Solo Cup Company Announces Year End 2003 and First Quarter 2004 Results and Conference Call.HIGHLAND PARK Highland Park. 1 City (1990 pop. 30,575), Lake co., NE Ill., a suburb of Chicago on Lake Michigan; inc. 1869. It is a retail business and medical center for the North Shore area. , Ill. -- Solo Cup Company Solo Cup Company is a manufacturer of consumer packaging products: disposable beverage cups, disposable plates and bowls. Solo Cup Company is located in Highland Park, Illinois. The founder and owner for many years of Solo Cup was Leo Hulseman. today announced year end 2003 and first quarter 2004 financial results, including pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma financial information relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc its acquisition of SF Holdings Group, Inc. in February February: see month. 2004. For the year ended December December: see month. 31, 2003, pro forma net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight were $2,188.8 million, pro forma income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $12.5 million and pro forma operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. was $74.4 million. Pro forma depreciation and amortization for the year was $103.0 million. For the quarter ended March 31, 2004, pro forma net sales were $494.8 million, pro forma net loss from continuing operations was $(17.4) million and pro forma operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. was $(14.9) million. Pro forma depreciation and amortization for the quarter was $25.4 million. The pro forma financial information gives effect to the acquisition of SF Holdings Group and related transactions and the assumptions and adjustments described in the notes accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. the unaudited pro forma condensed con·dense v. con·densed, con·dens·ing, con·dens·es v.tr. 1. To reduce the volume or compass of. 2. To make more concise; abridge or shorten. 3. Physics a. combined financial statements Combined financial statement A financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must as of and for the year ended December 31, 2003 and for the quarter ended March 31, 2004, which are included as Annex an·nex tr.v. an·nexed, an·nex·ing, an·nex·es 1. To append or attach, especially to a larger or more significant thing. 2. A to this news release. The pro forma adjustments reflect the estimated purchase price and the new debt and equity structure and adjust amounts relating to the assets and liabilities of SF Holdings Group and its subsidiaries to their fair values, pending final valuations. The pro forma adjustments also reflect the changes in depreciation and amortization expense resulting from fair value adjustments to assets, interest expense due to the new debt structure and income taxes due to the change in Solo Solo: see Surakarta, Indonesia. SOLO - [SOL (Semantic Operating Language) + LOGO]. A variant of LOGO with primitives for dealing with semantic networks and pattern matching rather than lists. Cup Company's tax status as a result of the transactions as well as the tax effect related to the pro forma adjustments. In commenting on Solo Cup Company's results, Ronald Whaley, President and COO (Cell Of Origin) See mobile positioning. said, "Several factors, including SF Holdings transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). and higher raw material costs, contributed to our lower first quarter results. Historically, the prices at which we sell our products have varied with raw material price increases and decreases, with a lag for increases. We have implemented a number of price increases in 2004 to offset the higher raw material prices. We have announced two plastic price increases of 8% each, effective on March 15, 2004 and July July: see month. 12, 2004. We have also announced one price increase on paper products of 6%, effective May 15, 2004, and we have announced a price increase across our retail products of 4.4%, effective July 12, 2004. Although there can be no assurance that we will achieve the full effect of these increases, if the increases are accepted in the market place, it will offset a portion of the raw material increases we have incurred." Mr. Whaley stated, "Since the acquisition, we have already begun to realize some of the cost savings we anticipated from the combination of Solo Cup and SF Holdings. As of March 31, 2004, the Company has realized approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $9.9 million of cost savings on an annual basis, which relates primarily to the closure of the two SF Holdings Group executive offices. In addition, Solo has announced the closing of four manufacturing and warehouse facilities that will be consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: into other existing facilities." Solo Cup Company will host a conference call on Tuesday Tuesday: see week. , June June: see month. 29, at 12:00 PM CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT to discuss all items referenced in this news release. The dial-in number is 888-328-2940. Ask for the Solo Cup Quarterly Conference Call. A replay of the call will be available for one week following the call. The dial-in number for the replay is 800-633-8284. The access code is 21200136. The preceding paragraphs contain statements that are not related to historical results and are "forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. " statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. include those that are predictive or express expectations, that depend upon or refer to future events or conditions, or that concern future financial performance (including future revenues, earnings or growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. ), ongoing business strategies or prospects, or possible future Company actions. Forward-looking statements involve risks and uncertainties because such statements are based on current expectations, projections and assumptions regarding future events that may not prove to be accurate. Actual results may differ materially from those projected or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. in the forward-looking statements.
Annex A:
--------
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statements of operations for the year ended December 31, 2003 and the quarter ended March 31, 2004 are based on the consolidated financial statements Consolidated Financial Statements The combined financial statements of a parent company and its subsidiaries. Notes: Because consolidated financial statements present an aggregated look at the financial position of a parent and its subsidiaries, they enable you to gauge of Solo Cup Company and SF Holdings Group, Inc. (referred to herein, together with its subsidiaries, including Sweetheart Cup Company Inc., as "Sweetheart") after giving effect to (1) the acquisition of Sweetheart by Solo Cup Company (the "acquisition"); (2) the purchase by Solo Cup Company of certain manufacturing equipment and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. that Sweetheart leased and used in its operations prior to the acquisition; (3) the repayment Repayment The act of paying back a debt. Notes: Everyone has to repay their debts eventually. See also: Debt, Defeasance, Loan in connection with the acquisition of all the outstanding pre-acquisition indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. of Solo Cup Company, an Illinois Illinois, river, United States Illinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. corporation ("Solo (Illinois)"), and its subsidiaries and Sweetheart, expect for certain indebtedness relating to Solo Cup Company's Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and operations; (4) the offering of $325,000,000 of 8.5% senior subordinated Subordinated A claim ranked lower in priority than other claims. Common stock claims are always subordinated to debt. notes due 2014 by Solo Cup Company; (5) the borrowings incurred under Solo Cup Company's credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities on February 27, 2004, the closing date of the acquisition; (6) the contribution by Solo Cup Company's parent, Solo Cup Investment Corporation, of $229.6 million to the common equity capital of Solo Cup Company; and (7) the payment of related fees and expenses, (the items described in the foregoing clauses (1) through (7) are referred to herein, collectively, as the "transactions") and to the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements present the most recent fiscal year and interim period of Solo Cup Company, the acquirer, whose fiscal year is on a calendar year basis. Sweetheart's fiscal year was either a fifty-two Adj. 1. fifty-two - being two more than fifty 52, lii cardinal - being or denoting a numerical quantity but not order; "cardinal numbers" or fifty-three week period ending on the last Sunday Sunday: see Sabbath; week. in September September: see month. . As a result, Sweetheart's operations presented for the fifty-two weeks ended December 31, 2003 were derived de·rive v. de·rived, de·riv·ing, de·rives v.tr. 1. To obtain or receive from a source. 2. from the operations for the fifty-two weeks ended September 28, 2003, plus the operations for the thirteen weeks ended December 28, 2003, less the operations for the thirteen weeks ended December 29, 2002. The unaudited pro forma condensed combined statements of operations exclude non-recurring items directly attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the transactions. The unaudited condensed combined financial statements are based on preliminary estimates and assumptions set forth in the accompanying notes. Pro forma adjustments are necessary to reflect the estimated purchase price and the new debt and equity structure and to adjust amounts related to Sweetheart's assets and liabilities to their fair values, pending final valuations. Pro forma adjustments are also necessary to reflect the changes in depreciation and amortization expense resulting from fair value adjustments to assets, interest expense due to the new debt structure and income taxes due to the change in Solo Cup Company's tax status as a result of the transactions as well as the tax effect related to the pro forma adjustments. The pro forma adjustments and allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of purchase price are preliminary and are based on the fair value of the assets acquired and liabilities assumed. The final purchase price allocation will be completed after certain actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin valuations and working capital adjustments are finalized See finalization. . The pro forma adjustments, as described in the notes to the unaudited pro forma condensed combined financial statements, are based on currently available information and certain adjustments that we believe are reasonable. They are not necessarily indicative indicative: see mood. of our combined financial position or results of operations that would have occurred had the transactions taken place on the dates indicated, nor are they necessarily indicative of our future consolidated financial position or the results of operations.
Annex A (continued)
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2003
(in millions)
Historical Historical
Solo Cup Sweetheart
Company Year Fifty-Two Weeks
Ended Ended
December 31, December 28, Pro Forma
2003 2003 Adjustments
------------ --------------- -----------
Net sales $ 879.7 $ 1,309.1 $ --
Cost of goods sold 768.7 1,137.8 (10.7)(a)
------------ --------------- -----------
Gross profit 111.0 171.3 10.7
Selling, general and
administrative and other
operating expenses 99.1 103.6 15.9 (b)
------------ --------------- -----------
Operating income 11.9 67.7 (5.2)
------------ --------------- -----------
Other income (expense):
Interest expense, net (14.4) (55.1) 15.9 (c)
Loss on debt extinguishment -- (2.8) --
Foreign currency exchange
gain 2.8 -- --
Other, net 0.3 -- --
------------ --------------- -----------
Total other expense (11.3) (57.9) 15.9
------------ --------------- -----------
Income before income taxes and
minority interest 0.6 9.8 10.7
Income tax benefit (expense) (3.2) (3.8) (1.3)(d)
Minority interest (0.1) (0.2) --
------------ --------------- -----------
Income (loss) from continuing
operations $ (2.7) $ 5.8 $ 9.4
------------ --------------- -----------
Condensed Combined Pro Forma
Year Ended
December 31, 2003
----------------------------
Net sales $ 2,188.8
Cost of goods sold 1,895.8
----------------------------
Gross profit 293.0
Selling, general and administrative
and other operating expenses 218.6
----------------------------
Operating income 74.4
----------------------------
Other income (expense):
Interest expense, net (53.6)
Loss on debt extinguishment (2.8)
Foreign currency exchange gain 2.8
Other, net 0.3
----------------------------
Total other expense (53.3)
----------------------------
Income before income taxes and
minority interest 21.1
Income tax benefit (expense) (8.3)
Minority interest (0.3)
----------------------------
Income (loss) from continuing
operations $ 12.5
----------------------------
See accompanying notes to the unaudited pro forma condensed combined
statements of operations.
Unaudited Pro Forma Condensed Combined Statement of Operations
Quarter Ended March 31, 2004
(in millions)
Historical Historical
Solo Cup Sweetheart
Company Quarter Thirteen Weeks
Ended Ended
March 31, March 28, Pro Forma
2004 2004 Adjustments
--------------- -------------- -----------
Net sales $ 197.9 $ 296.9 $ --
Cost of goods sold 180.0 270.2 (1.8)(a)
--------------- -------------- -----------
Gross profit 17.9 26.7 1.8
Selling, general and
administrative and other
operating expenses 34.3 34.4 (7.4)(b)
--------------- -------------- -----------
Operating income (loss) (16.4) (7.7) 9.2
--------------- -------------- -----------
Other income (expense):
Interest expense, net (34.3) (10.5) 31.0 (c)
Loss on debt
extinguishment (0.9) -- --
Foreign currency exchange
gain 1.0 0.4 --
Other, net (0.8) -- --
--------------- -------------- -----------
Total other expense (35.0) (10.1) 31.0
--------------- -------------- -----------
Income before income taxes
and minority interest (51.4) (17.8) 40.2
Income tax benefit
(expense) (9.2) 7.1 13.7 (d)
Minority interest -- -- --
--------------- -------------- -----------
Income (loss) from
continuing operations $ (60.6) $ (10.7) $ 53.9
--------------- -------------- -----------
Condensed Combined Pro Forma
Quarter Ended
March 31, 2004
----------------------------
Net sales $ 494.8
Cost of goods sold 448.4
----------------------------
Gross profit 46.4
Selling, general and administrative
and other operating expenses 61.3
----------------------------
Operating income (loss) (14.9)
----------------------------
Other income (expense):
Interest expense, net (13.8)
Loss on debt extinguishment (0.9)
Foreign currency exchange gain 1.4
Other, net (0.8)
----------------------------
Total other expense (14.1)
----------------------------
Income before income taxes and
minority interest 29.0
Income tax benefit (expense) 11.6
Minority interest --
----------------------------
Income (loss) from continuing
operations $ (17.4)
----------------------------
See accompanying notes to the unaudited pro forma condensed combined
statements of operations.
Notes to Unaudited Pro Forma Condensed Combined Statements of
Operations
(in millions)
The unaudited pro forma condensed combined statements of operations for the quarter ended March 31, 2004 and the year ended December 31, 2003 include adjustments necessary to reflect the estimated effect of the transactions as if they had occurred on January January: see month. 1, 2003. The non-recurring charges directly resulting from the transactions of $54.3 million incurred during the quarter ended March 31, 2004 have been excluded from the unaudited pro forma condensed combined statements of operations. This amount is comprised of the following, net of applicable income taxes (in millions):
One-time retention payments(1) $ 6.1
Prepayment penalties on debt extinguishments 18.4
Subchapter C corporation tax election 29.8
-----
$54.3
-----
----------------------
1. Represents management retention payments made during February, 2004
before the acquisition to key employees by Sweetheart's prior
owners.
(a) Reflects pro forma adjustments for purchase accounting,
contractual pricing differences and the elimination of certain
operating leases as follows:
Year Ended Quarter Ended
December 31, 2003 March 31, 2004
----------------- --------------
Increase in depreciation after
purchase accounting(1) $ 6.2 $ 1.0
Contractual vendor pricing
differences(2) (2.3) (0.4)
Reduction in manufacturing operating
lease costs(3) (32.0) (5.3)
Incremental depreciation on owned
assets(3) 17.4 $ 2.9
----------------- --------------
$ (10.7) $ (1.8)
----------------- --------------
----------------------
1. Solo Cup Company adjusted the value of acquired property, plant and
equipment to estimated fair value in purchase accounting. The
adjustment reflects the additional depreciation expense related to
manufacturing fixed assets resulting from the basis step up.
2. Solo Cup and Sweetheart purchase the same goods from common
suppliers under terms that provide for reduced pricing if specified
volume levels are achieved. The adjustment applies the lowest
historical contracted pricing to actual volumes purchased during
the pro forma periods presented.
3. In connection with the transactions, we purchased from the lessors
certain leased manufacturing equipment and other assets that
Sweetheart has historically used in its operations. The leased
asset purchase resulted in the elimination of related operating
lease costs and the recognition of depreciation expense on the
acquired assets. The equipment's useful life is estimated to be
twelve years. On a pro forma basis, depreciation and amortization
would have been $25.4 million and $103.0 million for the quarter
ended March 31, 2004 and for the year ended December 31, 2003,
respectively.
(b) Reflects pro forma adjustments resulting from purchase accounting,
the elimination of certain operations and leases, and various
adjustments to costs directly attributable to the transactions.
Year Ended Quarter Ended
December 31, 2003 March 31, 2004
----------------- --------------
Annual management fees(1) $ 3.3 $ 0.5
Reduction in operating lease
costs(2) (0.7) --
Intangible asset amortization(3) 10.8 1.8
Costs eliminated on consummation(4) (7.6) (1.3)
Elimination of sale leaseback gain
amortization(5) 10.1 1.7
Elimination of one-time retention
payments(6) -- (10.1)
----------------- --------------
$ 15.9 $ (7.4)
----------------- --------------
----------------------
1. Reflects annual management fee payable to Vestar Capital Partners
and SCC Holding Company LLC of $0.8 million and $2.5 million,
respectively, following the transactions.
2. Reflects a decrease in operating lease costs and an increase in
depreciation expense relating to certain of the assets acquired in
the leased asset purchase.
3. Reflects the additional amortization expense related to acquired
intangible assets.
4. Sweetheart administrative and other costs to be eliminated, $1.8
million of which relates to the closing of two of Sweetheart's
executive offices. This adjustment reflects the impact of those
actions on historical operating expenses.
5. Reflects the elimination of the amortization of the deferred gain
relating to the Sweetheart sale-leaseback transaction as a result
of the leased asset purchase.
6. Retention payments made by Sweetheart to key employees prior to the
acquisition by Solo Cup Company.
(c) Reflects the estimated annual reduction in interest expense,
including amortization of debt issuance costs, resulting from the
transactions. The pro forma interest expense related to the senior
credit facilities, the notes, the capital leases and short-term
debt facilities relating to our Japanese operations that will
remain outstanding immediately after the transactions and
associated fees and debt issuance costs is calculated in the table
below:
Year Ended Quarter Ended
December 31, 2003 March 31, 2004
----------------- --------------
Senior credit facilities(1) $ 23.5 $ 5.9
Notes(2) 27.6 6.9
Retained Solo Cup debt(3) 0.1 --
Commitment fees(4) 0.8 0.2
----------------- --------------
Total cash interest expense 52.0 13.0
----------------- --------------
Amortization of debt issuance
costs(5) 3.8 0.9
----------------- --------------
Total pro forma interest expense 55.8 13.9
Less historical interest expense(6) 71.7 44.9
----------------- --------------
Net adjustment to interest expense $ (15.9) $ (31.0)
----------------- --------------
Impact of a 1/8 percentage point
change in interest rates $ 1.2 $ 0.3
----------------------
1. Represents pro forma interest expense incurred under our credit
facilities, which include a $150 million revolving credit facility
and a $650.0 million term loan facility at an assumed eurodollar
rate plus 2.50%. A total of $650.0 million is assumed to be
outstanding under these facilities for all periods.
2. Represents pro forma interest expense for the $325.0 million
aggregate principal amount of the notes at a rate equal to 8.5% per
annum.
3. Represents pro forma interest expense for (i) the short-term debt
facilities relating to our Japanese operations which bear interest
at a variable rate that was approximately 0.83% on a weighted-
average basis as of December 31, 2003 and (ii) capital lease
obligations relating to the lease of machinery and equipment for
our Japanese operations with an implied interest rate of
approximately 1.4%.
4. Represents commitment fees of 0.5% on an assumed $150.0 million
average available and undrawn balance under the new revolving
credit facility.
5. Represents non-cash amortization of capitalized debt issuance costs
over the terms of the related indebtedness under our credit
facilities and the notes: six years for the revolving credit
facility, seven years for the term loan facility and ten years for
the notes.
6. Represents interest expense and amortization of debt issuance costs
eliminated as a result of the repayment of certain existing
outstanding debt of Solo Cup and Sweetheart in connection with the
transactions.
(d) Historically, Solo Cup Company was subject to taxation under
subchapter S of the Internal Revenue Code in the United States
and, consequently, federal income tax liabilities of Solo Cup
Company flowed through to the pre-acquisition shareholders of Solo
(Illinois). Effective January 1, 2004, Solo Cup Company became
subject to taxation under subchapter C of the Internal Revenue
Code in the United States. Consequently, we, pursuant to GAAP,
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 attributed to differences between the
financial statement and income tax bases of our assets and
liabilities as of January 1, 2004. The pro forma adjustment
reflects the estimated incremental U.S. federal and state income
tax provision and deferred income tax amounts as if Solo Cup
Company had been subject to taxation under subchapter C of the
Internal Revenue Code from January 1, 2003.
The tax effect of the pro forma adjustments described in (a)-(c)
above was calculated at an assumed combined federal and state
effective rate of 40%, resulting in an additional adjustment to
the income tax provision as follows:
Year Ended Quarter Ended
December 31, 2003 March 31, 2004
----------------- --------------
Pro forma subchapter C corporation
benefit (provision) $ 2.9 $ 29.8
Tax effect of other pro forma
adjustments (4.2) (16.1)
----------------- -------------
Total benefit (expense) $ (1.3) $ 13.7
----------------- -------------
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