SWEETHEART HOLDINGS INC \DE\ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

|X|Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended September 28, 2003

|_|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 33-91600

SWEETHEART HOLDINGS INC.*
(Exact name of registrant as specified in its charter)

Delaware 06-1281287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

10100 Reisterstown Road, Owings Mills, Maryland 21117
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: 410/363-1111

Securities of the Registrant registered pursuant to Section 12(b)of the Act:None
Securities of the Registrant registered pursuant to Section 12(g)of the Act:None

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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

The aggregate market value of the voting stock of the Registrant held
by non-affiliates of the Registrant as of December 11, 2003. Not Applicable.

There is no market for the Common Stock of the Registrant.

The number of shares outstanding of the Registrant's common stock as of
December 11, 2003:
Sweetheart Holdings Inc. Class A Common Stock, $0.01 par value- 1,046,000 shares
Sweetheart Holdings Inc. Class B Common Stock, $0.01 par value- 4,393,200 shares

* The Registrant is the guarantor of $93.8 million 12.0% Senior Notes due July
15, 2004 of Sweetheart Cup Company Inc., a wholly owned subsidiary of the
Registrant.

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PART I

Item 1. BUSINESS

General

Sweetheart Holdings Inc. ("Sweetheart Holdings"), together with its
wholly owned subsidiary Sweetheart Cup Company Inc. ("Sweetheart Cup"), and its
subsidiaries, (the "Company"), believes it is one of the largest producers and
marketers of disposable foodservice and food packaging products in North
America. In Fiscal 2003, the Company had net sales of approximately $1.3
billion. The Company sells a broad line of disposable paper, plastic and foam
foodservice and food packaging products, consisting primarily of cups, lids,
plates, bowls, napkins and containers. The Company markets its products
primarily to leading foodservice distributors, national quick service restaurant
chains, catering companies, retailers and food processing companies. The Company
markets its products under both private label brands and the Company's
well-recognized Sweetheart(R), Trophy(R), Sensations(R), Hoffmaster(R) and
Lily(R) brands.

In addition, the Company designs, manufactures and leases container
filling and lidding equipment to dairies and other food processors to package
food items in the Company's containers at their plants. The Company also sells
paper converting equipment used primarily in the manufacture of paper cups and
food containers.

With over 90 years of operating history, the Company has a diversified
customer base of over 5,000 customers, consisting primarily of (i) major
foodservice distributors, such as Sysco Corporation and U.S. Foodservice Inc.,
who serve both national and regional institutional foodservice customers, (ii)
quick service restaurant chains, such as McDonald's Corporation and Burger King
Corporation, and convenience stores, such as 7 Eleven, Inc., (iii) national
catering companies, such as ARAMARK Corporation and Sodexho, and (iv)
supermarkets, mass merchants, warehouse clubs and other retailers, such as The
Great Atlantic & Pacific Tea Company, Inc., The Kroger Co., Target Stores
Corporation, Wal-Mart Stores, Inc. and Price-Costco, Inc. The Company's food
packaging containers and lids are sold to national and regional dairy and food
companies such as Ben & Jerry's Homemade, Inc., Blue Bell Creameries, L.P., Dean
Foods Co. and Prairie Farms Dairy, Inc.

On April 8, 2003, Sweetheart Cup consummated its offer to exchange (the
"Exchange Offer") its newly issued 12.0% Senior Notes due July 15, 2004 (the
"12.0% Senior Notes") for its outstanding $110.0 million 12.0% Senior
Subordinated Notes due September 2003 (the "12.0% Senior Subordinated Notes")
and solicitation of consents of holders of the 12.0% Senior Subordinated Notes
to the proposed amendments to the indenture governing the 12.0% Senior
Subordinated Notes (the "Consent Solicitation"). Sweetheart Cup, Sweetheart
Holdings, as guarantor, and Wells Fargo Bank Minnesota, N.A., as trustee,
executed the indenture governing the 12.0% Senior Notes and $93.8 million in
aggregate principal amount of the 12.0% Senior Notes were issued under the
indenture in exchange for like amount of the 12.0% Senior Subordinated Notes.
Payment of the consent payments to all holders of the 12.0% Senior Subordinated
Notes who timely tendered was made in April 2003. In Fiscal 2003, the Company
recorded a $0.5 million loss on debt extinguishment in connection with the
Exchange Offer which consisted of the write-off of deferred financing costs.

In September 2003, $16.2 million in aggregate principal amount of the
12.0% Senior Subordinated Notes that remained outstanding following the Exchange
Offer, including accrued interest thereon, was paid in full using funds borrowed
under the Company's senior credit facility. The indenture governing the 12.0%
Senior Subordinated Notes has been satisfied and discharged.

The Company's senior credit facility with Bank of America, N.A. (the
"Senior Credit Facility") was amended on February 28, 2003 to require, among
other things, the date by which the refinancing, repayment or extension of the
12.0% Senior Notes must occur shall be December 31, 2003. If the Company is
unable to refinance, repay or extend the maturity of the 12.0% Senior Notes
prior to December 31, 2003, the Senior Credit Facility, unless otherwise
amended, will become due and payable. See "--Recent Developments".

The Company is evaluating various strategic options which may include a
restructuring of its debt and capital structure, including, among other things,
the public sale or private placement of debt or equity securities, joint venture
transactions, sale of assets or the business, new borrowings, the refinancing of
the Company's existing

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debt agreements, open market purchases, tender offers or exchange offer and
consent solicitations of the Company's outstanding securities. There can be no
assurances that any of these strategic options will be consummated.

Pursuant to an agreement, dated as of March 22, 2002 by and among
Dennis Mehiel, the Company's Chairman and Chief Executive Officer, SF Holdings
Group, Inc. ("SF Holdings"), American Industrial Partners Management Company,
Inc., American Industrial Partners Capital Fund L.P. ("AIP") and the other
stockholders of the Company signatory to that certain Stockholders' Agreement,
dated as of March 12, 1998, (together with AIP and any permitted transferee of
shares of Class A common stock or Class B common stock of the Company ("the
Shares"), the "Original Stockholders"), all of the outstanding Shares not held
by SF Holdings (which consisted of 52% of the voting stock of the Company) were
delivered to SF Holdings and exchanged for 96,000 shares of Class C common stock
of SF Holdings. As a result, SF Holdings became the sole beneficial owner of
100% of the issued and outstanding capital stock of the Company. In addition and
in connection therewith, the Stockholders Agreement and related stockholders'
right agreement were terminated.

On March 25, 2002, pursuant to an Agreement and Plan of Merger, The
Fonda Group, Inc., a company under common control, ("Fonda") was merged (the
"Merger") with and into Sweetheart Cup, with Sweetheart Cup as the surviving
entity. In connection with the Merger, all of the assets and operations of Fonda
were assigned to, and all liabilities of Fonda were assumed by, Sweetheart Cup
by operation of law and all of the outstanding shares of Fonda were cancelled.

Manufacturing and Sales

The Company has historically sold its Sweetheart products under the
Sweetheart(R) brand as well as private labels to two principal customer groups,
institutional foodservice and food packaging customers. The Company has
historically sold its Fonda products under the Fonda(R) brand and private labels
to consumer and institutional foodservice customers. The Company also
manufactures and distributes disposable party goods products directly to the
specialty (party) channel of the Company's consumer market. Institutional
foodservice customers primarily purchase disposable hot and cold drink cups,
lids, food containers, plates, bowls, cutlery, straws, napkins, placemats, food
trays and tablecovers. The Company sells these products directly and through
foodservice distributors and national accounts. Consumer customers primarily
purchase disposable hot and cold drink cups, paper plates, bowls, napkins and
tablecovers. The Company sells these consumer products primarily to
supermarkets, mass merchants, warehouse clubs, discount chains and other
retailers. Food packaging customers primarily directly purchase paper and
plastic containers for the dairy and food processing industries. Food packaging
customers also lease filling and packaging machines designed and manufactured by
the Company that, in turn, fill and seal the Company's containers in their
plants. The Company's consumer specialty (party) channel customers purchase
disposable plates, napkins, cups, tablecovers and a variety of accessory decor
items sold in ensembles or separately to party goods retailers, mass merchants,
drugstores and supermarkets. The Company also manufactures and markets its
products in Canada and Mexico principally to institutional national accounts.

The Company markets to both the distributor and end-use customer,
tailoring programs to meet the specific needs of its target customers and
markets. The Company sells these programs, which include products, price,
promotional and merchandising materials, and training and sales/marketing
coverage, through a direct sales organization. The Company supports this process
by developing innovative new products, materials and processes, while leveraging
its strong brand recognition and national network of manufacturing and
distribution centers. The Company focuses on two major customer groups within
this customer base, national account quick service restaurant chains and
foodservice distributors. The Company believes that it is one of the largest
manufacturers of disposable foodservice products in North America. The Company
believes its approximately 120 person sales force is larger and more experienced
than those of its competitors, which it believes enables it to maintain and
expand its customer base.

Products

The Company manufactures a broad line of disposable products. Paper,
foam and plastic cups, lids and straws represent the largest part of the
Company's North American operations. The largest single product type within this
category is cups, which the Company offers in various sizes (ranging from three
to 64 ounces) for both hot and cold beverages. Brand names of the Company's
principal beverage service products include Sweetheart(R),

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Lily(R), Trophy(R), PreferenceTM, Jazz(R), Gallery(R), Clarity(R), Lumina(R),
Sherri(R), ClearLight(R) and GoCupsTM.

The Company also offers a variety of other disposable foodservice
products, including paper, foam, and plastic plates, paper and plastic bowls,
portion cups, food containers, food trays, paper and plastic tubs, containers
and hinged foam containers. The Company believes it is one of the largest
manufacturers of paper tubs for chicken, popcorn and take-out foods in North
America. Munchie Cup(R), Flexstyle(R), Highlights(R), MaximizersTM and Scoop Cup
are some of the Company's carry-out service brands.

The Company sells paper plates and bowls to both the consumer and
institutional markets. These products include coated and uncoated white plates,
decorated plates and bowls and are offered in a range of sizes. Uncoated and
coated paper plates are considered commodity items and are generally purchased
by cost-conscious consumers for everyday use. Printed and decorated plates and
bowls, which are typically sold in lower count packages, are purchased for
everyday use as well as for parties and seasonal celebrations such as Halloween
and Christmas. The Company also sells, under its Sensations(R) brand, party
packages which include solid color paper plates with coordinating napkins, cups,
cutlery and tablecovers.

Napkins are sold under the Company's Hoffmaster(R), Fonda(R) and
Sensations(R) brands, as well as under national distributor private labels.
Napkin products range from decorated-colored, multi-ply napkins and simple
custom printed napkins featuring an end-user's name or logo to fully printed,
graphic-intensive napkins for the premium paper goods sector. Tablecovers,
ranging from economy to premium product lines, are sold in various prints and
colors under the Hoffmaster(R), Linen-Like(R), Windsor(R) and Sensations(R)
brands. The Company also sells placemats, traycovers, paper doilies, lunch bags,
paper portion cups and fluted products in a variety of shapes and sizes. The
Company manufactures unique decorated placemats in a variety of shapes. In
addition, the Company produces non-skid traycovers that serve the particular
needs of the airline and healthcare industries.

The Company also manufactures paperboard and tissue party goods
products under the Company's Paper Art(R), Party Creations(R) and Touch of
Color(R) brand names.

The Company's other products include Flex-E-FormTM straight-wall paper
manufacturing technology and Flex-GuardTM, a spiral wound tamper-evident lid. In
addition, the Company provides foodservice customers with retail packages sold
through retailers under various Sweetheart and private label brands.

To enhance packaging product sales, the Company designs, manufactures
and leases container filling and lidding equipment to dairies and other food
processors to package food items in the Company's containers at their plants.
The Company leases its filling and lidding equipment to customers under the
trade names Auto-Pak, Flex-E-FillTM and FoodPac. The Company manufactures this
equipment in the Company's machine shop and assembly plants located in Owings
Mills, Maryland and Kensington, Connecticut. Products packaged in the Company's
machines include ice cream, factory-filled jacketed ice cream cones, cottage
cheese, yogurt, sour cream and squeeze-up desserts.

The Company also sells paper converting equipment used primarily in the
manufacture of paper cups and food containers. The Company's product line
includes four sizes of cup formers, insulated paper cup machinery, paper lid
machines, high speed blanking machines, flat rim machinery and other related
equipment. The Company also sells spare parts, engineering services and machine
rehabilitation services and stamped sheet metal parts used for protective covers
and assemblies.

Production

The Company manufactures its products at 22 plants located throughout
North America. See "--Properties." The Company's manufacturing processes consist
of converting processed paperboard, paper, tissue and resin into finished
disposable foodservice products through the use of four principal technologies:
paper forming, thermoforming, injection molding, and foam extrusion and forming.
The Company provides its customers with a wide variety of printing (flexography,
letter press, paper lithography and plastic dry offset) options across these
various technologies. The Company operates approximately 290 printing presses
capable of producing high quality, customized graphics to meet its customers'
requirements. The Company believes that its ability to manufacture a broad line
of products enables it to provide its customers with numerous choices to meet
their needs. The Company's plants operate on a variety of manufacturing
schedules. Paper operations generally run five days per

4

week, 24 hours per day, with Saturday scheduled as an overtime day when needed
to meet customer demand. Plastic operations generally run seven days per week,
24 hours per day. Due to the seasonality of customer demand, the Company's
production is generally greater during late spring and summer than during fall
and winter.

Raw Materials and Suppliers

Raw materials are a critical part of the Company's cost structure.
Principal raw materials for the Company's paper operations include solid
bleached sulfate paperboard, napkin tissue, bond paper and waxed bond paper
obtained directly from major North American manufacturers, along with wax
adhesives, coating and inks. The Company purchases paperboard, napkin tissue,
bond paper and waxed bond paper in "jumbo" rolls and then prints and converts
them into smaller rolls, or blanks, for processing into final products. The main
raw material for the Company's plastic operations is plastic resin (polystyrene,
polypropylene and high and low density polyethylene) purchased directly from
major petrochemical companies and other resin suppliers. The Company processes
and forms resin into cups, cutlery, meal service products, straws, lids and
containers. The Company manufactures foam products by melting polystyrene
plastic and adding a blowing agent that is then passed through a die and
extruded into sheets of plastic foam material. The foam is then formed into
cups, bowls and plates.

The Company purchases a substantial portion of its requirements for
paperboard and resin from several suppliers. The Company has a number of
potential suppliers for most of its raw materials and believes that current
sources of supply are sufficient to meet the Company's requirements.

Competition

The Company sells its products in extremely competitive markets.
Because ofthe low barriers to entry for new competitors, competition has been,
and may continue to be, intense as new entrants try to gain market share. The
Company's competitors include large multinational companies as well as regional
manufacturers. Some of the Company's competitors have greater financial and
other resources than the Company. The marketplace for the Company's products is
fragmented. The Company has competitors who compete across the full line of its
products, as well as those who compete against only some of the Company's
products. A few of the Company's competitors also produce paper or plastic raw
materials and have greater access to financial and other resources. The
Company's primary competitors in the institutional and consumer foodservice
markets include Dart Container Corporation, Dixie Foodservice Corp. (a division
of Georgia Pacific Corp.), Solo Cup Co., International Paper Food Service
Business (a division of International Paper Co.), AJM Packaging Corp., Dopaco,
Inc. ("Dopaco"), Genpak LLC and Pactiv Corporation. Major competitors in the
food packaging market include Landis Plastics, Inc., Interbake Foods Inc.,
Polytainer, Ltd. and Huhtamaki, Inc. The Company's competitors in the disposable
tissue and other specialty products and party goods accessory products
categories include Duni Corp., Erving Paper Products Inc. and SCA North America
Tissue (a division of Svenska Celluosa Aktiebolaget).

Customers

The Company believes that it holds leading market positions in the
institutional and consumer foodservice and food packaging markets for each of
the Company's major product categories. The Company has a diverse and extensive
customer base of over 5,000 customers located throughout North America, in both
the institutional and consumer markets. In the institutional market, the Company
sells to many major foodservice distributors and chain accounts, such as Sysco
Corporation, U.S. Foodservice Inc., Bunzl USA, Inc., McDonald's Corporation,
Burger King Corporation, ARAMARK Corporation and Sodexho. In the consumer market
the Company sells to supermarkets, mass merchants, warehouse clubs and other
retail stores, such as The Kroger Co., The Stop & Shop Supermarket Co., Topco
Associates Inc., The Great Atlantic & Pacific Tea Company, Inc., Publix
Supermarkets Inc., Target Corporation, Wal-Mart Stores, Inc., Price-Costco, Inc.
and Staples Inc. The Company has developed long-term relationships with many of
the Company's customers.

The Company markets its products primarily to customers in the United
States. In Fiscal 2003, approximately 7.0% of net sales came from sales to
customers in Mexico, Canada and Latin America. In Fiscal 2003, sales to the
Company's five largest customers represented approximately 31.2% of net sales
with no one customer accounting for more than 10% of net sales. The Company's
operating results could be adversely affected if

5

the Company were to lose one or more of its large customers. The Company
believes it has strong relationships with its major accounts which have been
developed over many years.

Environmental Matters

The Company's operations are subject to comprehensive and frequently
changing federal, state, foreign and local environmental and occupational health
and safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water and the
disposal of hazardous wastes. The Company is subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at properties that it owns or operates
and at other properties where the Company or its predecessors have arranged for
the disposal of hazardous substances. As a result, the Company is involved from
time to time in administrative and judicial proceedings and inquiries relating
to environmental matters. The Company believes that, except as noted below,
there are currently no material pending environmental investigations at the
Company's plants or sites. However, there can be no assurance that the Company
will not be involved in any such proceeding in the future and that any amount of
future clean up costs and other environmental liabilities will not be material.
The Company spent aproximately $0.8 million for environmental and occupational
health and safety compliance in Fiscal 2003 and anticipates spending less than
$1.0 million for environmental and occupational health and safety compliance in
Fiscal 2004.

The Company cannot predict what environmental legislation or
regulations will be enacted in the future, how existing or future laws or
regulations will be administered or interpreted or what environmental conditions
may be found to exist at the Company's facilities. Enactment of stricter laws or
regulations, or a stricter interpretation of existing laws and regulations, may
require the Company to make additional expenditures, some of which could be
material.

The Clean Air Act requires the phase out of certain refrigerant
compounds. Therefore, the Company must upgrade or retrofit air conditioning and
chilling systems during the next few years. The Company has decided to replace
units as they become inefficient or unserviceable. The Company expects to
complete the replacement of all such units within the next five to ten years, at
an estimated total cost of less than $1.3 million.

Some of the Company's facilities contain asbestos. Although there is no
current legal requirement to remove it, the Company monitors such asbestos on an
ongoing basis and maintains and/or removes it as appropriate to prevent the
release of friable asbestos. The Company believes the costs associated with such
program will not be material to its business or financial condition.

Certain of the Company's facilities are located in states that have
regulations governing emissions of nitrogen oxide. While the Company believes
that these regulations do not apply to its operations, the Company will continue
to monitor its operations for compliance.

On July 13, 1999, the Company received a letter from the U.S.
Environmental Protection Agency ("EPA") identifying the Company, among numerous
others, as a "potential responsible party" under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), at a
site in Baltimore, Maryland. The EPA letter is not a final determination by the
EPA concerning the liability of the Company or the liability of any other
entity. The Company responded to the EPA that upon review of its files it had no
information with respect to any dealings with that site. On December 20, 1999,
the Company received an information request letter from the EPA, pursuant to
CERCLA, regarding a Container Recycling Superfund Site in Kansas City, Kansas
and in January 2000 the Company responded to such inquiry. In both instances,
the Company has received no further communication from the EPA. The Company
denies liability and has no reason to believe the final outcomes of these
matters will have a material adverse effect on the Company's financial condition
or results of operations. However, no assurance can be given about the ultimate
effect on the Company, if any.

Technology and Research

The Company maintains facilities for the development of new products
and product line extensions in Owings Mills, Maryland and facilities for
machinery design in Kensington, Connecticut. A staff of engineers and
technicians is responsible for product quality, process control, improvement of
existing products, development of

6

new products and processes, and technical assistance in adhering to
environmental rules and regulations.

In Fiscal 2003, the Company continued to address cost reduction
opportunities in its manufacturing operations and to leverage market demands for
selective new products. These initiatives include the expansion of process
capabilities for manufacturing low cost expanded polystyrene products, the
introduction of a new line of rolled rimmed plastic portion containers and
equipment enhancements to increase the effectiveness of both paper and plastic
production systems. The consolidation of production lines into fewer
manufacturing sites, which began in Fiscal 2001, was also successfully completed
in Fiscal 2003.

The Company tests new product concepts at facilities located in
Oshkosh, Wisconsin; Appleton, Wisconsin and St. Albans, Vermont. Management,
supervisors and experienced operators are responsible for plant safety, product
quality, process control, improvement of existing products, development of new
products and processes and technical assistance in adhering to environmental
rules and regulations.

The Company strives to expand its proprietary manufacturing technology,
further automate and streamline its manufacturing operations, improve upon
safety and performance, and develop improved manufacturing processes, equipment,
and product designs.

Employees

At September 28, 2003, the Company employed 7,442 persons, 6,218 of
whom were hourly employees. Approximately 91.3% of the employees are located at
facilities in the United States. The Company currently has collective bargaining
agreements in effect at its facilities in Appleton, Wisconsin; Augusta, Georgia;
Indianapolis, Indiana; Kensington, Connecticut; Oshkosh, Wisconsin; St. Albans,
Vermont; Springfield, Missouri; Williamsburg, Pennsylvania; Scarborough,
Ontario, Canada and Cuautitlan, Mexico. These agreements cover all production,
maintenance and distribution hourly-paid employees at each facility and contain
standard provisions relating to, among other things, management rights,
grievance procedures, strikes and lockouts, seniority and union rights. As of
September 28, 2003, approximately 31.9% of the Company's hourly employees were
covered by these agreements. The current expiration dates of the Appleton;
Augusta; Indianapolis; Kensington; Oshkosh; St. Albans; Springfield;
Williamsburg; Ontario; and Cuautitlan agreements are March 31, 2006, October 30,
2005, December 1, 2007, September 30, 2004, May 31, 2007, January 31, 2005,
February 29, 2004, June 13, 2004, November 30, 2008 and December 31, 2003,
respectively. The Company believes it has a good relationship with its
employees.

In an election held on August 21, 2003, the employees of the El Cajon,
California facility voted to bargain collectively and to be represented by the
United Food and Commercial Workers Union. The proposed agreement effects
approximately 165 hourly employees. Based on a good relationship with its
employees, the Company anticipates reaching an agreement by March 2004.

Item 2. PROPERTIES

The Company operates 36 manufacturing and distribution facilities
located throughout North America. All of the Company's facilities are well
maintained, in good operating condition and suitable for the Company's
operations. The table below provides summary information regarding the
properties owned or leased by the Company.

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Size
Type of (Approximate Owned/
Location Facility (1) square feet) Leased Lease Expiration
-------- ------------ ------------ ------ -----------------

Appleton, Wisconsin (2 facilities)............ M/W 271,000 O
W 118,000 L May 30, 2004

Augusta, Georgia (2 facilities)............... M/W 369,000 O
M/W 75,000 O

Chicago, Illinois (2 facilities).............. M/W 824,000 O
W 908,000 L May 14, 2023

Conyers, Georgia (2 facilities)............... M/W 350,000 O
W 555,000 O

Cuautitlan, Mexico (3 facilities)............. M 24,000 L September 3, 2009
W 26,000 L September 3, 2009
W 29,000 L April 1, 2010

Dallas, Texas ................................ M/W 1,304,000 O

El Cajon, California (2 facilities)........... M/W 101,000 L June 30, 2011
W 82,000 L July 31, 2010

Glens Falls, New York......................... M/W 59,000 O

Goshen, Indiana............................... M/W 63,000 O

Hampstead, Maryland........................... W 1,035,000 L May 30, 2020

Indianapolis, Indiana......................... W 735,000 L June 30, 2007

Kensington, Connecticut (4 facilities)........ M/W 96,000 L(2) May 15, 2010
M/W 112,000 L(2) May 15, 2010
W 30,000 L(2) May 15, 2010
W 34,000 L May 31, 2004

Lakeland, Florida............................. M/W 45,000 L January 31, 2004

North Andover, Massachusetts.................. M/W 249,000 L October 31, 2020

North Las Vegas, Nevada (2 facilities)........ M/W 99,000 L August 31, 2010
W 96,000 L August 31, 2010

Ontario, California........................... W 396,000 L May 1, 2014

Oshkosh, Wisconsin............................ M/W 486,000 O

Owings Mills, Maryland (2 facilities)......... M/W 1,495,000 O
M/W 258,000 O

St. Albans, Vermont (2 facilities)............ M 115,000 O
W 186,000 L(3) March 31, 2007

Scarborough, Ontario, Canada (2 facilities)... M/W 400,000 O
W 262,000 L March 1, 2008

Somerville, Massachusetts..................... M/W 194,000 O(4)

Springfield, Missouri......................... M/W 942,000 O

Williamsburg, Pennsylvania.................... M/W 146,000 L(5) June 26, 2005

(1) M-Manufacturing; W-Warehouse; M/W-Manufacturing and Warehouse in same
facility. (2) Subject to a purchase option which expires May 15, 2005. (3)
Subject to a purchase option which expires March 31, 2007.
(4) Operations at this facility have ceased and the Company is in the process
of selling this facility. The Company has reclassified this facility to
assets held for sale.
(5) Subject to capital lease.( See Note 18 of the Notes to Consolidated
Financial Statements)

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The Company leases a warehouse in Augusta, Georgia which was closed in
1997. The Company is currently subleasing this property to a third party and
plans to sublet this property through the lease termination date of March 31,
2008. The Company also leases a manufacturing facility from its Chairman and
Chief Executive Officer in Jacksonville, Florida which was closed in 1998. The
Company is currently subleasing such property to a third party and plans to
sublet the property through the lease termination date of December 31, 2014. See
"--Certain Relationships and Related Transactions".

The Company also occupies a retail facility located in Indianapolis,
Indiana in connection with the Company's party goods consumer business. This
facility is comprised of an outlet store maintained for marketing purposes.

Item 3. LEGAL PROCEEDINGS

On July 13, 1999, the Company received a letter from the EPA
identifying the Company, among numerous others, as a "potential responsible
party" under CERCLA, at a site in Baltimore, Maryland. The EPA letter is not a
final determination by the EPA concerning the liability of the Company or the
liability of any other entity. The Company responded to the EPA that upon review
of its files it had no information with respect to any dealings with that site.
On December 20, 1999, the Company received an information request letter from
the EPA, pursuant to CERCLA, regarding a Container Recycling Superfund Site in
Kansas City, Kansas and in January 2000 the Company responded to such inquiry.
In both instances, the Company has received no further communication from the
EPA. The Company denies liability and has no reason to believe the final outcome
of these matters will have a material adverse effect on the Company's financial
condition or results of operations. However, no assurance can be given about the
ultimate effect on the Company, if any.

The Company is subject to legal proceedings and other claims arising in
the ordinary course of its business. The Company maintains insurance coverage of
types and in amounts which it believes to be adequate. The Company believes that
it is not presently a party to any litigation, the outcome of which could
reasonably be expected to have a material adverse effect on its financial
condition or results of operations.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On July 7, 2003, the shareholders of Sweetheart Holdings and
Sweetheart Cup voted on the election of directors.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Sweetheart Cup is a wholly owned subsidiary of Sweetheart Holdings,
which is a privately held corporation. No equity securities of Sweetheart
Holdings or Sweetheart Cup are publicly traded or registered under the
Securities Exchange Act of 1934, as amended, and there is no public trading
market for the stock.

Payment of cash dividends is restricted under the instruments governing
the Company's indebtedness. The Company has not paid cash dividends and does not
anticipate paying any cash dividends in the foreseeable future.

As of December 11, 2003, there was one holder of Sweetheart Holdings'
Class A Common Stock and Sweetheart Holdings' Class B Common Stock.

Item 6. SELECTED FINANCIAL DATA

Set forth below are selected historical consolidated financial data of
the Company at the dates and for the fiscal years shown. The selected historical
consolidated financial data at September 28, 2003 and September 29, 2002 and for
Fiscal 2003, Fiscal 2002 and Fiscal 2001 are derived from historical
consolidated financial statements of the

9

Company for such years that have been audited by Deloitte & Touche LLP,
independent auditors, and are included elsewhere herein. The selected historical
consolidated financial data at September 30, 2001, September 24, 2000 and
September 26, 1999 and for Fiscal 2000 and Fiscal 1999 are derived from the
audited historical consolidated financial statements of the Company for such
years which are not included herein.

Fiscal(1)
--------------------------------------------------------------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------

(In thousands)
Statement of Operations Data (2):
Net sales $ 1,307,921 $ 1,283,547 $ 1,316,672 $ 1,276,617 $ 1,182,004
Cost of sales 1,141,738 1,130,264 1,143,806 1,090,286 1,022,800
------------ ------------ ------------ ------------ ------------
Gross profit 166,183 153,283 172,866 186,331 159,204
Selling, general and administrative expenses (3) 108,240 114,823 113,231 112,559 118,479
Restructuring charge (credit) (4) 486 1,893 504 1,153 (512)
Asset impairment expense(5) 721 593 2,244 - -
Other (income) expense, net(6) (8,323) 2,102 (9,836) (4,943) (1,563)
------------ ------------ ------------ ------------ ------------
Operating income 65,059 33,872 66,723 77,562 42,800
Interest expense, net 39,297 37,079 38,919 52,608 58,413
Loss on debt extinguishment 475 1,798 - 522 -
------------ ------------ ------------ ------------ ------------
Income (loss) before tax and minority
interest 25,287 (5,005) 27,804 24,432 (15,613)
Income tax expense (benefit) 10,115 (2,002) 11,220 9,887 (5,527)
Minority interest in subsidiary 127 145 68 - -
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 15,045 $ (3,148) $ 16,516 $ 14,545 $ (10,086)
============ ============ ============ ============ ============

Balance Sheet Data (at end of year):
Cash and cash equivalents $ 10,447 $ 8,035 $ 11,616 $ 4,828 $ 3,589
Working capital (deficiency) 117,881 126,804 249,450 173,299 (96,045)
Property, plant and equipment, net 240,975 252,491 260,666 254,844 374,666
Total assets 808,246 820,843 855,173 805,273 842,975
Total debt 403,879 437,301 440,820 387,988 527,335
Shareholder's equity 54,372 47,237 56,130 45,074 29,946

(1) On March 25, 2002, Sweetheart Cup merged with Fonda in a transaction that
was accounted for in a manner similar to a pooling-of-interests.
(2) The selected historical consolidated financial and operating data include
the operations of the Company and each of its acquisitions since the
respective dates of such acquisitions.
(3) The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, Goodwill and Other Intangible Assets, effective September 30,
2002. SFAS No. 142 requires that goodwill and certain intangibles with
indefinite lives not be amortized, but subject to an impairment test on an
annual basis or when facts and circumstances suggest that it may be
impaired. As a result, the Company ceased amortization of goodwill as of
that date. Goodwill amortization was $2.0 million in Fiscal 2002, $1.9
million in Fiscal 2001, $1.2 million in Fiscal 2000, and $1.2 million in
Fiscal 1999.
(4) In Fiscal 2003, the Company established a restructuring reserve of $0.6
million resulting from the elimination of 18 salaried positions. In Fiscal
2002, the Company established a restructuring reserve of $0.3 million in
conjunction with the planned closure of its Lafayette, Georgia facility,
from which 101 primarily manufacturing positions were eliminated, and a
restructuring reserve of $1.6 million in conjunction with planned
consolidation initiatives from which 475 primarily manufacturing positions
were eliminated. In Fiscal 2001, the Company recorded a restructuring
reserve in conjunction with the consolidation of the administrative offices
of Creative Expressions Group, Inc. ("CEG"), a former affiliate of the
Company, with its Oshkosh administrative offices. In Fiscal 2000, the
Company established a restructuring reserve for severance and related costs
for the elimination of its centralized machine shop and for the closure of
its Maspeth, New York facility. In Fiscal 1998, the Company established a
restructuring reserve for severance and related costs for a workforce
reduction, which was adjusted in Fiscal 1999, and for the closure of its
Jacksonville, Florida and Indianapolis, Indiana facilities and the St.
Albans, Vermont administrative offices.
(5) In Fiscal 2003, Fiscal 2002 and Fiscal 2001, the Company recorded an asset
impairment expense as a result of a review of the carrying value of certain
of its long-lived assets.
(6) Other (income) expense, net in Fiscal 2003, Fiscal 2002, Fiscal 2001 and
Fiscal 2000 includes $10.1 million, $10.2 million, $10.3 million and $2.8
million, respectively, of amortization of the deferred gain in connection
with the sale-leaseback transaction. In the Fiscal 2003, Other (income)
expense also includes: (i) $1.2 million of foreign currency transactions
gains, (ii) $0.2 million gain from the sale of its 25% interest in Fibre
Marketing Group, LLC ("Fibre Marketing"), the successor of Fibre Marketing
Group, Inc., a waste recovery business, (iii) $0.8 million

10

of costs associated with the opening of a mid-west distribution center,
(iv) $0.7 million of costs associated with the rationalization,
consolidation and improvement of the Company's manufacturing facilities,
(v) $0.8 million of costs associated with the maintenance of
non-operational facilities and (vi) $0.9 million of costs associated with
the establishment of new information systems.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

Forward-looking statements in this filing, including those in the Notes
to Consolidated Financial Statements, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially. Such risks and uncertainties include, but are
not limited to, general economic and business conditions, competitive market
pricing, increases in raw material costs, energy costs and other manufacturing
costs, fluctuations in demand the Company's products, potential equipment
malfunctions and pending litigation.

General

The Company believes that it is one of the largest producers and
marketers of disposable foodservice and food packaging products in North
America. The Company sells a broad line of disposable paper, plastic and foam
foodservice and food packaging products at all major price points under both
branded and private labels to institutional foodservice, consumer and food
packaging customers. The Company markets its products under its Sweetheart(R),
Lily(R), Trophy(R), Jazz(R), Preference(TM), Go Cup(R), Silent Service(R),
Centerpiece(TM), Basix(R), Guildware(R), Simple Elegance(R), Sensations(R),
Hoffmaster(R), Paper Art(R), and Touch of Color(R) brands.

The Company's product offerings cover a broad range within the
industry, including (i) paper, plastic and foam foodservice products, primarily
cups, lids, plates, bowls, plastic cutlery, food trays and food containers; (ii)
tissue and specialty foodservice products, primarily napkins, table covers,
placemats and lunch bags; and (iii) food packaging products, primarily
containers for the dairy and food processing industries. To enhance product
sales, the Company designs, manufactures and leases container filling and
lidding equipment to dairies and other food processors to package food items in
the Company's containers at customers' plants. Types of products packaged in the
Company's machines include: ice cream, factory-filled jacketed ice cream cones,
cottage cheese, yogurt, sour cream and squeeze-up desserts. The Company also
sells paper converting equipment used primarily in the manufacture of paper cups
and food containers.

The Company sells its products to institutional foodservice and
consumer customers, including large national accounts, located throughout the
United States, Canada and Mexico. The Company has developed and maintained
long-term relationships with many of its customers. The Company's institutional
foodservice customers include (i) major foodservice distributors, (ii) national
accounts, including quick service restaurant chains and catering companies, and
(iii) schools, hospitals and (iv) other major institutions. The Company's
consumer customers include (i) supermarkets, (ii) mass merchandisers, (iii)
warehouse clubs, (iv) party good stores and (v) other retailers. The Company's
food packaging customers include (i) national and regional dairy and (ii) food
companies.

The Company's business is seasonal with a majority of its net cash
flows from operations realized during the last six months of the fiscal year.
Sales for such periods reflect the high seasonal demands of the summer months
when outdoor and away-from-home consumption increases. In the event that the
Company's cash flows from operations is insufficient to provide working capital
necessary to fund its requirements, the Company will need to borrow under its
credit facility or seek other sources of capital. The Company believes that
funds available under such credit facility, together with cash generated from
operations, will be adequate to provide for cash requirements for the next
twelve months.

On March 25, 2002, pursuant to an Agreement and Plan of Merger, Fonda
was merged with and into Sweetheart Cup, with Sweetheart Cup as the surviving
entity. In connection with the merger, all of the assets and operations of Fonda
were assigned to, and all liabilities of Fonda were assumed by, Sweetheart Cup
by operation of law and all of the outstanding shares of Fonda were cancelled.
Sweetheart Cup is a wholly owned subsidiary of Sweetheart Holdings which is a
wholly owned subsidiary of SF Holdings. Sweetheart Holdings and Fonda are under
common

11

control, and therefore, the transaction was accounted for in a manner similar to
a pooling-of-interests.

Critical Accounting Policies and Estimates

Management's Discussion and Analysis of Financial Condition and Results
of Operations discusses the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, receivables reserves, inventory reserves, goodwill, income
taxes and contingencies. Management bases its estimates and judgment on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

Revenue recognition / receivable reserves - Revenue is recognized upon
shipment of product and when collectability is reasonably assured. Also, the
Company rents filling equipment to certain of its customers and recognizes this
income over the life of the lease. The Company's sales are evidenced and the
sales price fixed based upon either a purchase order, contract or buying
agreement with the customer. The Company's freight terms are either FOB shipping
point or freight prepaid by the customer. The customer may also be eligible for
promotional incentives or rebates. The Company at the time of sale records
reserves for promotional allowances, rebates and other discounts based on
historical experience, which are charged to net sales.

Raw materials - Raw materials are critical components of the Company's
cost structure. The prices for these raw materials may fluctuate. When raw
material prices decrease, selling prices have historically decreased. The actual
impact from raw material price changes is affected by a number of factors
including the level of inventories at the time of a price change, the specific
timing and frequency of price changes, and the lead and lag time that generally
accompanies the implementation of both raw materials and subsequent selling
price changes. In the event that raw material prices decrease over a period of
several months, the Company may suffer margin erosion on the sale of such
inventory.

Inventory reserves - The Company establishes reserves for its inventory
to reflect those conditions when the cost of the inventory is not expected to be
recovered. The Company reviews such circumstances when products are not expected
to be saleable based on standards established by the Company's quality assurance
standards. The reserve for these products is equal to all or a portion of the
cost of the inventory based on the specific facts and circumstances. The Company
monitors inventory levels on a regular basis and record changes in inventory
reserves as part of costs of goods sold.

Goodwill - Goodwill represents the excess of the purchase price over
the fair value of tangible and identifiable intangible net assets acquired and
was being amortized on a straight-line basis over twenty years. The carrying
value of goodwill is subject to an impairment test on an annual basis or when
facts and circumstances suggest that it may be impaired. See "Impact of Recently
Issued Accounting Standards, SFAS No. 142".

Income taxes - The Company applies an asset and liability approach to
accounting for income taxes. Deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The recoverability of deferred tax assets is dependent upon the Company's
assessment of whether it is more likely than not that sufficient future taxable
income will be generated in the relevant tax jurisdiction to utilize the
deferred tax asset. The Company reviews its internal forecasted sales and
pre-tax earnings estimates to make its assessment about the utilization of
deferred tax assets. In the event, the Company determines that the future
taxable income will not be sufficient to utilize the deferred tax asset, a
valuation allowance is recorded. If that assessment changes, a charge or a
benefit would be recorded on the statement of operations.

Contingencies - The Company is subject to litigation in the ordinary
course of business and also to certain other contingencies (See Note 26 to the
Notes to Consolidated Financial Statements). The Company records legal

12

fees and other expenses related to litigation and contingencies as incurred.
Additionally, the Company assesses, in consultation with its counsel, the need
to record a liability for litigation and contingencies on a case-by-case basis.
Reserves are recorded when the Company, in consultation with counsel, determines
that a loss related to a matter is both probable and reasonably estimable.

Selling, general and administrative expenses - Selling, general and
administrative expenses consist primarily of salaries, benefits, promotional and
advertising costs, rent, depreciation of equipment and broker fees.

Recent Developments

The Company has entered into an agreement for the sale of its
Somerville, Massachusetts facility for a purchase price of approximately $10.1
million. According to the agreement, the closing of this sale is to occur on or
before January 16, 2004. However, there can be no assurances that this sale will
be consummated.

Pursuant to a preliminary offering circular, dated December 2, 2003,
the Company is proposing to sell $100.0 million of senior secured notes in a
private placement. In addition, the Company is selling $20.0 million of junior
subordinated notes in a separate private placement. The proceeds of both
offerings would be used to repay a portion of its Senior Credit Facility and to
redeem all of its outstanding 12% Senior Notes due 2004. The senior secured
notes would bear interest at a fixed rate that has not yet been determined and
would mature in 2007. The junior subordinated notes, which would be purchased by
International Paper Company, one of the Company's raw materials suppliers, would
bear interest at the rate of 9-1/2% and would mature in 2008. The senior secured
notes and the junior subordinated notes are being offered in private placements
and will not be registered under the Securities Act of 1933. The Company intends
to complete the private placements and debt repayments by December 31, 2003.

Fiscal 2003 Compared to Fiscal 2002

Net sales increased $24.4 million, or 1.9%, to $1,307.9 million in
Fiscal 2003 compared to $1,283.5 million in Fiscal 2002 reflecting a 0.6%
decrease in sales volume and a 2.5% increase in average realized sales price.
Sales volume decreased primarily as a result of lower demand from consumer
customers, which was partially offset by increased demand from institutional
customers. Average realized sales prices increased as a result of pricing
increases associated with higher raw material costs and a change in product mix.

Gross profit increased $12.9 million, or 8.4%, to $166.2 million in
Fiscal 2003 compared to $153.3 million in Fiscal 2002. As a percentage of net
sales, gross profit increased to 12.7% in Fiscal 2003 from 11.9% in Fiscal 2002.
The increase in gross profit is primarily due to improved manufacturing
efficiencies and labor utilization resulting from the Company's rationalization,
consolidation and improvement of its manufacturing facilities. The benefits from
improved manufacturing efficiencies were partially offset by average selling
prices increasing at a slower rate than increasing raw material costs.

Selling, general and administrative expenses decreased $6.6 million, or
5.7%, to $108.2 million in Fiscal 2003 compared to $114.8 million in Fiscal
2002. This decrease was primarily due to (i) $2.1 million decrease in salaries
and related fringe benefits due to a workforce reduction program initiated in
Fiscal 2002, (ii) $2.6 million decrease in depreciation expense resulting from
the full depreciation of certain computer equipment, (iii) $2.0 million decrease
in goodwill amortization due to the adoption of SFAS No. 142 and (iv) $1.1
million decrease in expenses due to fewer customer bankruptcy filings in Fiscal
2003. These favorable changes were partially offset by a $2.2 million increase
in promotional and advertising expenses.

Restructuring charge decreased $1.4 million, or 73.7%, to $0.5 million
in Fiscal 2003 compared to $1.9 million in Fiscal 2002. In Fiscal 2003, the
Company established a restructuring reserve of $0.6 million resulting from the
elimination of 18 salaried positions. The plan was approved by management on
July 7, 2003 and announced to employees on July 11, 2003. In the fourth quarter
of Fiscal 2003, the Company paid $0.3 million in severance payments. The
remaining $0.3 million of severance payments will be paid in the first three
quarters of Fiscal 2004. In Fiscal 2002, the Company established a restructuring
reserve of $0.3 million in conjunction with the planned closure of the Company's
Lafayette, Georgia facility from which 101 primarily manufacturing positions
were eliminated. The plan was approved by management on September 24, 2002 and
announced to employees on September 29, 2002. In

13

Fiscal 2003, the Company paid severance payments of $0.1 million and vacated
rent expense of $0.2 million. Also, in Fiscal 2002, the Company established a
restructuring reserve of $1.6 million in conjunction with planned consolidation
initiatives from which 475 primarily manufacturing positions were eliminated.
The plan was approved by management on June 19, 2002 and announced to employees
on June 28, 2002. A portion of the severance payments of $1.6 million was paid
in the fourth quarter of Fiscal 2002 with the remaining payments paid in the
first three quarters of Fiscal 2003.

Asset impairment expense increased $0.1 million, or 16.7%, to $0.7
million in Fiscal 2003 compared to $0.6 million in Fiscal 2002 as a result of
the Company's evaluation of the usefulness of certain equipment no longer in use
in by the Company.

Other (income) expense, net changed $10.4 million, or 495.2%, to $8.3
million of income in Fiscal 2003 compared to $2.1 million of expense in Fiscal
2002. In Fiscal 2003, the Company realized $10.1 million due to the amortization
of the deferred gain in conjunction with the Fiscal 2000 sale-leaseback
transaction. In addition, the Company realized $1.2 million from foreign
currency transactions gains and $0.2 million from the sale of its 25% interest
in Fibre Marketing. These gains were partially offset by (i) $0.8 million of
costs associated with the opening of a mid-west distribution center, (ii) $0.7
million of costs associated with the rationalization, consolidation and
improvement of the Company's manufacturing facilities, (iii) $0.8 million of
costs associated with the maintenance of non-operational facilities and (iv)
$0.9 million of costs associated with the establishment of new information
systems. In Fiscal 2002, the Company realized $10.2 million due to the
amortization of the deferred gain in conjunction with the Fiscal 2000
sale-leaseback transaction. Also, in Fiscal 2002, the Company recognized a $3.0
million gain associated with the sale of the Company's manufacturing facility in
Manchester, New Hampshire. These gains were offset by (i) a $5.4 million
write-off of the management services agreement between Sweetheart Holdings and
SF Holdings, which had been assigned and assumed by Fonda in 1998, (ii) a $2.6
million write-off of assets related to business initiatives which were abandoned
subsequent to the Merger, (iii) $6.9 million of costs in connection with the
rationalization, consolidation and process improvement of the Company's
manufacturing facilities and (iv) $0.5 million of additional costs of associated
with the termination of the Lily-Tulip, Inc. Salary Retirement Plan.

Operating income increased $31.2 million, or 92.0% to $65.1 million in
Fiscal 2003 compared to $33.9 million in Fiscal 2002 due to the reasons
described above.

Interest expense, net increased $2.2 million, or 5.9%, to $39.3 million
in Fiscal 2003 compared to $37.1 million in Fiscal 2002. This increase is
primarily due to the amortization of fees associated with the Company's Exchange
Offer and increase in coupon interest effective March 1, 2002 for the 12.0%
Senior Notes due September 2004. These increases were partially offset by lower
interest rates under the Senior Credit Facility.

Loss on debt extinguishment decreased $1.3 million, or 72.2%, to $0.5
million in Fiscal 2003 compared to $1.8 million in Fiscal 2002. In Fiscal 2003,
in connection with the Exchange Offer, the Company charged $0.5 million to
operations which amount represents the write-off of unamortized deferred
financing fees associated with the Company's 12.0% Senior Subordinated Notes. In
Fiscal 2002, in conjunction with the refinancing of the Company's Senior Credit
Facility, the Company charged $1.8 million to operations which amount represents
the write-off of unamortized deferred financing fees and redemption fees
pertaining to such debt to results of operations.

Income tax expense (benefit) changed $12.1 million, or 605.0% to an
expense of $10.1 million in Fiscal 2003 compared to a benefit of $2.0 million in
Fiscal 2002 as a result of pre-tax income. The effective rate for Fiscal 2003
and 2002 was 40%.

Minority interest in subsidiary was $0.1 million in Fiscal 2003 and in
Fiscal 2002. This amount represents the 20% ownership of Global Cup, S.A. De
C.V.'s ("Global Cup") income.

Net income (loss) increased $18.1 million, or 583.9%, to $15.0 million
of income in Fiscal 2003 compared to $3.1 million of loss in Fiscal 2002 due to
the reasons described above.

Fiscal 2002 Compared to Fiscal 2001

Net sales decreased $33.2 million, or 2.5%, to $1,283.5 million in
Fiscal 2002 compared to $1,316.7

14

million in Fiscal 2001 reflecting a 2.5% decrease in average realized selling
prices resulting from lower raw material costs and competitive pressures while
sales volumes remained constant. Sales volumes declined domestically due to a
reduction in the business and leisure travel industries and a reduction in
foodservice and away-from-home dining which resulted from the events of
September 11, 2001 and the fact that Fiscal 2002 consisted of 52 weeks as
compared with 53 weeks for Fiscal 2001. This decrease was offset by increased
sales volume due to the incremental sales obtained from the acquisitions of
Global Cup in April 2001 and the consumer division of Dopaco in August 2001. Net
sales excluding Global Cup and the consumer division of Dopaco decreased $72.2
million, or 5.5%, to $1,235.4 million in Fiscal 2002 compared to $1,307.6
million in Fiscal 2001 reflecting a 2.5% decrease in average realized sales
price and a 3.2% decrease in sales volume.

Gross profit decreased $19.6 million, or 11.3%, to $153.3 million in
Fiscal 2002 compared to $172.9 million in Fiscal 2001. As a percentage of net
sales, gross profit decreased to 11.9% in Fiscal 2002 from 13.1% in Fiscal 2001.
The $19.6 million decline in gross profit was due (i) 66.7% to the manufacturing
inefficiencies related to the Company's consolidation initiatives and lower
fixed cost absorption as Fiscal 2002 consisted of 52 weeks as compared with 53
weeks for Fiscal 2001, (ii) 22.2% to the impact of lower average realized
selling prices and (iii) 11.1% to a decrease from a mix shift to lower margin
volumes as a result of the acquisition of the consumer division of Dopaco.

Selling, general and administrative expenses increased $1.6 million, or
1.4%, to $114.8 million in Fiscal 2002 compared to $113.2 million in Fiscal
2001. This increase resulted primarily from $2.2 million of increased
promotional and advertising expenses, $1.5 million of increased bad debt expense
due to a customer bankruptcy filing and $1.0 million and $1.4 million of
increased expenses due to the acquisitions of both Global Cup and the consumer
division of Dopaco, respectively. These increases were partially offset by (i)
lower expenses as a result of Fiscal 2002 consisting of 52 weeks as compared to
53 weeks in Fiscal 2001, (ii)$3.7 million in reduced salaries and benefits and
(iii)$1.3 million in lower depreciation expense.

Restructuring charge increased $1.4 million, or 280.0%, to $1.9 million
in Fiscal 2002 compared to $0.5 million in Fiscal 2001. In Fiscal 2002, the
Company established a restructuring reserve of $0.3 million in conjunction with
the planned closure of the Company's Lafayette, Georgia facility from which 101
primarily manufacturing positions were eliminated. The plan was approved by
management on September 24, 2002 and announced to employees on September 29,
2002. Severance payments of $0.1 million and $0.2 million of vacated rent
expense was paid in Fiscal 2003. Also, in Fiscal 2002, the Company established a
restructuring reserve of $1.6 million in conjunction with planned consolidation
initiatives from which 475 primarily manufacturing positions were eliminated.
The plan was approved by management on June 19, 2002 and announced to employees
on June 28, 2002. A portion of the severance payments of $1.6 million were paid
in the fourth quarter of Fiscal 2002 with the remaining payments to be paid in
the first three quarters of Fiscal 2003. In Fiscal 2001, the Company established
a restructuring reserve of $0.5 million in conjunction with the consolidation of
the former administrative offices of CEG in Indianapolis, Indiana into the
Company's administrative offices in Oshkosh, Wisconsin. This consolidation
included the elimination of approximately 40 positions. The plan was approved by
management on October 30, 2000 and announced to employees on May 1, 2001. The
effective date of the consolidation and elimination of positions was delayed
until the fourth quarter of Fiscal 2001. Severance payments of $0.1 million were
paid in the fourth quarter of Fiscal 2001.

Asset impairment expense was $0.6 million in Fiscal 2002 as a result of
the Company's evaluation of the usefulness of certain equipment no longer in use
in connection with the closure of its Lafayette, Georgia facility.

Other (income) expense, net changed $11.9 million, or 121.4%, to $2.1
million of expense in Fiscal 2002 compared to $9.8 million of income in Fiscal
2001. In Fiscal 2002, the Company realized $10.2 million due to the amortization
of the deferred gain in conjunction with the Fiscal 2000 sale-leaseback
transaction. Also, in Fiscal 2002, the Company recognized a $3.0 million gain
associated with the sale of the Company's manufacturing facility in Manchester,
New Hampshire. These gains were offset by (i) a $5.4 million write-off of the
management services agreement between Sweetheart Holdings and SF Holdings, which
had been assigned and assumed by Fonda in 1998, (ii) a $2.6 million write-off of
assets related to business initiatives which were abandoned subsequent to the
Merger, (iii) $6.9 million of costs in connection with the rationalization,
consolidation and process improvement of the Company's manufacturing facilities
and (iv) $0.5 million of additional costs associated with the termination of the
Lily-Tulip, Inc. Salary Retirement Plan. In Fiscal 2001, the Company realized
$10.3 million due to the amortization of the deferred gain in conjunction with
the sale-leaseback transaction. This amortization of the deferred gain was
partially offset by $1.6 million in expenses associated with the relocation of
the Company's Somerville,

15

Massachusetts, manufacturing facility to North Andover, Massachusetts.

Operating income decreased $32.8 million, or 49.2% to $33.9 million in
Fiscal 2002 compared to $66.7 million in Fiscal 2001 due to the reasons
described above.

Interest expense, net decreased $1.8 million, or 4.6%, to $37.1 million
in Fiscal 2002 compared to $38.9 million in Fiscal 2001. This decrease is
attributable to lower interest rates on higher average balances under the
Company's Senior Credit Facility which was partially offset by the increased
interest rate on $110 million of Senior Subordinated Notes from 10.5% to 12.0%
which was effective March 1, 2002.

Loss on debt extinguishment was $1.8 million in Fiscal 2002 resulting
from the write-off of unamortized deferred financing costs and redemption fees
in connection with the refinancing of the Company's Senior Credit Facility.

Income tax expense (benefit) changed $13.2 million, or 117.9% to a
benefit of $2.0 million in Fiscal 2002 compared to an expense of $11.2 million
in Fiscal 2001 as a result of a pre-tax loss. The effective rate for Fiscal 2002
and 2001 was 40%.

Minority interest in subsidiary was $0.1 million in Fiscal 2002 and in
Fiscal 2001. This amount represents the 20% ownership of Global Cup's income.

Net income (loss) decreased $19.6 million, or 118.8%, to a $3.1 million
loss in Fiscal 2002 compared to $16.5 million of income in Fiscal 2001 due to
the reasons described above.

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. In Fiscal 2003, the Company funded its capital
expenditures from a combination of cash generated from operations, funds
generated from asset sales and revolving credit borrowings. The Company expects
to continue this method of funding for its Fiscal 2004 capital expenditures.

Net cash provided by operating activities in Fiscal 2003 was $57.9
million compared to $28.5 million in Fiscal 2002. This increase is primarily due
to improved earnings and an increase in accounts payable due to more favorable
trade terms. This increase was partially offset by increases in receivables and
inventories.

Net cash used in investing activities in Fiscal 2003 was $13.4 million
compared to $16.0 million in Fiscal 2002. This decrease is primarily due to
lower capital spending which is offset, in part, by the receipt of net proceeds
from the sale of the Manchester, New Hampshire facility in Fiscal 2002.

Net cash used in financing activities in Fiscal 2003 was $42.1 million
compared to net cash used in financing activities of $16.1 million in Fiscal
2002. This increase is primarily due to increased repayments under the Senior
Credit Facility and the repayment of $16.2 million of 12.0% Senior Subordinated
Notes.

Working capital decreased $8.9 million to $117.9 million at September
28, 2003 from $126.8 million at September 29, 2002. This decrease resulted from
current liabilities increasing $17.6 million which was offset by current assets
increasing $8.7 million. The increase in current liabilities resulted primarily
from increased accounts payable. The increase in current assets resulted
primarily from increased receivables.

Capital expenditures for Fiscal 2003 were $13.8 million compared to
$21.2 million in Fiscal 2002. Capital expenditures for Fiscal 2003 included $9.4
million for new production equipment; $0.9 million associated with the
implementation of the Company's consolidation program; and $3.5 million
primarily for routine capital improvements. Funding for the Fiscal 2003 capital
expenditures was primarily provided by cash generated from operations and
revolving credit borrowings. In Fiscal 2004, the Company intends to continue to
rely on this combination of funding and the sale of assets for its capital
expenditures.

On October 1, 2002, the Company entered into a loan agreement with the
City of Chicago to borrow $2.0

16

million. The loan bears no interest and is payable in equal installments of
$100,000 commencing on February 1, 2004 and every six months thereafter. The
loan matures on the later of August 1, 2014 or the date on which all amounts
outstanding under the loan agreement have been paid in full.

On June 10, 2002, the Company entered into a loan agreement with the
Department of Business and Economic Development, a principal department of the
State of Maryland, to borrow $2.0 million (the "Maryland Loan"). The Maryland
Loan bears interest at a rate ranging from 3.0% to 8.0% per annum depending on
certain employment rates at the Company's Owings Mills, Maryland facility. The
Maryland Loan is payable in quarterly installments through March 1, 2007.

On March 25, 2002, the Company refinanced its existing Senior Credit
Facility. The Senior Credit Facility has a maturity date of March 25, 2007. The
Senior Credit Facility was amended on February 28, 2003 to require, among other
things, the date by which the refinancing, repayment or extension of the
Company's newly issued 12.0% Senior Notes shall be December 31, 2003. If the
Company is unable to refinance, repay or extend the 12.0% Senior Notes prior to
December 31, 2003, the Senior Credit Facility, unless otherwise amended, will
become due and payable. The Senior Credit Facility allows for a maximum credit
borrowing of $235 million subject to borrowing base limitations and satisfaction
of other conditions of borrowing. The revolving borrowings have a maximum of
$215 million. The term loans have a maximum of $25 million and are payable
monthly through March 2005. Borrowings under the Senior Credit Facility, at the
Company's election, bear interest at either (i) a bank's base rate revolving
loan reference rate plus 0.5% or (ii) LIBOR plus 2.5%. For Fiscal 2003, the
weighted average annual interest rate for the Senior Credit Facility was 3.97%.
The indebtness of Sweetheart Cup under the Senior Credit Facility is guaranteed
by Sweetheart Holdings and secured by a first priority perfect security interest
in accounts receivable, inventory, general intangibles and certain other assets.
The fee for outstanding letters of credit is 2.00% per annum and there is a
commitment fee of 0.375% per annum on the daily average unused amount of the
commitments. As of September 28, 2003, $49.1 million was available under the
Senior Credit Facility. As of September 28, 2003, LIBOR was 1.12% and the bank's
base rate was 4.50%.

The Senior Credit Facility contains various covenants that limit, or
restrict, among other things, indebtedness, dividends, leases, capital
expenditures and the use of proceeds from asset sales and certain other business
activities. Additionally, the Company must maintain on a consolidated basis,
certain specified ratios at specified times, including, without limitation,
maintenance of minimum fixed charge coverage ratio. The Company is currently in
compliance with all covenants under the Senior Credit Facility. The Senior
Credit Facility provides for partial mandatory prepayments upon the sale of
equipment collateral unless net proceeds are used to purchase replacement
collateral and full repayment upon any change of control (as defined in the loan
agreement governing the Senior Credit Facility).

The Company's Canadian subsidiary has a credit agreement (the "Canadian
Credit Facility") which provides for a term loan and a credit facility with a
maximum credit borrowing of Cdn $30 million (approximately US $22.1 million)
subject to borrowing base limitations and satisfaction of other conditions of
borrowing. The term borrowings are payable quarterly through May 2004. Both the
revolving credit and term loan borrowings have a final maturity date of June 15,
2004. The Canadian Credit Facility is secured by all existing and thereafter
acquired real and personal tangible assets of the Company's Canadian subsidiary
and net proceeds on the sale of any of the foregoing. Borrowings under the
Canadian Credit Facility bear interest at an index rate plus 1.75% with respect
to the revolving credit facility and an index rate plus 2.00% with respect to
the term loan borrowings. For Fiscal 2003, the weighted average annual interest
rate for the Canadian Credit Facility was 4.86%. As of September 28, 2003, Cdn
$2.1 million (approximately US $1.6 million) was available under the revolving
facility and the term loan balance was Cdn $10.2 million (approximately US $7.5
million) under the Canadian Credit Facility.

On April 8, 2003, the Company consummated its offer to exchange its
newly issued 12.0% Senior Notes due July 15, 2004, for all of its outstanding
12.0% Senior Subordinated Notes and solicitation of consents of holders of the
12.0% Senior Subordinated Notes to the proposed amendments to the indenture
governing the 12.0% Senior Subordinated Notes. Sweetheart Cup, Sweetheart
Holdings, as guarantor, and Wells Fargo Bank Minnesota, N.A., as trustee,
executed the indenture governing the 12.0% Senior Notes and $93.8 million in
aggregate principal amount of the 12.0% Senior Notes were issued under the
indenture in exchange for a like amount of the 12.0% Senior Subordinated Notes.
Payment of the consent payments to all holders of the 12.0% Senior Subordinated
Notes who timely tendered was made in April 2003 to the trustee. In Fiscal 2003,
the Company recorded a $0.5 million loss on debt extinguishment in connection
with the Exchange Offer which consisted of the write-off of deferred financing
costs.

17

In September 2003, $16.2 million in aggregate principal amount of the
12.0% Senior Subordinated Notes that remained outstanding following the Exchange
Offer, including accrued interest thereon, was paid in full using funds borrowed
under the Senior Credit Facility and the indenture governing the 12.0% Senior
Subordinated Notes has been satisfied and discharged.

Sweetheart Cup is the obligor and Sweetheart Holdings the guarantor
with respect to the 12.0% Senior Notes. Interest on the 12.0% Senior Notes is
payable quarterly on January 15, April 15, July 15 and October 15. The Company
may redeem, at any time, all or a part of the 12.0% Senior Notes upon notice not
less than 30 nor more than 60 days prior to the redemption date, at a redemption
price of 100% of principal amount plus accrued and unpaid interest on the 12.0%
Senior Notes redeemed to the applicable redemption date. The 12.0% Senior Notes
are general unsecured obligations of the Company and are senior in right of
payment to all existing and future subordinated indebtedness including the 9
1/2% Senior Subordinated Notes due 2007; are pari passu in right of payment with
all existing and future senior indebtedness of the Company; and are
unconditionally guaranteed by Sweetheart Holdings . In addition, the obligations
under the June 1, 2000 lease between Sweetheart Cup and State Street Bank and
Trust Company of Connecticut, National Association ("State Street") are secured
by a significant portion of the Company's existing property, plant and
equipment. The 12.0% Senior Notes contain various covenants which prohibit, or
limit, among other things, change of control, asset sales, dividend payments,
equity repurchases or redemption, the incurrence of additional indebtedness,
make any restrictive investments, the issuance of disqualified stock, the
creation of additional liens, certain transactions with affiliates, and certain
other business activities.

In Fiscal 1997, the Company issued $120.0 million 9 1/2% Senior
Subordinated Notes due March 1, 2007 with interest payable semi-annually (the "9
1/2% Senior Subordinated Notes"). Payment of the principal and interest is
subordinate in right to payment of all of the Company's senior debt, including
borrowings under the Senior Credit Facility. The Company may, at its election,
redeem the 9 1/2% Senior Subordinated Notes at any time after March 1, 2002 at a
redemption price equal to a percentage (104.750% after March 1, 2002 and
declining in annual steps to 100% after March 1, 2005) of the principal amount
thereof plus accrued interest. The 9 1/2 % Senior Subordinated Notes provide
that upon the occurrence of a change of control (as defined therein), the
holders thereof will have the option to require the redemption of the notes at a
redemption price equal to 101% of the principal amount thereof plus accrued
interest. The 9 1/2% Senior Subordinated Notes are subordinated in right of
payment to the prior payment in full of all of the Company's senior debt,
including borrowings under the Senior Credit Facility. In addition, the
obligations under the June 1, 2000 lease between Sweetheart Cup and State Street
are secured by a significant portion of the Company's existing property, plant
and equipment. The 9 1/2% Senior Subordinated Notes contain various covenants
which prohibit, or limit, among other things, asset sales, change of control,
dividend payments, equity repurchases or redemption, the incurrence of
additional indebtedness, the issuance of disqualified stock, certain transaction
with affiliates, the creation of additional liens and certain other business
activities.

In connection with a sale-leaseback transaction, on June 15, 2000, the
Company sold certain production equipment located in Owings Mills, Maryland,
Chicago, Illinois and Dallas, Texas to several owner participants for a fair
market value of $212.3 million. Pursuant to a lease dated as of June 1, 2000
(the "Lease") between Sweetheart Cup and State Street, as trustee, Sweetheart
Cup leases the production equipment sold in connection with the sales lease-back
transaction from State Street as owner trustee for several owner participants,
through November 9, 2010. Sweetheart Cup has the option to renew the Lease for
up to four consecutive renewal terms of two years each. Sweetheart Cup also has
the option to purchase such equipment for fair market value either at the
conclusion of the Lease term or November 21, 2006. The Company's obligations
under the Lease are collateralized by substantially all of the property, plant
and equipment owned by the Company as of June 15, 2000. The Lease contains
various covenants, which prohibit, or limit, among other things, dividend
payments, equity repurchases or redemption, the incurrence of additional
indebtedness and certain other business activities. The Company is accounting
for the sale-leaseback transaction as an operating lease, expensing $31.5
million annual rental payments and removing the property, plant and equipment
sold from its balance sheet. A deferred gain of $107.0 million was realized from
this sale and will be amortized over 125 months, which is the term of the Lease.

18

The following summarizes the Company's contractual obligations at
September 28, 2003, and the effect such obligations are expected to have on its
liquidity and cash flows in future periods (in 000's):

Payments Due In Fiscal
------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter
---------- --------- --------- ---------- --------- ----------

Long-term debt $ 116,824 $ 4,503 $ 612 $ 280,519 $ 200 $ 1,000
Non-cancelable
operating leases 54,223 52,377 49,366 47,278 53,512 189,969
Capital leases 124 97 - - - -
---------- --------- --------- ---------- --------- ----------
Total obligations $ 171,171 $ 56,977 $ 49,978 $ 327,797 $ 53,712 $ 190,969
========== ========= ========= ========== ========= ==========

In Fiscal 2001, the Company experienced a casualty loss at its
Somerville, Massachusetts facility. From January 2001 through September 29,
2002, the Company incurred $11.6 million of expenses associated with this
casualty loss. As of September 29, 2002, the Company received $12.5 million
reimbursement under the casualty and business interruption claim. The $0.9
million of proceeds in excess of the expenses, represents the net proceeds from
the business interruption claim, which were recorded as a reduction to cost of
sales in the fourth quarter of Fiscal 2002. In October 2002, the Company and its
insurance provider agreed to a final settlement of this claim whereby the
Company would receive an additional $3.8 million of business interruption
proceeds. This amount was received and recorded as a reduction of cost of sales,
net of $0.2 million of expenses, in Fiscal 2003.

The Company is subject to legal proceedings and other claims arising in
the ordinary course of its business. The Company maintains insurance coverage of
types and in amounts which it believes to be adequate and believes that it is
not presently a party to any litigation, the outcome of which could reasonably
be expected to have a material adverse effect on its financial condition or
results of operations.

The Company's Senior Credit Facility requires it to refinance, repay or
extend the maturity of its 12.0% Senior Notes due 2004 by December 31, 2003. If
the Company is unable to refinance, repay or extend the maturity of the 12.0%
Senior Notes prior to December 31, 2003, its Senior Credit Facility, unless
otherwise amended will become due and payable. See "--Recent Developments".

Except as stated above, management believes that cash generated by
operations and amounts available under the Company's credit facilities and funds
generated from asset sales should be sufficient to meet the Company's expected
operating needs, planned capital expenditures, payments in conjunction with the
Company's lease commitments and debt service requirements (other than the
payment of principal under the 12.0% Senior Notes) in the next twelve months.

The Company is evaluating various strategic options which may include a
restructuring of its debt and capital structure, including, among other things,
the public sale or private placement of debt or equity securities, joint venture
transactions, sales of assets or the business, new borrowings, the refinancing
of the Company's existing debt agreements, open market purchases, tender offers
or exchange offer and consent solicitations of the Company's outstanding
securities. There can be no assurances that any of these strategic options will
be consummated.

Net Operating Loss Carryforwards

As of September 28, 2003, the Company had approximately $43 million of
net operating loss carryforwards for federal income tax purposes of which $20
million will expire in 2018 and the remaining $23 million will expire in 2022.
Although future earnings cannot be predicted with certainty, management
currently believes that realization of the net deferred tax asset is more likely
than not.

Impact of Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 applies to all
goodwill and other intangible assets recognized in an entity's

19

balance sheet regardless of when these assets were originally recognized. SFAS
No. 142 requires that goodwill and certain intangibles with an indefinite life
not be amortized, but be subject to an impairment test on an annual basis or
when facts and circumstances suggest such assets may be impaired. The Company
has adopted SFAS No. 142 effective September 30, 2002 and has ceased
amortization of goodwill as of that date. SFAS No. 142 also requires the Company
to complete a transitional goodwill impairment test no later than March 30,
2003. The transitional goodwill impairment test was completed, as required, by
March 30, 2003. The carrying value of goodwill did not exceed its fair value
and, as a result, no transitional impairment loss was required.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of leases. The Company adopted
SFAS No. 143 effective September 30, 2002. The adoption of SFAS No. 143 did not
have an impact on the consolidated financial statements.

In October 2001, the FASB issued SFAS No. 144, Impairment or Disposal
of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The Company has adopted
SFAS No. 144 effective September 30, 2002. The adoption of SFAS No. 144 did not
have an impact on the consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, Recission of FASB No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS
No. 145 addresses, among other items, the classification of gains and losses
from extinguishment of debt. In accordance with the statement, any gain or loss
on extinguishment of debt that does not meet the criteria in APB No. 30 will no
longer be classified as an extraordinary item. The Company has adopted SFAS No.
145 effective September 30, 2002.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 replaces Emerging
Issues Task Force Issue 94-3, requiring a company to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. SFAS No. 146 is applied
prospectively to exit or disposal activities initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation ("FIN") 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires additional
disclosure relating to guarantees and in some cases requires the recognition of
a liability for the fair value of certain guarantees. FIN 45 is applicable to
guarantees issued or modified after December 31, 2002. The adoption of FIN 45
had no effect on the Company, as it does not guarantee the liabilities of
others.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock
Based Compensation. SFAS No. 148 amends SFAS No. 123, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company has implemented the disclosure provisions
of SFAS No. 148.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristic of both Liabilities and Equity. SFAS
No. 150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. The adoption of SFAS
No. 150 did not have an impact on the consolidated financial statements.

In March 2003, the Emerging Issues Task Force issued EITF 02-16
Accounting by a Customer (including a reseller) for Certain Consideration
Received from a Vendor ("EITF 02-16"). Under EITF 02-16 rebates or refunds of a
specified amount of cash consideration that is payable pursuant to a binding
arrangement only if the customer completes a specified cumulative level of
purchases or remains a customer for as specified time period are

20

recognized as a reduction of the cost of sales based on a systematic and
rational allocation of the cash consideration offered to each of the underlying
transactions that results in progress by the Company toward earning the rebate
or refund provided the amounts are probable and reasonably estimable. The
Company has adopted EITF 02-16. The adoption of EITF 02-16 did not have an
impact on the consolidated financial statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

The Company is exposed to market risk in the ordinary course of
business, which consists primarily of interest rate risk associated with its
variable rate debt. All borrowings under the Senior Credit Facility and Canadian
Credit Facility, each of which contains a revolving and term credit facility,
bear interest at a variable rate. Borrowings under the Senior Credit Facility,
at the Company's election, bear interest at either (i) a bank's base rate
revolving loan reference rate plus 0.5% or (ii) LIBOR plus 2.5%. Borrowings
under the Canadian Credit Facility bear interest at an index rate plus 1.75%
with respect to the revolving credit borrowings and an index rate plus 2.00%
with respect to the term loan borrowings. As of September 28 2003, the
outstanding indebtedness under the Senior Credit Facility was $167.7 million and
the Canadian Credit Facility was $14.7 million in U.S. dollars. As of September
28, 2003, $49.1 million was available under the Senior Credit Facility and Cdn
$2.1 million (approximately US $1.6 million) was available under Canadian Credit
Facility. Based upon amounts outstanding, the annual net income would change by
approximately $1.1 million for each one percentage point change in the interest
rates applicable to the variable rate debt. 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.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Financial Statements and Financial Statement Schedule attached
hereto and listed in Item 15 (a)(1) and (a)(2) hereof.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

NONE

Item 9A. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and the
participation of its management, of the effectiveness of its disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
the end the period covered by this report. Based on this evaluation, the
Company's principal executive officer and principal financial officer concluded
that its disclosure controls and procedures were effective. It should be noted
that design of any system controls is based in part upon certain assumptions,
and there can be no assurance that any design will succeed in achieving its
stated goal.

There was no significant changes in the Company's internal controls or
in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information with respect to the
Company's directors, executive officers and key employees. All directors hold
office until the next annual meeting of shareholders and until their successors
are duly elected and qualified. Officers serve at the discretion of the Board of
Directors.

21

Name Age Position
- ------------------------- ---- ---------------------------------
Dennis Mehiel............ 61 Chairman and Chief Executive Officer
Thomas Uleau............. 59 Chief Operating Officer and Vice Chairman
Hans H. Heinsen.......... 50 Senior Vice President-Finance and Chief
Financial Officer
Michael T. Hastings...... 56 President-Sweetheart Brand
Robert M. Korzenski...... 49 President-Hoffmaster Brand
Dennis Dorian Mehiel..... 35 President-Fonda Brand
Harvey L. Friedman....... 61 Senior Vice President, General Counsel and
Secretary
Ingrid Santiago.......... 51 Senior Vice President-- Materials
Management
Thomas Pasqualini........ 46 Senior Vice President-- Manufacturing and
Logistics
John A. Catsimatidis..... 54 Director
Dennis Pilotti........... 51 Director
G. William Seawright..... 62 Director

Dennis Mehiel has been Chairman and Chief Executive Officer of
Sweetheart Holdings and Sweetheart Cup since March 1998. Mr. Mehiel has been
Chairman and Chief Executive Officer of SF Holdings since February 1998 and has
been Chairman and Chief Executive Officer of Fonda since 1988. Since July 2000,
he has been a director of Box USA Holdings, Inc. ("Box USA") (formerly Four M
Corporation, a converter and seller of interior packaging, corrugated sheets and
corrugated containers which Mr. Mehiel cofounded ("Four M")). From 1966 until
July 2000, he was Chairman of Four M. From 1977 until July 2000 (except during a
leave of absence from April 1994 through July 1995) he served as the Chief
Executive Officer of Four M. Mr. Mehiel is also Chief Executive Officer and a
director of Mannkraft Corporation (formerly Box USA of New Jersey, Inc.) a
manufacturer of corrugated containers. He was also Chairman and Chief Executive
Officer of CEG (predecessor by merger to SF Holdings) until June 2003.

Thomas Uleau has been Chief Operating Officer and Vice Chairman of
Sweetheart Holdings and Sweetheart Cup since May 2002. Prior thereto, Mr. Uleau
was Executive Vice President and a director of Sweetheart Holdings and
Sweetheart Cup since March 1, 2001 and prior thereto was President, Chief
Operating Officer and a director since March 1998. Mr. Uleau also has been Vice
Chairman and Senior Vice President of SF Holdings since March 1, 2001 and prior
thereto was also President, Chief Operating Officer and a director of SF
Holdings. He has been Executive Vice President of Fonda since March 1998 and has
been a director of Fonda since 1988. He has also served in a variety of
executive officer positions at Fonda since 1989. He was a Executive Vice
President of CEG from 1996 until June 2003 and was a director of CEG until June
2003. Prior to July 2000 he was a director of Box USA (formerly Four M). He
served as Executive Vice President and Chief Financial Officer of Four M from
1989 through 1993 and as its Chief Operating Officer in 1994.

Hans H. Heinsen has been Senior Vice President -- Finance and Chief
Financial Officer of Sweetheart Holdings and Sweetheart Cup since March 1998.
Mr. Heinsen also has been Senior Vice President, Chief Financial Officer and
Treasurer of SF Holdings since February 1998, Senior Vice President and
Treasurer of Fonda since February 1997, Chief Financial Officer of Fonda since
June 1996. Mr. Heinsen was Chief Financial Officer of CEG from November 1998
until June 2003. Prior to joining Fonda, Mr. Heinsen spent 21 years in a variety
of corporate finance positions with The Chase Manhattan Bank, N.A.

Michael T. Hastings has been President of the Sweetheart Brand of
Sweetheart Holdings and Sweetheart Cup since March 2002. Prior thereto, Mr.
Hastings was President of Sweetheart Holdings and Sweetheart Cup from March 2001
to March 2002, and prior thereto he was Senior Vice President-Sales and
Marketing for Sweetheart Holdings and Sweetheart Cup from March 1998 to March
2002. Mr. Hastings was also Senior Vice President of Fonda from March 1998 to
March 2002. Mr. Hastings was Senior Vice President of SF Holdings from December
2001 until May 2002. Prior to joining Sweetheart, Mr. Hastings served as
President of the Fonda Division of Fonda, which he joined in May 1995. From
December 1990 to April 1995, Mr. Hastings served as Vice President of Sales and
Marketing and as a member of the Board of Directors of Anchor Packaging Company,
a manufacturer of institutional films and thermoformed plastic packaging. Prior
to joining Anchor Packaging Company, Mr. Hastings was employed for over 25 years
in a variety of positions in the paper and plastic industries, including sales,
marketing and plant operations management at Scott Paper Company and Thompson
Industries.

Robert M. Korzenski has been President of the Hoffmaster Brand of
Sweetheart Holdings and Sweetheart Cup since March 2002. Mr. Korzenski has been
Senior Vice President of SF Holdings from December 2001 to May

22

2002 and was President and Chief Operating Officer of Fonda from March 1998 to
March 2002. Prior to that, he was Senior Vice President of Fonda since January
1997 and President of the Hoffmaster division since its acquisition by Fonda in
March 1995. From October 1988 to March 1995, he served as Vice President of
Operations and Vice President of Sales of Scott Institutional, a division of
Scott Paper Company. Prior to that, he was director of National Sales at
Thompson Industries.

Dennis Dorian Mehiel, the son of Dennis Mehiel, has been President of
the Fonda Brand of Sweetheart Holdings and Sweetheart Cup since May 2002. Mr.
Mehiel has also been President and Chief Operating Officer of Mannkraft
Corporation (formerly Box USA of New Jersey, Inc.), a manufacturer of corrugated
containers since June 2000, and a member of Frontage Road Realty, LLC, the
parent of Mannkraft Corporation (formerly Box USA of New Jersey, Inc.) since
January 2002. Mr. Mehiel was Vice President-Operations of Fonda from August 2001
until May 2002. From 1996 to July 2000, he served in various management
positions with Four M.

Harvey L. Friedman has been Senior Vice President, General Counsel and
Secretary of Sweetheart Holdings and Sweetheart Cup since March 2001. He has
been General Counsel and Secretary of SF Holdings since February 1998. He served
as Secretary and General Counsel of Fonda from May 1996 until the March 2002. He
was also a director of Fonda from 1985 to January 1997. Mr. Friedman was
Secretary, General Counsel and a director of CEG until June 2003. He is
currently a director of Box USA (formerly Four M) and is a director and Senior
Vice President of Mannkraft Corporation (formerly Box USA of New Jersey, Inc.).
He was formerly a partner of Kramer Levin Naftalis & Frankel LLP, a New York
City law firm. He is also Assistant Secretary of Box USA (formerly Four M).

Ingrid Santiago has been Senior Vice President -- Materials Management
of Sweetheart Holdings and Sweetheart Cup since May 2002. She was Vice President
- -- Materials Management of Sweetheart Holdings and Sweetheart Cup from March
1998 to May 2002. She was also Vice President of Materials Management -- Fonda
from 1996 until May 2002 and also served as Vice President of Materials
Management for Four M for over 10 years until July 2000.

Thomas Pasqualini has been Senior Vice President -- Manufacturing and
Logistics of Sweetheart Holdings and Sweetheart Cup since August 2000. Prior
thereto, he was Vice President of Logistics and Distribution and director of
Distribution for the past five years. He has held several other positions with
us since 1981.

John A. Catsimatidis has been a director of Sweetheart Holdings and
Sweetheart Cup since May 2002. Mr. Catsimatidis also served as a director of
Fonda from January 1997 to March 2002. He also has been a director of SF
Holdings since February 1998. He has been Chairman and Chief Executive Officer
of the Red Apple Group, Inc., a company with diversified holdings that include
oil refining, supermarkets, real estate, aviation and newspapers, since 1969.
Mr. Catsimatidis serves as a Director of Sloan's Supermarket, Inc. and New's
Communications, Inc. He also serves on the board of trustees of New York
Hospital, St. Vincent Home for Children, New York University Business School,
Athens College, Independent Refiners Coalition and New York State Food
Merchant's Association. He is currently a member of the Sweetheart Holdings'
audit committee.

Dennis Pilotti has been a director of Sweetheart Holdings and
Sweetheart Cup since July 2002. He has also been a director of SF Holdings since
July 2003. He has been a managing partner of Pilotti & Company, PLLC, a public
accounting firm, since 1997. Prior thereto, he was a managing director of BDO
Seidman, LLP, a public accounting firm. Mr. Pilotti has over 25 years of public
accounting experience. Mr. Pilotti serves as the Company's "independent
financial expert" in accordance with the Sarbanes-Oxley Act. He is currently
chairman and the designated "financial expert" of the Sweetheart Holdings' audit
committee.

G. William Seawright has been a director of Sweetheart Holdings and
Sweetheart Cup since May 2002. Mr. Seawright also served as a director of Fonda
from January 1997 to March 2002. He also has been a director of SF Holdings
since February 1998. He was President and Chief Executive Officer of Stanhome
Inc., a manufacturer and distributor of giftware and collectibles, from 1993
through 1998. Prior thereto, he was President and Chief Executive Officer of
Paddington, Inc., an importer of distilled spirits, since 1990. From 1986 to
1990, he was President of Heublein International, Inc. He is currently a member
of the Sweetheart Holdings' audit committee.

23

Compensation of Directors

The Company's directors who are not employees receive annual
compensation of (i) $24,000, (ii) $1,000 for each Board meeting attended, and
(iii) $1,000 for each committee meeting attended which is not held on the date
of a board meeting. The Company's directors who are employees do not receive any
compensation or fees for service on the Board of Directors or any committee
thereof.

Item 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the
compensation, for Fiscal Years 2003, 2002 and 2001 of the chief executive
officer and the four most highly compensated officers and key employees of
Sweetheart Holdings and Sweetheart Cup (collectively, the "named executive
officers"). The Company has concluded that the aggregate amount of perquisites
and other personal benefits paid to each of the named executive officers did not
exceed the lesser of (i) 10% of such officer's total annual salary and bonus or
(ii) $50,000. Thus, such amounts are not reflected in the following table.

Summary Compensation Table

Annual Compensation
- ----------------------------------------- -------------------------------- --------------
All Other
Name and Principal Salary Bonus Compensation
Position Fiscal ($) ($) (1) ($) (2)
- ----------------------------------------- -------- ----------- --------- --------------

Dennis Mehiel
Chairman and Chief Executive Officer 2003 1,047,184 94,000 438,074 (3)
2002 722,212 170,000 551,135 (4)
2001 735,570 340,000 396,725 (5)

Thomas Uleau
Chief Operating Officer and Vice 2003 451,987 75,000 14,438
Chairman 2002 423,366 100,000 15,588
2001 433,173 116,411 12,724

Hans H. Heinsen
Senior Vice President - Finance and 2003 283,786 50,000 19,215
Chief Financial Officer 2002 281,848 70,000 19,915
2001 255,428 176,411 17,534

Michael T. Hastings
President - Sweetheart Brand 2003 307,050 50,000 15,560
2002 298,846 - 24,244
2001 266,602 100,000 11,232

Robert M. Korzenski
President - Hoffmaster Brand 2003 281,319 15,000 9,440
2002 277,269 90,000 8,494
2001 244,543 140,000 11,480

Harvey L. Friedman
Senior Vice President, General 2003 318,093 50,000 1,861
Counsel and Secretary 2002 283,904 55,000 841
2001 287,850 115,000 -

(1) Amounts shown were paid based upon the Company's performance.
(2) Reflects matching contributions under 401(k) plans, long-term disability and
life insurance premiums paid.

24

(3) Reflects $5,346 of life insurance premiums, $418,856 for personal expenses
and $13,872 interest forgiveness.
(4) Reflects $4,192 of life insurance premiums, $530,922 for personal expenses
and $16,021 interest forgiveness.
(5) Reflects $2,580 of life insurance premiums, $342,508 for personal expenses
and $51,637 interest forgiveness.

At September 29, 2002, the Company had a loan receivable from its Chief
Executive Officer of $0.3 million plus accrued interest at 5.06%. In Fiscal
2003, the Company's Chief Executive Officer repaid the outstanding loan
receivable. In the Fiscal 2003, Fiscal 2002 and Fiscal 2001, the Company forgave
$13,872, $16,021 and $51,637, respectively, of interest associated with the loan
to its Chief Executive Officer. At September 29, 2002, the Company had a loan
receivable from its Chief Operating Officer of $0.1 million plus accrued
interest at 5.39%. On February 28, 2003, the loan receivable was amended and the
rate changed to the federal funds rate. At September 28, 2003, the loan
receivable is $0.1 million plus accrued interest.

Stock Options

The Company's Chief Executive Officer holds 71,515 currently
exercisable options to purchase Class A Common Stock of SF Holdings.

In Fiscal 2001, SF Holdings adopted the SF Holdings Group, Inc. Share
Incentive Plan in which SF Holdings may grant options to its employees and to
the Company's employees up to 95,995 shares of SF Holdings Class D Common Stock.

In Fiscal 2001, SF Holdings granted options to purchase shares of its
common stock to certain employees of the Company. The options vest over a period
of three years. Certain of the exercise prices of the options were below the
fair market value of SF Holdings' common stock at the date of the grant. During
the vesting period, these discounts of $0.3 million are being amortized as
compensation expense and credited to additional paid-in capital by the Company.
Amortization