 1,435  |              |  |   | (77          | ) |  |   | (48,110 | )
|                                                        |  |                                                                                                                       |         |  
|Income tax expense                                      |  |                                                                                                                       | 9,740   |   |                |   | 808    |              |  |   |             |   |  |   | 10,548  |  
|Minority interest                                       |  |                                                                                                                       |        |   |                |   | 11     |              |  |   |             |   |  |   | 11      |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Net income (loss)                                       |  | $                                                                                                                     | (59,208 | ) |                | $ | 616    |              |  | $ | (77          | ) |  | $ | (58,669 | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Other comprehensive income (loss):                      |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Net income (loss)                                       |  | $                                                                                                                     | (59,208 | ) |                | $ | 616    |              |  | $ | (77          | ) |  | $ | (58,669 | )
|Other comprehensive income (loss)                       |  |                                                                                                                       | 4,024   |   |                |   | (1,728 | )            |  |   |             |   |  |   | 2,296   |  
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  
|Comprehensive loss                                      |  | $                                                                                                                     | (55,184 | ) |                | $ | (1,112 | )            |  | $ | (77          | ) |  | $ | (56,373 | )
|                                                        |  |                                                                                                                       |         |   |                |   |        |              |  |   |              |   |  |   |         |  



(Continued)



18



---

(16) GUARANTOR NOTE (Continued)



|                                                     |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|---------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ------- | - | --------------- | - | ------ | ------------ |  | - | ------- | -
|                                                     |  | Condensed Consolidated Statement of Cash Flows Three months ended March 31, 2005 (In thousands) |        
|                                                     |  | Guarantors                                                                                      |         |   | Non- Guarantors |   |        | Consolidated | 
|CASH FLOWS FROM OPERATING ACTIVITIES                 |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|                                                     |  |                                                                                                 |        
|Net cash (used in) provided by operating activities  |  | $                                                                                               | (41,672 | ) |                 | $ | 7,748  |              |  | $ | (33,924 | )
|                                                     |  |                                                                                                 |        
|CASH FLOWS FROM INVESTING ACTIVITIES                 |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|                                                     |  |                                                                                                 |        
|Purchase of property, plant and equipment            |  |                                                                                                 | (13,950 | ) |                 |   | (2,333 | )            |  |   | (16,283 | )
|Proceeds from sale of property, plant and equipment  |  |                                                                                                 | 5,614   |   |                 |   |       |              |  |   | 5,614   |  
|                                                     |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|Net cash used in investing activities                |  |                                                                                                 | (8,336  | ) |                 |   | (2,333 | )            |  |   | (10,669 | )
|                                                     |  |                                                                                                 |        
|CASH FLOWS FROM FINANCING ACTIVITIES                 |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|                                                     |  |                                                                                                 |        
|Net borrowings under revolving credit facilities     |  |                                                                                                 | 49,773  |   |                 |   | (344   | )            |  |   | 49,429  |  
|Contribution of capital from parent                  |  |                                                                                                 | 100     |   |                 |   |       |              |  |   | 100     |  
|Repayments of the term notes                         |  |                                                                                                 | (1,619  | ) |                 |   | (787   | )            |  |   | (2,406  | )
|Repayments of other debt                             |  |                                                                                                 |        |   |                 |   | (2,233 | )            |  |   | (2,233  | )
|Debt issuance costs                                  |  |                                                                                                 | (1,044  | ) |                 |   | (2     | )            |  |   | (1,046  | )
|Decrease in restricted cash                          |  |                                                                                                 | 1,905   |   |                 |   |       |              |  |   | 1,905   |  
|                                                     |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|Net cash provided by (used in) financing activities  |  |                                                                                                 | 49,115  |   |                 |   | (3,366 | )            |  |   | 45,749  |  
|                                                     |  |                                                                                                 |        
|Effect of exchange rate changes on cash              |  |                                                                                                 | 41      |   |                 |   | (77    | )            |  |   | (36     | )
|                                                     |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |  |                                                                                                 | (852    | ) |                 |   | 1,972  |              |  |   | 1,120   |  
|                                                     |  |                                                                                                 |        
|Cash and cash equivalents, beginning of period       |  |                                                                                                 | 9,541   |   |                 |   | 6,314  |              |  |   | 15,855  |  
|                                                     |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  
|Cash and cash equivalents, end of period             |  | $                                                                                               | 8,689   |   |                 | $ | 8,286  |              |  | $ | 16,975  |  
|                                                     |  |                                                                                                 |         |   |                 |   |        |              |  |   |         |  



(Continued)



19



---

(16) GUARANTOR NOTE (Continued)



|                                                        |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | -------- | - | --------------- | - | ------ | ------------ |  | - | -------- | -
|                                                        |  | Condensed Consolidated Statement of Cash Flows Three months ended March 31, 2004 (In thousands) |         
|                                                        |  | Guarantors                                                                                      |          |   | Non- Guarantors |   |        | Consolidated | 
|CASH FLOWS FROM OPERATING ACTIVITIES                    |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|                                                        |  |                                                                                                 |         
|Net cash (used in) provided by operating activities     |  | $                                                                                               | (79,991  | ) |                 | $ | 3,263  |              |  | $ | (76,728  | )
|                                                        |  |                                                                                                 |         
|CASH FLOWS FROM INVESTING ACTIVITIES                    |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|                                                        |  |                                                                                                 |         
|Payment for business acquisitions, net of cash acquired |  |                                                                                                 | (869,814 | ) |                 |   |       |              |  |   | (869,814 | )
|Purchase of property, plant and equipment               |  |                                                                                                 | (7,810   | ) |                 |   | (2,042 | )            |  |   | (9,852   | )
|Proceeds from sale of property, plant and equipment     |  |                                                                                                 | 251      |   |                 |   | 676    |              |  |   | 927      |  
|Increase in cash in escrow                              |  |                                                                                                 | (4,997   | ) |                 |   |       |              |  |   | (4,997   | )
|                                                        |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|Net cash used in investing activities                   |  |                                                                                                 | (882,370 | ) |                 |   | (1,366 | )            |  |   | (883,736 | )
|                                                        |  |                                                                                                 |         
|CASH FLOWS FROM FINANCING ACTIVITIES                    |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|                                                        |  |                                                                                                 |         
|Net borrowings under revolving credit facilities        |  |                                                                                                 | 53,000   |   |                 |   |       |              |  |   | 53,000   |  
|Borrowings under the term notes                         |  |                                                                                                 | 650,000  |   |                 |   |       |              |  |   | 650,000  |  
|Borrowings under the 8.5% Senior Subordinated Notes     |  |                                                                                                 | 325,000  |   |                 |   |       |              |  |   | 325,000  |  
|Borrowings under the Securitization Facility            |  |                                                                                                 | 5,000    |   |                 |   |       |              |  |   | 5,000    |  
|Borrowings under the 364-day revolving credit agreement |  |                                                                                                 | 16,500   |   |                 |   |       |              |  |   | 16,500   |  
|Proceeds from sale of common stock                      |  |                                                                                                 | 229,627  |   |                 |   |       |              |  |   | 229,627  |  
|Repayments of the 7.08% Senior Notes                    |  |                                                                                                 | (160,000 | ) |                 |   |       |              |  |   | (160,000 | )
|Repayments of the 3.67% Yen-denominated Senior Notes    |  |                                                                                                 | (44,170  | ) |                 |   |       |              |  |   | (44,170  | )
|Repayments of the interest rate swap                    |  |                                                                                                 | (1,656   | ) |                 |   |       |              |  |   | (1,656   | )
|Repayments of the Securitization Facility               |  |                                                                                                 | (27,800  | ) |                 |   |       |              |  |   | (27,800  | )
|Repayments of the 364-day revolving credit agreement    |  |                                                                                                 | (29,500  | ) |                 |   |       |              |  |   | (29,500  | )
|Repayments of other debt                                |  |                                                                                                 | (4,164   | ) |                 |   | 3,914  |              |  |   | (250     | )
|Debt issuance costs                                     |  |                                                                                                 | (30,584  | ) |                 |   |       |              |  |   | (30,584  | )
|Dividends paid                                          |  |                                                                                                 | (13,000  | ) |                 |   |       |              |  |   | (13,000  | )
|Decrease in restricted cash                             |  |                                                                                                 | 234      |   |                 |   |       |              |  |   | 234      |  
|                                                        |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|Net cash provided by financing activities               |  |                                                                                                 | 968,487  |   |                 |   | 3,914  |              |  |   | 972,401  |  
|                                                        |  |                                                                                                 |         
|Effect of exchange rate changes on cash                 |  |                                                                                                 | 10       |   |                 |   | 48     |              |  |   | 58       |  
|                                                        |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS               |  |                                                                                                 | 6,136    |   |                 |   | 5,859  |              |  |   | 11,995   |  
|                                                        |  |                                                                                                 |         
|Cash and cash equivalents, beginning of period          |  |                                                                                                 | 1,987    |   |                 |   | 1,282  |              |  |   | 3,269    |  
|                                                        |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  
|Cash and cash equivalents, end of period                |  | $                                                                                               | 8,123    |   |                 | $ | 7,141  |              |  | $ | 15,264   |  
|                                                        |  |                                                                                                 |          |   |                 |   |        |              |  |   |          |  





20



---

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



Refer to the Companys 2004 Form 10-K for managements discussion
and analysis of the financial condition and results of operations of the Company and its subsidiaries for the year ended December 31, 2004. The following is managements discussion and analysis of the financial condition and results of
operations of the Company for the quarter ended March 31, 2005.



General



On February 27, 2004, with an effective date of
February 22, 2004, we acquired 100.0% of the outstanding capital stock of SF Holdings Group, Inc. (SF Holdings Acquisition). For the quarter ended March 31, 2004, our consolidated financial position and results of operations include the
accounts of SF Holdings for the period from February 22, 2004 to March 28, 2004. Our discussion of 2005 results compared to 2004 results is primarily driven by the effect of the SF Holdings Acquisition. Amounts for the three months ended March 31,
2004 include the results of SF Holdings from February 22, 2004 to March 28, 2004. Amounts for the three months ended March 31, 2005 include the results of SF Holdings for the entire period.



We are a leading global producer and marketer of disposable foodservice
products and have served our industry for over 60 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®, 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. In addition to our branded products, we provide a majority of our product lines to our customers under private label. We currently operate manufacturing facilities and warehouse
distribution centers in North America, Japan, the United Kingdom and Panama, and we sell our products worldwide.



Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004



|                                               |  |                             |         |   |                         |   |         |   |  |   |          |   |  |  |        |  
|---------------------------------------------- |  | --------------------------- | ------- | - | ----------------------- | - | ------- | - |  | - | -------- | - |  |  | ------ | -
|                                               |  | Three months endedMarch 31, |         |   | Favorable/(Unfavorable) |  
|                                               |  | 2005                        |         |   | 2004 (1)                |   |         | $ |  |   | %        |  
|Net sales                                      |  | $                           | 546,093 |   |                         | $ | 327,296 |   |  | $ | 218,797  |   |  |  | 66.8   | %
|Cost of goods sold                             |  |                             | 497,598 |   |                         |   | 290,372 |   |  |   | (207,226 | ) |  |  | (71.4  | )
|                                               |  |                             |         |   |                         |   |         |   |  |   |          |   |  |  |        |  
|Gross profit                                   |  |                             | 48,495  |   |                         |   | 36,924  |   |  |   | 11,571   |   |  |  | 31.3   |  
|                                               |  |                             |         |  
|Selling, general and administrative expenses   |  |                             | 60,904  |   |                         |   | 45,685  |   |  |   | (15,219  | ) |  |  | (33.3  | )
|Loss on sale of property, plant and equipment  |  |                             | 774     |   |                         |   | 3       |   |  |   | (771     | ) |  |  |        | *
|                                               |  |                             |         |   |                         |   |         |   |  |   |          |   |  |  |        |  
|Operating loss                                 |  |                             | (13,183 | ) |                         |   | (8,764  | ) |  |   | (4,419   | ) |  |  | (50.4  | )
|                                               |  |                             |         |  
|Interest expense, net                          |  |                             | 17,073  |   |                         |   | 8,346   |   |  |   | (8,727   | ) |  |  | (104.6 | )
|Prepayment penalties                           |  |                             |        |   |                         |   | 30,690  |   |  |   | 30,690   |   |  |  |        | *
|Loss on debt extinguishment                    |  |                             |        |   |                         |   | 916     |   |  |   | 916      |   |  |  |        | *
|Foreign currency exchange loss (gain), net     |  |                             | 807     |   |                         |   | (1,374  | ) |  |   | (2,181   | ) |  |  | (158.7 | )
|Other (income) expense, net                    |  |                             | (113    | ) |                         |   | 768     |   |  |   | 881      |   |  |  | 114.7  |  
|                                               |  |                             |         |   |                         |   |         |   |  |   |          |   |  |  |        |  
|Loss before income taxes and minority interest |  |                             | (30,950 | ) |                         |   | (48,110 | ) |  |   | 17,160   |   |  |  | 35.7   |  
|                                               |  |                             |         |  
|Income tax (benefit) provision                 |  |                             | (12,380 | ) |                         |   | 10,548  |   |  |   | 22,928   |   |  |  | 217.4  |  
|Minority interest                              |  |                             | (2      | ) |                         |   | 11      |   |  |   | 13       |   |  |  | 118.2  |  
|                                               |  |                             |         |   |                         |   |         |   |  |   |          |   |  |  |        |  
|Net loss                                       |  | $                           | (18,568 | ) |                         | $ | (58,669 | ) |  | $ | 40,101   |   |  |  | 68.4   | %
|                                               |  |                             |         |   |                         |   |         |   |  |   |          |   |  |  |        |  

---

|(1) | Our discussion of 2005 results compared to 2004 results is primarily driven by the effect of the SF Holdings Acquisition. Amounts for the three months ended March 31, 2004 include
the results of SF Holdings from February 22, 2004 to March 28, 2004. Amounts for the three months ended March 31, 2005 include the results of SF Holdings for the entire period.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



21



---

Net sales increased $218.8 million for the three months ended March 31, 2005 compared to the prior year
period. This includes $185.8 million of increased sales volume resulting from the SF Holdings Acquisition. The remaining increase in net sales of $33.0 million, or 10.1%, reflected a 16.0% increase in average realized sales price offset by a 5.9%
decrease in sales volume as compared to the three months ended March 31, 2004. The increase in average realized sales price reflects the impact of pricing increases implemented in response to higher raw material costs, while the decrease in volume
reflects the impact of competitive pressure.



For the three
months ended March 31, 2005, gross profit increased $11.6 million compared to the prior year period. This includes a $21.4 million increase resulting from the SF Holdings Acquisition partially offset by the impact of our inability to pass through
all raw material cost increases due to competitive pressure. As a percentage of net sales, gross profit was 8.9% in the first quarter of 2005 versus 11.3% in the first quarter of 2004.



Selling, general and administrative expenses increased $15.2 million for the three months ended March 31, 2005 compared to
the prior year period. This increase includes $15.6 million of expenses associated with the SF Holdings Acquisition. As a percentage of net sales, selling, general and administrative expenses were 11.2% in the first quarter of 2005 versus 14.0% in
the first quarter of 2004. Integration costs totaled $7.9 million for the three months ended March 31, 2005 compared to $7.2 million for the three months ended March 31, 2004.



For the three months ended March 31, 2005, interest expense, net increased $8.7 million compared to the prior year period.
This increase is primarily attributed to borrowings under the Companys Senior Credit Facility and the additional interest associated with the 8.5% Senior Subordinated Notes issued in connection with the SF Holdings Acquisition.



Prepayment penalties were $30.7 million for the three months ended March 31,
2004. This expense was attributed to the prepayment fees associated with early extinguishment of the 7.08% senior notes due 2011 and the 3.67% Yen-denominated senior notes due 2008.



Loss on debt extinguishment was $0.9 million for the three months ended March 31, 2004. This loss was due to the write off
of debt issuance costs resulting from the extinguishment of 7.08% senior notes due 2011 and 3.67% Yen-denominated senior notes due 2008.



For the three months ended March 31, 2005, an income tax benefit of $12.4 million was recorded as a result of the loss before income taxes and minority
interest of $31.0 million compared to an income tax provision of $10.5 million for the three months ended March 31, 2004. Income tax provision for the three months ended March 31, 2004 resulted primarily from a $29.8 million expense due to the
Companys change in tax filing status from subchapter S to subchapter C of the Internal Revenue Code in the United States. This expense was partially offset by a tax benefit of $6.9 million resulting from the three month operating loss.



Liquidity and Capital Resources



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



Net cash used in operating activities during the three months ended March 31, 2005 was $33.9 million compared to $76.7 million during the three months
ended March 31, 2004. The decrease in net cash used in operating activities from the prior period resulted primarily from the $58.7 million net loss in the three months ended March 31, 2004 compared to the $18.6 million net loss in the three months
ended March 31, 2005.



Cash flows from operating activities
during the three months ended March 31, 2005 include agreed-upon payments of $5.3 million resulting from the settlement with DSC Logistics, Inc. and related payments of approximately $1.3 million for attorney fees and contract execution costs.



Working capital increased $30.0 million to $431.5 million at
March 31, 2005 from $401.5 million at December 31, 2004. The increase reflects higher accounts receivable and inventory balances, as well as lower accrued expenses, partially offset by higher accounts payable. The activity in inventory and accounts
payable was primarily driven by higher raw material costs, which is also reflected in higher accounts receivable. To a lesser extent, increased inventory levels were the result of our manufacturing facilities integration. The reduction in accrued
expenses was driven by interest paid on the Senior Credit Facility in conjunction with the amendment to the term loan effective March 31, 2005.



22



---

Net cash used in investing activities during the three months ended March 31, 2005 was $10.7 million.
During the three months ended March 31, 2004, net cash used in investing activities was $883.7 million, which includes $869.8 million for the SF Holdings Acquisition.



Capital expenditures during the three months ended March 31, 2005 were $16.3 million compared to $9.9 million during the
three months ended March 31, 2004. Capital expenditures during the three months ended March 31, 2005 included $10.3 million for new production equipment, $0.7 million for routine capital improvements, $4.0 million for renovations and equipment
conversions, $0.8 million for building and land improvements, and $0.5 million for various other projects. Capital expenditures funding was primarily provided by the revolving credit borrowings. For the remainder of 2005, the Company intends to rely
on cash provided by operations and the revolving credit borrowings for its capital expenditures.



Net cash provided by financing activities during the three months ended March 31, 2005 was $45.7 million compared to $972.4 million during the three
months ended March 31, 2004. This decrease resulted primarily from 2004 activity related to the SF Holdings Acquisition including (i) borrowings under the Companys credit facilities, (ii) the issuance of the 8.5% senior subordinated notes due
2014 and (iii) proceeds from the sale of common stock. This activity was partially offset by (i) repayment of the 7.08% senior notes due 2011, (ii) repayment of the 3.67% Yen-denominated senior notes due 2008, (iii) repayment of a $27.8 million
securitization facility, (iv) payment of debt issuance costs and (vi) payment of dividends.



Short-term debt



At
March 31, 2005, we had approximately 156.0 million Yen (approximately $1.5 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 0.82% and 1.375% per year.



Long-term debt



The following is a summary of
our long-term debt at March 31, 2005 (in thousands):



|                                            |  |                |          
|------------------------------------------- |  | -------------- | ---------
|                                            |  | March 31, 2005
|Long-term debt:                             |  |                |          
|8.5% Senior Subordinated Notes              |  | $              | 325,000  
|Senior Credit Facility  Term Loan          |  |                | 643,500  
|Senior Credit Facility  Revolver           |  |                | 78,500   
|Canadian Credit Facility  Term Loan        |  |                | 10,321   
|Canadian Credit Facility  Revolver         |  |                | 618      
|Capital lease obligations                   |  |                | 3,169    
|                                            |  |                |          
|Total long-term debt                        |  |                | 1,061,108
|Less - Current maturities of long-term debt |  |                | 8,724    
|                                            |  |                |          
|Long-term debt, net of current maturities   |  | $              | 1,052,384
|                                            |  |                |          



23



---

The following is a summary of our committed revolving credit facilities at March 31, 2005 (in thousands):



|                          |  |                  |         |                    |   |                      |  |                |        |  |   |       
|------------------------- |  | ---------------- | ------- | ------------------ | - | -------------------- |  | -------------- | ------ |  | - | ------
|                          |  | CommitmentAmount |         | AmountsOutstanding |   | Letters ofCredit (1) |  | UnusedCapacity
|Senior Credit Facility:   |  |                  |         |                    |   |                      |  |                |        |  |   |       
|Revolving facility        |  | $                | 150,000 |                    | $ | 78,500               |  | $              | 13,650 |  | $ | 57,850
|Canadian Credit Facility: |  |                  |         |                    |   |                      |  |                |        |  |   |       
|Revolving facility        |  |                  | 8,130   |                    |   | 618                  |  |                |       |  |   | 7,512 
|                          |  |                  |         |                    |   |                      |  |                |        |  |   |       
|                          |  | $                | 158,130 |                    | $ | 79,118               |  | $              | 13,650 |  | $ | 65,362
|                          |  |                  |         |                    |   |                      |  |                |        |  |   |       

---

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



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
our option. Term loan borrowings bear interest at the Canadian prime rate plus 0.75% or the Canadian bankers acceptance rate plus 2.00%, at our option. As of March 31, 2005, borrowings under the revolving credit facility and the term loan carried
effective interest rates of 4.32% and 4.57%, respectively. As of March 31, 2005, CAD 9.1 million (approximately $7.5 million) was available under the revolving facility and the term loan balance was CAD 12.5 million (approximately $10.3 million).



Senior Credit 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 (Senior Credit Facility). The revolver is principally used for working capital purposes, and the term loan was used to
finance the acquisition and related transactions.



On March 31,
2005, we entered into an agreement to amend the Senior Credit Facility. The amendment changes the borrowing margin used to calculate interest on the term loans under the Senior Credit Facility. For purposes of calculating interest, term loans under
the Senior Credit Facility are designated as Eurodollar rate loans or, in certain circumstances, base rate loans. Under the original agreement, Eurodollar rate loans bore interest at the British Bankers Association Interest Settlement Rate for
deposits in dollars plus a borrowing margin. Base rate loans bore interest at (a) the greater of (i) the rate most recently announced by Bank of America as its prime rate or (ii) the Federal Funds Rate plus 1⁄2 of 1% per annum, plus
(b) a borrowing margin. The margin for term loans was a range based on the Companys leverage ratio. For Eurodollar rate loans, the range was 2.25% to 2.50%. For base rate loans, the range was 1.25% to 1.50%. The terms of the amendment provide
that the borrowing margin for term loans be 2.00% on Eurodollar rate loans and 1.00% on base rate loans.



The amendment also changes the schedule for quarterly principal payments. The original agreement provided scheduled principal payments of $1.625 million
per quarter through February 27, 2006, $6.25 million per quarter from May 27, 2006 through February 27, 2008, and $12.5 million per quarter from May 27, 2008 through November 27, 2010, with a balloon payment of $449.5 million due on February 27,
2011. The terms of the amendment provide for scheduled principal payments of $1.625 million per quarter through November 27, 2010, with a balloon payment of $606.125 million due on February 27, 2011. All mandatory quarterly prepayments have been
made to date.



As of March 31, 2005, the weighted average
annual interest rate applicable to Eurodollar rate loans was 5.63% and the weighted average annual interest rate applicable to base rate loans was 7.50%. During the quarter ended March 31, 2005, the weighted average annual interest rate for the
Senior Credit Facility was 5.14%. At March 31, 2005, the interest rate on the term loan facility was 5.63% and 6.50% on the revolving credit facility.



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 credit facility or the term
loan in million dollar increments with a minimum prepayment of $10.0 million.



24



---

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 three months ended March 31, 2005, 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 Senior Credit Facility requires us to fix the interest rate for a portion
of the borrowings. Accordingly, on March 10, 2004, the Company entered into an interest rate swap agreement to hedge the cash flows associated with the interest payments on $180.0 million of the Eurodollar rate based borrowings. Also, on June 1,
2004, we entered into an interest rate cap agreement to hedge the cash flows associated with the interest payments on $30.0 million of the Eurodollar rate based borrowings. This interest rate cap agreement expired on March 31, 2005. On March 31,
2005, we entered into a new interest rate cap agreement with a total notional amount of $35.0 million. Under this interest rate cap agreement, we receive variable interest rate payments when the three-month Eurodollar rises above 5.0%. This interest
rate cap agreement is in effect through March 31, 2006.



Outlook



Management believes that cash
generated by operations, amounts available under our credit facilities and funds generated from asset sales should be sufficient to meet our expected operating needs, planned capital expenditures, payments in conjunction with our lease commitments
and debt service requirements over the next twelve months.



Net Operating
Loss Carryforwards



As of March 31, 2005, we had
approximately $159.8 million of net operating loss carry-forwards for U.S. federal income tax purposes that expire between 2016 and 2024. Approximately $97.5 million of such carry-forwards are subject to the provisions of Internal Revenue Code
Section 382. Although future earnings cannot be predicted with certainty, management currently believes that realization of the net deferred tax assets is more likely than not.



Critical Accounting Estimates



The Companys critical accounting estimates are described in its 2004 Form 10-K. There have been no changes to the critical accounting estimates
since that filing.



Item 3. Quantitative and Qualitative Disclosures About
Market Risk.



In the ordinary course of business, the
Company has financial instruments that are sensitive to market risk, which consists primarily of interest rate risk associated with its variable rate debt. The Senior Credit Facility and the Canadian Credit Facility both include a revolving and term
credit facility, which bear interest at a variable rate. The interest rate on the Senior Credit 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.
The margin varies from 2.0% to 2.75% on the Eurodollar rate borrowing and from 1.0% to 1.75% on the base rate borrowings depending on the Companys leverage ratio. 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.



The Senior Credit 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. Also, on June 1, 2004 we



25



---

entered into an interest rate cap agreement with a total notional amount of $30.0 million under which we receive variable
interest rate payments when the three month Eurodollar rate rises above 4.0%. This interest rate cap agreement expired on March 31, 2005. On March 31, 2005, we entered into a new interest rate cap agreement with a total notional amount of $35.0
million. Under this interest rate cap agreement, we receive variable interest rate payments when the three-month Eurodollar rises above 5.0%. This interest rate cap agreement is in effect through March 31, 2006. At March 31, 2005, the interest rate
on borrowings under the term loan was 5.63%, and the interest rate on borrowings under the revolving credit facility was 6.50%.



As of March 31, 2005, the outstanding indebtedness under the Senior Credit Facility was $722.0 million and $57.9 million was available under the Senior
Credit Facility. As of March 31, 2005, the outstanding indebtedness under the Canadian Credit facility was CAD 13.3 million (approximately $10.9 million) and CAD 9.1 million (approximately $7.5 million) was available under the Canadian Credit
Facility. Based upon these amounts, the annual net income would change by approximately $3.2 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.



SPECIAL NOTE REGARDING 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. These risks and uncertainties include, but are not limited to:



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



| |  |  | successful integration of Solo Illinois and SF Holdings and realization of anticipated benefits;
| | - |  | ------------------------------------------------------------------------------------------------



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



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



| |  |  | 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 occupation health and safety laws and regulations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | risks related to conducting business in multiple foreign jurisdictions;
| | - |  | -----------------------------------------------------------------------



| |  |  | our 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) in the future; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



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



Additional risks and uncertainties are set forth under the heading Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2004 and in our other filings made from time to time with the Securities and Exchange Commission.



26



---

Item 4. Controls and Procedures.



|(a) | Disclosure Controls and Procedures. The Companys management, with the participation of the Companys chief executive officer, chief operating officer and chief financial
officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of
the end of the period covered by this report. Based on such evaluation, the Companys chief executive officer, chief operating officer and chief financial officer have concluded that, as of the end of such period, the Companys disclosure
controls and procedures are effective in recording, processing, summarizing and reporting on a timely basis, information required to be disclosed by the Company in the reports that it files under the Exchange Act.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Internal Control Over Financial Reporting. During the quarter ended March 31, 2005, the Company converted the financial accounting system of one of its domestic subsidiaries onto a
new financial accounting system as part of the initial phase to convert all of its domestic subsidiaries onto one common financial accounting system. Except for the described system conversion, there have not been any changes in the Companys
internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2005, that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 6. Exhibits.



| | 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Operating Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------------------------



| | 31.3 | 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 Operating Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------



| | 32.3 | 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.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------





27



---

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: May 12, 2005 |  | By:              |  | /s/ Susan H. Marks                                                       
|                   |  |                  |  | Susan H. Marks                                                           
|                   |  |                  |  | Executive Vice President, Chief Financial Officer and Assistant Secretary
|                   |  |                  |  | (Principal Financial and Accounting Officer and Duly Authorized Officer) 





28



---

INDEX OF EXHIBITS FILED WITH OR

INCORPORATED BY REFERENCE INTO

FORM 10-Q OF SOLO CUP COMPANY

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005



|31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------



|31.2 | Certification of Chief Operating Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ---------------------------------------------------------------------------------------------------



|31.3 | 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 Operating Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------



|32.3 | 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.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------



29