Solo Cup Announces Improved Third Quarter Performance

Business Wire, Nov 12, 2008

Gross Margin and Operating Cash Flow Increase over Third Quarter 2007

HIGHLAND PARK, Ill. -- Solo Cup Company (the "Company"), a leading provider of single-use products used to serve food and beverages, today announced its fiscal third quarter 2008 financial results.

Third Quarter 2008 Results

For the quarter ended September 28, 2008, the Company reported net sales of $462 million compared to $527 million for the quarter ended September 30, 2007, and gross margin of 13.0% compared to 11.7% for the respective quarters. Excluding a $4.5 million charge for severance and other costs related to plant consolidation in the current quarter, gross margin was 13.9%. Lower sales volumes reflect the divesture of non-core product lines, continued consolidation of the product portfolio and softened demand in North American markets. Despite a challenging raw material and energy market, gross margin improved due to continued efficiency improvements, capital investment and a favorable product mix.

Operating income for the quarter ended September 28, 2008, was $13 million compared to $21 million for the third quarter of 2007. Losses on the disposal of outdated equipment were $3 million compared to a gain on asset disposals of $10 million in the year ago quarter. Selling, general and administrative expense decreased $7 million in the third quarter of 2008 compared to the same quarter in 2007.

"Continuing to execute on our previously established strategy to improve our cost structure has served Solo well during these difficult economic times," said Robert M. Korzenski, president and chief executive officer, Solo Cup Company. "As a result, efficiency gains and investment in growth platforms continued during the third quarter, enabling the company to better position itself for future profitable growth."

Year-to-Date 2008 Results

For the thirty-nine weeks ended September 28, 2008, net sales were $1,443 million compared to net sales of $1,588 million for the same period in 2007. Gross margin year-to-date was 14.1% compared to 11.0% for the first thirty-nine weeks of 2007. Excluding $6.1 million in charges for severance and other costs related to plant consolidation in the current year, gross margin was 14.6%. Operating income increased by $28 million from last year driven by a 16.4% increase in gross profit and a 15.5% reduction in selling, general and administrative expenses. A loss of $13 million on the disposal of outdated equipment compared to an $11 million gain on asset disposals in 2007 offset some of the operating improvements.

Net cash provided by operating activities was $80 million from continuing operations through the third quarter of 2008 compared to $53 million in the previous year. Capital expenditures increased from $32 million year-to-date in 2007 to $52 million year-to-date in 2008. Interest expense, net, decreased $16 million compared to the prior year period, primarily attributable to lower outstanding term debt. As of September 28, 2008, the Company had $173 million of liquidity under its revolving credit facilities and cash on hand.

"The challenge of managing volatile energy and raw material costs has been made more difficult by the current economy. Fortunately, our culture of continuous improvement and customer focus has provided not only a solid foundation for the future, but also a buffer against shorter-term challenges," said Korzenski.

The Company will host a conference call beginning at 10:00 a.m. Central Standard Time on Thursday, November 13, 2008, to discuss its third quarter financial results. The conference call may be accessed by dialing 1-888-663-2237. A replay will be available for one week after the call by dialing 1-888-203-1112 reservation number 4541469.

Solo Cup Company is a $2 billion company exclusively focused on the manufacture of single-use products used to serve food and beverages for the consumer/retail, foodservice and international markets. Solo has broad expertise in paper, plastic and foam disposables and creates brand name products under the Solo, Sweetheart and Bare by Solo[TM] names. The Company was established in 1936 and has a global presence with facilities in Canada, Europe, Mexico, Panama and the United States. To learn more about the Company, visit www.solocup.com.

STATEMENT REGARDING USE OF NON-GAAP MEASURES

The Non-GAAP financial measures contained herein and in the tables set forth on Schedules A and B to this press release (EBITDA, Consolidated EBITDA, Adjusted EBITDA and Pro Forma Consolidated EBITDA) are not measures of financial performance calculated in accordance with GAAP and should not be considered as alternatives to net income (loss) or any other performance measure derived in accordance with GAAP. They should be viewed in addition to, and not as a substitute for analysis of our results reported in accordance with GAAP, or as alternative measures of liquidity. Management believes that certain non-GAAP financial measures provide a view to measures similar to those used in evaluating our compliance with certain financial covenants under our Credit Agreement dated February 27, 2004, as amended and provide financial statement users meaningful comparisons between current and prior year period results. They are also used as a metric to determine certain components of performance-based compensation. The pro forma adjustments and Pro Forma Consolidated EBITDA are based on currently available information and certain adjustments that we believe are reasonable and are presented as an aid in understanding our operating results. They are not necessarily indicative of (i) future results of operations that may be obtained by the Company, or (ii) the Company's results of operations that would have occurred had the transactions described in the footnotes taken place as of January 1, 2007.