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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For the fiscal year ended December 31, 2004

for the transition period from              to             

Commission file number 333-116843

SOLO CUP COMPANY

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 847/831-4800

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

Securities 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 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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of March 10, 2005, 100 shares of Common Stock, $0.01 par value, were outstanding. There is no trading market for the common stock of the registrant. No shares of the registrant were held by non-affiliates.

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TABLE OF CON TENTS

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Part I

Item 1. Business.

Solo Cup Company (“Solo Delaware” or the “Company”) was incorporated in Delaware in January 2004 to be the holding company for Solo Cup Company, an Illinois corporation (“Solo Illinois”) and its subsidiaries, and for SF Holdings Group, Inc., a Delaware corporation, and its subsidiaries (“SF Holdings”), which includes Sweetheart Cup Company Inc. (“Sweetheart”). Solo Delaware is a holding company, the material assets of which are 100% of the capital stock of Solo Illinois and 100% of the capital stock of SF Holdings. Solo Delaware is a wholly owned subsidiary of Solo Cup Investment Corporation, a Delaware corporation (“SCIC”). SCC Holding Company LLC, a Delaware limited liability company (“SCC Holding”) and Vestar Capital Partners (“Vestar”) own 67.2% and 32.7% of SCIC, respectively. Company management holds the remaining 0.1% of SCIC.

Solo Cup Company traces its origins to a predecessor company, Solo Illinois, established in 1936. Sweetheart’s operating history dates from the founding of a predecessor company in 1911.

Effective February 22, 2004, Solo Illinois became a wholly owned subsidiary of Solo Delaware. The consolidated financial statements presented herein as of December 31, 2003 and for all prior periods present the financial position and results of operations of Solo Illinois, which are the same operations as those of the Company under a different capital structure.

On February 27, 2004, with an effective date of February 22, 2004, the Company acquired 100.0% of the outstanding capital stock of SF Holdings (the “SF Holdings Acquisition”). For the year ended December 31, 2004, the consolidated financial position and results of operations for the Company include the accounts of SF Holdings for the period from February 22, 2004 to January 2, 2005.

Prior to these transactions, the Company had no operations other than in connection with its formation and the authorization of these transactions.

We are a leading global producer and marketer of disposable foodservice products and have served our industry for over 60 years. We manufacture one of the broadest product lines of cups, lids, food containers, plates, bowls, portion cups, stirrers, straws, cutlery, napkins, placemats, tablecovers and food packaging containers in the industry, with products available in plastic, paper and foam. We are recognized for product innovation and customer service, and our products are known for their quality, reliability and consistency. Our products are marketed primarily under the Solo^® and Sweetheart^® brands, as well as Jack Frost^®, Trophy^®, Hoffmaster^®, and Creative Expressions^®. We are one of the leading suppliers of branded disposable cups and plastic plates and bowls to consumer customers in the United States. In addition to our branded products, we provide a majority of our product lines to our customers under private label. We currently operate 35 manufacturing facilities, 16 distribution centers and 25 warehouses in North America, Japan, the United Kingdom and Panama, and we sell our products worldwide. For the year ended December 31, 2004, we generated $2,116.4 million of net sales.

Products

We produce a broad range of plastic, paper and foam disposable foodservice products. We also produce food packaging containers for the dairy and food processing industries. Our plastic products include a wide range of cups, lids, food containers, plates, bowls, cutlery, portion cups, straws and stirrers as well as food packaging containers. Our paper products include cups, plates, bowls, portion cups, food containers, napkins, tablecovers and placemats. Our foam products include cups, plates, bowls and food containers. Our plastic, paper and foam products are offered in a variety of sizes, designs and colors and at a range of price points. In addition, we design, manufacture and lease container filling and lidding equipment to dairies and other food processors to package food items, such as ice cream, cottage cheese, yogurt, sour cream and squeeze-up desserts, in our containers at their plants.

Customers

We serve two primary customer groups:

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Financial information about our business segments, which are combined geographically, is incorporated herein by reference from Note 19 to the Company’s consolidated financial statements in Item 8 of this Form 10-K.

Sales and Marketing

We sell our products to foodservice customers through our regionally-organized, in-house direct sales force, national account representatives and, to a lesser extent, through select broker networks. Broadline distributors sell the products they purchase from us to operators such as restaurants, hospitals, schools and other large organizations that have foodservice operations. As a result of this selling structure, stocking decisions made by our distributors are based on demand from foodservice operators. Our sales force calls on local branches of national broadline distributors to sell our existing range of product offerings as well as new products. Through our national account representatives, we sell our products to quick service restaurants (“QSRs”) and to our national accounts. Our national account representatives work closely with these customers to develop unique product offerings and promotional programs.

We sell our products to consumer customers primarily through regional broker networks. In the case of some of our larger customers, such as Wal-Mart and Costco, we use our in-house direct sales force, rather than brokers. Our consumer customers sell our products to end-users who make the ultimate purchasing decisions. Accordingly, our sales and marketing strategy for consumer customers is designed around supporting our strong brand names, such as Solo^® and Jack Frost^®, as well as selling private label products. In addition, we sell paper and party goods under the brand names Paper Art^® and Party Creations^®. We support the Solo^® brand with couponing, print advertisements and public relations efforts.

We sell our food packaging products directly to customers in the dairy and food processing industries using our in-house sales force which is organized on the basis of customer relationships.

Seasonality

Seasonality has a limited impact on our business. Historically, we have experienced seasonality as more of our products are sold in the warmer months with the majority of our net cash flows from operations realized during the last nine months of the year. Sales for such periods reflect the high seasonal demands of the summer months when outdoor and away-from-home consumption increases. However, with the increase in popularity of hot drinks and indoor sporting events, this seasonality has been decreasing.

Raw Materials

The principal raw materials for our plastic operations are resins, including polystyrene, polypropylene and APET. We purchase resins from large petrochemical and resin producers such as Dow, ATOFINA, Eastman, Nova and BASF. Resin prices are influenced by oil, natural gas and other input prices, capacity changes and changes in demand.

The principal raw materials for our paper operations include paperboard, bond paper and waxed bond paper. Our paper-based products are typically converted from bleached paperboard, which we purchase from integrated paper manufacturers such as International Paper, MeadWestvaco and Gulf States. Paper prices are driven by energy costs, capacity changes and changes in demand.

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We cultivate strong relationships with our major suppliers and believe that these relationships, together with our purchasing volumes, provide pricing benefits in raw materials purchasing. While we have experienced brief delays in the availability of our raw materials from time to time, we have not experienced any sustained delays.

Raw material costs make up a significant portion of our cost of goods sold. As a result, we are exposed to changes in raw material prices. In line with industry practice, we generally do not enter into long-term supply contracts with our suppliers of raw materials and historically have not hedged our exposure to fluctuations in raw material prices.

Manufacturing

Our manufacturing strategy is to reduce costs through process improvement and innovation, while meeting our customers’ needs and maintaining our standard for quality. We employ many different technologies and are able to manufacture and supply various products in plastic, paper and foam. Our flexibility and expertise in these technologies enable us to respond quickly to customer needs.

The primary processes employed in manufacturing our products are as follows:

In addition to these manufacturing processes, we have a wide variety of printing capabilities, including flexography, letter press, paper lithography and plastic dry offset. We operate printing presses capable of producing high quality, customized graphics to meet our customers’ requirements.

Distribution

Solo Illinois’ U.S. distribution centers and warehouses are located in proximity to its manufacturing facilities as well as major population centers. From January 2002 until the present, Solo Illinois outsourced its logistical operations to DSC Logistics, Inc. (“DSC”). Under this agreement, DSC was responsible for the operation of substantially all of Solo Illinois’ U.S. distribution centers and primarily performed customary warehousing and transportation services. The DSC agreement provided that DSC was entitled to supply transportation services with respect to all shipments of products to or from facilities covered by the outsourcing arrangement, subject to certain exceptions. This outsourcing agreement with DSC has been terminated, and the parties are currently transitioning the services previously provided by DSC to Solo Illinois. See “Item 3 – Legal Proceedings.” This transition is anticipated to be fully complete by June 15, 2005, and the Solo Illinois U.S. distribution centers and warehouses will be integrated with the legacy Sweetheart distribution system. In addition to paying warehousing and distribution fees, during 2004, 2003 and 2002, we paid management and incentive fees to DSC totaling $10.7 million, $9.7 million and $8.3 million, respectively.

The legacy Sweetheart business operates its own distribution system. Output from the manufacturing plants is consolidated at regional distribution centers that are strategically located near major population centers. This allows the legacy Sweetheart business to service 98% of its U.S. customers with overnight truckload service. As a result of this strategy, we are able to offer a broad range of products at the distribution centers. This provides value to our customers as they can carry less inventory and we can react to their demand more rapidly. Going forward, the distribution and warehouse operations for the two legacy businesses will be combined into one in-house system.

Our foreign subsidiaries operate out of owned or leased warehouses and manage the related distribution and transportation networks.

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Competition

The disposable foodservice products industry is extremely competitive and highly fragmented. We compete for foodservice customers based on price, quality, customer service, breadth of product offering and development partnerships. We compete for consumer customers based on price, brand reputation, quality, product differentiation, innovation and marketing programs. We compete for food packaging customers based on price, product breadth, quality, service and filling equipment capabilities. Our competitors include large multinational companies as well as regional manufacturers. Some of our competitors compete across the full line of our products, while others compete with only some of our products. A few of our competitors are integrated in the manufacturing of plastic or paper raw materials which reduces their costs for these materials and gives them greater access to these materials in periods of short supply. Increases in productivity, combined with surplus capacity in the industry, have maintained competitive pricing pressures. Our current or potential competitors may offer products at a lower price or products and service that are superior to ours. In addition, our competitors may be more effective and efficient in integrating new technologies. Our products also compete with metal, glass and other packaging materials, as well as plastic packaging materials made through different manufacturing processes. Our largest competitors include Pactiv Corporation, Dart Container Corporation, Huhtamäki Oyj, Dixie Foodservice Corp., a division of Georgia Pacific Corp., and International Paper Food Service Business, a division of International Paper Co.

Intellectual Property

We rely on a combination of trade secrets, confidentiality agreements and patent, trademark, copyright, unfair competition and other intellectual property laws to protect our intellectual property and other proprietary rights. We currently have approximately 130 issued and 170 pending U.S. and foreign patents. Although they are collectively important to our business, no single one of them is material to our business. Litigation may be necessary to enforce our intellectual property rights, or to defend against claims by third parties that our products infringe their intellectual property rights and could result in substantial costs and diversion of our resources. Even if our proprietary rights are held enforceable, others may be able to design around our patents or independently develop products and processes equivalent to our proprietary and confidential information.

Research and Development

We believe we have a strong reputation for creativity and new product innovation. Our research and development strategy has three goals: (1) to create innovative, value-added products which target both new and existing customers, (2) to differentiate our products in the marketplace and (3) to explore the use of alternative substances to create new market opportunities and enhance overall market position.

During 2004, we introduced a 32-ounce version of our Trophy^® product line. In addition, we worked with Starbucks, our material supplier MeadWestvaco, and Mississippi River Corporation to develop the first Post Consumer Fiber (“PCF”) content paper material suitable for use in hot cup production. In conjunction with Starbucks, we developed a new exclusive wrapped cup and lid for Starbucks’ new Chantico^TM chocolate beverage. We introduced a new six-pound paper bucket and board lid mid-year, and introduced a polypropylene lid for another QSR chain. We continue to work with our global base of suppliers and customers, as well as universities, to create new applications for our materials and to develop applications for new and emerging technology. Currently, we are sampling and testing alternative environmentally friendly materials such as polylactic acid (“PLA”), a polymer derived from natural plant sugars, for cups and lids.

Employees

As of December 31, 2004, we had approximately 11,500 employees worldwide, including approximately 10,000 in the United States and 1,500 in other countries; of which 9,000 of these employees worldwide were hourly workers. As of December 31, 2004, approximately 2,100 of our hourly employees were covered by collective bargaining agreements. We currently have collective bargaining agreements in effect at our facilities in Appleton, Wisconsin; Augusta, Georgia; Indianapolis, Indiana; Oshkosh, Wisconsin; St. Albans, Vermont; Springfield, Missouri; Scarborough, Ontario, Canada; and Cuautitlan, Mexico. These agreements cover all hourly-paid production, maintenance and distribution employees at each facility and contain standard provisions relating to, among other things, management rights, grievance procedures, strikes and lockouts, seniority and union rights. The current expiration dates of the Appleton; Augusta; Indianapolis; Oshkosh; St. Albans; Springfield; Ontario; and Cuautitlan agreements are March 31, 2006, October 30, 2005, December 1, 2007, May 31, 2007, January 31, 2006, February 28, 2007, November 30, 2008 and December 31, 2005, respectively. In an election held on August 21, 2003, the employees of Sweetheart’s El Cajon, California facility voted to bargain collectively and to be represented by the United Food and Commercial Workers Union. The proposed agreement would have affected approximately 165 hourly employees. However, employees petitioned the National Labor Relations Board (“NLRB”) in 2004 to decertify the union in El Cajon. We expect that the decertification election will be held prior to June 2005. Other than under the agreements described above, no employees are covered by a collective bargaining agreement. We believe that we have good relationships with our employees.

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Environmental Regulation

In the normal course of business, we are required to comply with 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. Historical capital and operating expenditures deemed necessary to remain in compliance have not had a material impact on our financial position. We believe that we are in material compliance with applicable standards and regulations of the various regulatory agencies.

We are presently, and may in the future be, subject to liability for the investigation and remediation of environmental contamination, including contamination caused by other parties. This includes properties that we own or operate or that we formerly owned or operated and at other properties where we or our predecessors have arranged for the disposal of hazardous substances. As a result, we are involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. Any present or future investigations and remedial efforts relating to environmental matters could entail material costs or otherwise result in material liabilities. Any amount of future clean up costs and other environmental liabilities could also be material. We believe that, except as noted below, there are currently no material pending environmental investigations at our plants or sites or at third party sites for which we are liable. However, there can be no assurance that we will not be involved in any such proceedings in the future and that any amount of future clean up costs and other environmental liabilities will not be material. We spent approximately $1.6 million for environmental and occupational health and safety compliance and remediation in the year ended December 31, 2004.

We 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 our facilities or at third party sites for which we are liable. Enactment of stricter laws or regulations, a stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at our own or third party sites may require us to make additional expenditures, some of which could be material.

The Clean Air Act requires the phase out of certain refrigerant compounds. Therefore, we must upgrade or retrofit air conditioning and chilling systems we use during the next few years. We have decided to replace units as they become inefficient or unserviceable. We expect 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 our facilities contain asbestos. Although there may be no current legal requirement to remove it, we monitor such asbestos on an ongoing basis and maintain and/or remove it as appropriate to prevent the release of friable asbestos. We believe the costs associated with such program will not be material to our business or financial condition.

We have received a number of requests for information or notifications of potential liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 regarding the investigation or cleanup of environmental contamination at third party sites. We have no reason to believe that the final outcome with respect to these matters will have a material adverse effect on our financial condition or results of operations. However, no assurance can be given about the ultimate effect, if any, of such matters on us.

Available information

Our Internet website is www.solocup.com. We make available free of charge on our website Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission (“SEC”).

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Item 2. Properties.

Our executive offices are located in Highland Park, Illinois. We own, lease and operate manufacturing and distribution facilities throughout North America and in Japan, Panama and the United Kingdom. The table below provides summary information regarding our manufacturing, distribution, office and warehouse properties. We believe these properties, which are being used for their intended purposes, are adequate and well maintained. Substantially all of our properties are pledged as collateral under our Senior Credit Facility. See Item 7. As part of our integration of SF Holdings, we anticipate that a number of our manufacturing and warehouse facilities will be closed. In 2004, we announced the closure of one of our Wheeling, Illinois facilities, which closed in the first quarter of 2005. In January 2005, we announced the closure of our facilities located in Green Bay, Wisconsin and St. Albans, Vermont. We expect these two facilities will be closed in the first and fourth quarter of 2005, respectively. In February of 2005, we announced the closure of our facilities located in Glen Falls, New York; Goshen, Indiana; Shreveport, Louisiana; and Springfield, Missouri. We expect these four facilities will be closed within the next twelve months.

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We also use third party warehouses on a pay for use basis.

Item 3. Legal Proceedings.

In November 2001, Solo Illinois entered into an outsourcing agreement (the “Agreement”) with DSC Logistics, Inc. (“DSC”) pursuant to which DSC was to provide customary warehouse and transportation services for Solo Illinois. After the Agreement was executed, disputes arose as to aspects of the Agreement, and Solo Illinois and DSC have been parties to litigation and arbitration. These various matters, as well as status updates, have been previously disclosed in the registrant’s filings with the SEC. On February 16, 2005, Solo Illinois and DSC entered into a settlement agreement (the “Settlement Agreement”) which terminates the Agreement prior to its stated termination date. Pursuant to the terms of the Settlement Agreement, Solo Illinois will transition its distribution center and transportation services, including attendant real estate, equipment and personnel, where possible, back into its operations over the next four months. In February 2005, as part of the transition, Solo Illinois purchased certain assets from DSC, for which Solo Illinois paid DSC $1.2 million. The Settlement Agreement requires Solo Illinois to assume certain leases from DSC and pay DSC $11.75 million as follows: (1) on February 16, 2005, $3.15 million; (2) on March 15, 2005, $2.15 million; (3) on April 15, 2005, $2.15 million; (4) on May 16, 2005, $2.15 million; and (4) on June 15, 2005, $2.15 million. The Settlement Agreement also includes mutual releases from both parties and requires the parties to dismiss all related outstanding litigation and arbitration.

We are involved in various other claims and legal actions arising from time to time in the ordinary course of business. While the outcome of these claims and actions cannot be predicted with certainty, management believes that we are not party to any pending legal proceedings, the ultimate disposition of which would have a material adverse effect on the Company’s business, consolidated financial position, results of operations, or liquidity.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

There is no public trading market for our common stock. All of our common stock is owned of record by our parent company, SCIC. We do not have any equity compensation plans under which our securities may be issued. See Note 15 to the Company’s consolidated financial statements in Item 8 of this Form 10-K for information regarding SCIC’s equity compensation plan.

Since our formation in January 2004, we have not paid dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. In addition, our bank credit facilities and the indenture governing our 8.5% Senior Subordinated Notes due 2014 restrict our ability to pay dividends on our common stock.

Item 6. Selected Financial Data.

The following table sets forth selected historical consolidated financial data for Solo Cup Company and its subsidiaries. The information contained in this table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 and Solo Cup Company’s consolidated financial statements, including the related notes, included in Item 8.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

On February 27, 2004, with an effective date of February 22, 2004, we acquired 100.0% of the outstanding capital stock of SF Holdings (“SF Holdings Acquisition”). For the year ended December 31, 2004, our consolidated financial position and results of operations include the accounts of SF Holdings for the period from February 22, 2004 to January 2, 2005.

Our 2004 financial results were impacted by the expenses related to the SF Holdings Acquisition. Since that time, management has been focused on (1) protecting our position with key customers, (2) implementing detailed synergy plans for all major functional areas and (3) developing systems and processes that will enable us to consolidate our financial reporting systems. All of these efforts are against a background of rapidly rising material costs and energy costs.

We reported a $49.9 million net loss for the year ended December 31, 2004, which includes $15.6 million of costs (net of taxes) resulting from resolution of the contract dispute with DSC Logistics, Inc. In addition, $65.7 million of charges attributed to the SF Holdings Acquisition are included in the reported loss. The charges incurred (net of taxes) were:

In addition to these acquisition related charges, resin and energy prices continued to rise throughout the year, influenced by general market conditions for plastic resins and the price of petroleum products. Prices increased over 50% and 10%, for resin and paperboard, respectively, as compared to the prior year. These increases occurred at such a rate that we were unable to pass them on to our customers in a timely manner. Historically, the prices at which we sell our products have varied with raw material price increases and decreases, with a lag for increases. We did implement a number of price increases in 2004 to offset the higher raw material prices. In addition to these price increases, we actively reduced manufacturing costs through the implementation of our synergy plans. These actions allowed us to achieve a marginal gross profit improvement despite the rapid increases in material costs. Early indications seem to suggest that we will face similar challenges in 2005.

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Results of Operations for the Years Ended December 31, 2004, 2003 and 2002

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Amounts for the year ended December 31, 2004 include the results of SF Holdings from February 22, 2004 to January 2, 2005. Therefore, our discussion of 2004 results compared to 2003 results are primarily driven by the effect of including SF Holdings results from the acquisition date.

Net sales

Net sales increased $1,236.7 million, or 140.6%, to $2,116.4 million for the year ended December 31, 2004 compared to $879.7 million for the year ended December 31, 2003. Net sales increased $1,158.9 million due to increased sales volume as a direct result of the SF Holdings Acquisition. The remaining increase in net sales of $77.8 million, or 8.8%, reflected a 7.0% increase in average realized sales price and a 1.8% increase in sales volume as compared to the year ended December 31, 2003. The increase in average realized sales price reflects a favorable shift in product mix combined with the impact of pricing increases implemented in response to higher raw material costs.

Gross profit

Gross profit increased $192.2 million, or 173.1%, to $303.2 million for the year ended December 31, 2004 compared to $111.0 million for the year ended December 31, 2003. As a percentage of net sales, gross profit increased 1.7% to 14.3% in 2004 versus 12.6% in 2003. Gross profit increased $171.1 million as a direct result of the

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SF Holdings Acquisition. The remaining increase in gross profit of $21.1 million was primarily the result of a shift to a more favorable product mix combined with higher average realized sales prices partially offset by higher raw material costs and increased transportation costs.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $132.9 million, or 132.0%, to $233.6 million in 2004 compared to $100.7 million in 2003. This increase includes $89.9 million of expenses associated with the operations of SF Holdings. The remaining increase of $43.0 million resulted primarily from (i) $30.1 million of costs associated with the integration of support functions and systems of SF Holdings in connection with the acquisition, (ii) $8.7 million of costs associated with higher employee salaries, primarily related to the transfer of employees from the acquired companies to Solo Illinois and higher health insurance costs, and (iii) $2.8 million of management fees to SCIC.

Contract dispute resolution

In 2004, contract dispute resolution costs of $25.4 million represent the results of the settlement with DSC Logistics, Inc. (“DSC”). This amount includes agreed-upon payments to DSC totaling $11.75 million, $4.4 million of receivables forgiven and $9.3 million of litigation-related expenses and contract execution costs. See “Item 3 – Legal Proceedings.”

Gain on sale of property, plant and equipment

Gain on sale of property, plant and equipment was $7.6 million in 2004 compared to $1.6 million in 2003. The increase was primarily due to the 2004 gain on sale of undeveloped land located in Santa Paula, California and Ada, Oklahoma.

Interest expense, net

Interest expense, net increased $41.1 million, or 284.8%, to $55.5 million for the year ended December 31, 2004 compared to $14.4 million for the year ended December 31, 2003. This increase was primarily driven by higher debt balances in 2004 used to fund the SF Holdings Acquisition. Total long-term debt increased $805.7 million to $1,014.5 million at December 31, 2004 compared to $208.8 million at December 31, 2003.

Prepayment penalties

Prepayment penalties were $30.7 million for the year ended December 31, 2004. The prepayment fees resulted from the early extinguishment of the 7.08% senior notes due 2011 and the 3.67% Yen-denominated senior notes due 2008.

Loss on debt extinguishment

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

Income tax provision

Income tax provision was $17.1 million in 2004 compared to $3.2 million in 2003. This increase was primarily due to the change in tax filing status of Solo Illinois from a subchapter S corporation to a subchapter C corporation under the Internal Revenue Code in the United States effective as of January 1, 2004. This change resulted in the recognition of $28.3 million in net deferred tax liabilities and related income tax expense in 2004. This increase was partially offset by an $11.4 million tax benefit for current year operating losses.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Net sales

Net sales increased $43.1 million, or 5.1%, to $879.7 million for the year ended December 31, 2003 compared to $836.6 million for the year ended December 31, 2002. This reflects a 1.7% increase in sales volume and 3.4% increase in average realized sales price. Volume growth was across all major product lines and the majority of our customer base. The increase in average realized sales price reflects the impact of pricing increases implemented in response to higher raw material costs.

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Gross profit

Gross profit decreased $15.1 million, or 11.9%, to $111.0 million for the year ended December 31, 2003 compared to $126.1 million for the year ended December 31, 2002. As a percentage of net sales, gross profit decreased 2.5 percentage points to 12.6% in 2003 versus 15.1% in 2002. The decline in gross profit was primarily the result of higher resin costs without a contemporaneous increase in sales price. Resin prices increased approximately 15% on average during 2003 versus 2002. Additionally, increased transportation and distribution expenses related to outsourcing these services adversely affected gross profit.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased $1.4 million, or 1.3%, to $100.7 million in 2003 compared to $102.1 million in 2002. As a percentage of net sales, selling, general and administrative expenses decreased to 11.4% of net sales in 2003 versus 12.2% of net sales in 2002. The decrease was primarily the result of lower health and welfare expenses that resulted from better experience history and a change in service providers.

Interest expense, net

Interest expense, net increased $2.3 million in 2003 compared to 2002. The increase is primarily attributed to higher average revolver debt balances resulting from lower operating profits.

Foreign currency exchange gain, net

Foreign currency exchange gain, net changed $1.7 million, or 38.3%, to a gain of $2.8 million for the year ended December 31, 2003 compared to a gain of $4.5 million for the year ended December 31, 2002. This change is primarily attributed to currency fluctuations in the United Kingdom pound sterling denominated inter-company debt.

Income tax provision

Income tax expense increased $2.4 million to $3.2 million in 2003, compared to $0.8 million in 2002 due primarily to the increased earnings in foreign jurisdictions.

Minority interest

Minority interest reflects the minority interest in the results of Sanyo Pax Operations Company Ltd. (“Sanyo Pax”). As of December 31, 2003 and 2002, the minority interest was 4.50% and 5.48%, respectively. The minority share totaled $0.1 million of income in 2003 and a $0.3 million loss in 2002.

Cumulative effect of a change in accounting principle

We recognized a goodwill impairment loss of $0.2 million in 2002 as the cumulative effect of a change in accounting principle, resulting from the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 142 on January 1, 2002.

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Liquidity and Capital Resources

Historically, we have relied on cash flows from operations and revolving credit borrowings to finance our working capital requirements and capital expenditures. During 2004, we funded our acquisitions, retirement of pre-acquisition debt and capital expenditures primarily from (i) borrowings under the $800.0 million of credit facilities, (ii) the issuance of 8.5% Senior Subordinated Notes due 2014 and (iii) proceeds from the sale of our common stock.

Operating Cash Flows

Net cash used in operating activities during 2004 was $23.8 million compared to net cash provided by operating activities of $29.6 million during 2003. This decrease primarily resulted from a higher net loss in 2004, which was attributed to (i) a $39.3 million increase in interest expense as a result of higher debt balances, (ii) $30.7 million in prepayment penalties as a result of the early extinguishment of debt, (iii) $30.1 million of expenses related to the integration of SF Holdings, and (iv) $25.4 million in expense from the resolution of the contract dispute with DSC. The SF Holdings Acquisition had a direct impact on the increase in cash used in operating activities, primarily reflected in higher balances of accounts receivable and inventories. The growth in accounts receivable relates to the increase in sales volume and pricing. Inventory balances have increased as a result of higher raw material costs, combined with a planned inventory buildup to offset the impact of expected downtime caused by our manufacturing integration activities.

Working capital increased $338.8 million to $401.5 million at December 31, 2004 from $62.7 million at December 31, 2003. This increase is primarily due to the effects of the SF Holdings Acquisition. To a lesser extent, working capital increased as a result of increased inventory levels, higher deferred tax assets, and a lower level of short-term debt, partially offset by an increase in accrued expenses.

Investing Cash Flows

Net cash used in investing activities during 2004 was $906.6 million compared to $44.7 million during 2003. This increase is primarily due to the SF Holdings Acquisition.

Capital expenditures during 2004 were $42.2 million compared to $34.7 million during 2003. Capital expenditures during 2004 included $30.3 million for new production equipment, $5.5 million for renovations and equipment conversions, $5.5 million for building and land improvements, and $0.9 million for other miscellaneous projects. Capital expenditures were primarily funded by borrowings under our revolving credit facilities.

Financing Cash Flows

Net cash provided by financing activities during 2004 was $944.7 million compared to $3.6 million during 2003. This increase resulted primarily from (i) borrowings under our senior credit facilities, (ii) the issuance of 8.5% Senior Subordinated Notes due 2014 and (iii) proceeds from the sale of common stock. These increases were partially offset by (i) repayment of the 7.08% senior notes due 2011, (ii) repayment of the 3.67% Yen-denominated senior notes due 2008, (iii) repayment of the securitization facility, and (iv) debt issuance costs incurred as a result of the SF Holdings Acquisition.

The following is a summary of long-term debt at December 31, 2004 and 2003 (in thousands):

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The following is a summary of our committed revolving credit facilities at December 31, 2004 (in thousands):

Canadian Credit Facility

On September 24, 2004, Lily Cups Inc. (now known as Solo Cup Canada Inc.), a Canadian subsidiary of the Company, entered into a credit agreement (“Canadian Credit Facility”) which provides for a term loan and a revolving credit facility with a maximum credit borrowing of CAD $30.0 million (approximately US $23.8 million) subject to borrowing base limitations and satisfaction of other conditions of borrowing. The term borrowings have 11 mandatory quarterly repayments of CAD $0.482 million every January 1, April 1, July 1 and October 1 beginning January 1, 2005, with a final payment of CAD $8.2 million due September 24, 2007. Both the revolving credit and term loan borrowings have a final maturity date of September 24, 2007. The Canadian Credit Facility is secured by all existing and thereafter acquired real and personal tangible assets of Lily Cups Inc. Borrowings under the revolving credit facility bear interest at Canadian prime rate plus 0.50% or Canadian bankers acceptance rate plus 1.75%, at our option. Term loan borrowings bear interest at Canadian prime rate plus 0.75% or Canadian bankers acceptance rate plus 2.00%, at our option. As of December 31, 2004, borrowings under the revolving credit facility and the term loan carried effective interest rates of 4.31% and 4.56%, respectively. As of December 31, 2004, CAD $8.7 million (approximately US $7.2 million) was available under the revolving facility and the term loan balance was CAD $13.5 million (approximately US $11.2 million).

Senior Credit Facility

On February 27, 2004, we entered into credit facilities (the “Senior Credit Facility”) comprised of a $150.0 million revolving credit facility maturing in 2010 and a $650.0 million term loan facility maturing in 2011. The revolver is principally used for working capital purposes, and the term loan was used to finance the acquisition and related transactions. For purposes of calculating interest, loans under the credit facility are designated as Eurodollar rate loans or, in certain circumstances, base rate loans. Eurodollar rate loans bear interest at the British Bankers Association Interest Settlement Rate for deposits in dollars plus a borrowing margin as described below. Interest on Eurodollar rate loans is payable at the end of the applicable interest period of one, two, three or six months, but not less frequently than quarterly. Base rate loans bear interest at (a) the greater of (i) the rate most recently announced by Bank of America as its “prime rate” or (ii) the Federal Funds Rate plus ½ of 1% per annum, plus (b) a borrowing margin as described below. The margin varies from 2.00% to 2.75% on Eurodollar rate loans and from 1.00% to 1.75% on base rate loans, depending on our leverage ratio. As of December 31, 2004, the weighted average annual interest rate applicable to Eurodollar rate loans was 4.26% and the weighted average annual interest rate applicable to base rate loans was 6.29%. During the year ended December 31, 2004, the weighted average annual interest rate for the credit facilities was 4.31%. A commitment fee of 0.50% on the unused portion of the credit facilities is payable on a quarterly basis.

Our obligations under the credit facilities are guaranteed by our parent, SCIC, and each existing direct and indirect subsidiary of SCIC other than the Company, subject to certain exceptions. In addition, each significant domestic subsidiary of the Company subsequently formed is required to guarantee those obligations.

The Senior Credit Facility is secured by:

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We are currently in compliance with all covenants under the Senior Credit Facility.

The term loan facility under the Senior Credit Facility is amortized quarterly from February 27, 2004 through the date of maturity. The scheduled quarterly amortization payments are $1.625 million per quarter through February 27, 2006, $6.25 million per quarter from May 27, 2006 through February 27, 2008, and $12.5 million per quarter from May 27, 2008 through November 27, 2010, with a balloon payment of $449.5 million due on February 27, 2011. All mandatory quarterly prepayments have been made to date.

We may make optional prepayments to either the revolving credit facility or the term loan in million dollar increments with a minimum prepayment of $10.0 million. We are required to make a mandatory annual prepayment of the term loan facility and the revolving credit facility in an amount equal to 50.0% of excess cash flow, as defined in the term loan documentation, when the consolidated leverage ratio is 3.5x or greater, or 25.0% of excess cash flow when the consolidated leverage ratio is less than 3.5x. In addition, the Company is required to make a mandatory prepayment of the term loan and the revolving credit facility with, among other things:

Mandatory prepayments will be applied first to the term loans on a pro rata basis, and thereafter to the revolving loans. For the year ended December 31, 2004, we were not required to make a mandatory annual prepayment or any prepayments based on excess cash flow, dispositions of assets or extraordinary receipts.

The Senior Credit Facility requires us to fix the interest rate for a portion of the borrowings. Accordingly, on March 10, 2004 with an effective date of March 31, 2004, we entered into interest rate swap agreements to hedge the cash flows associated with the interest payments on $180.0 million of Eurodollar rate loans at an average rate of

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2.375% plus applicable margin for three years. Also, on June 1, 2004 we entered into an interest rate cap agreement with a total notional amount of $30.0 million under which we receive variable interest rate payments when the three month Eurodollar rate rises above 4.0%. The interest rate cap agreement is in effect through March 31, 2005. At December 31, 2004, the interest rate on borrowings under the term loan was 4.88%, and the interest rate on borrowings under the revolving credit facility was 7.00%.

8.5% Senior Subordinated Notes

On February 27, 2004, we issued $325.0 million of 8.5% Senior Subordinated Notes due February 15, 2014 (the “Notes”), with interest paid semi-annually every February 15 and August 15. Under the indenture governing the Notes, subject to exceptions, we must meet a minimum fixed charge coverage ratio to incur additional indebtedness.

Prior to February 15, 2007, we may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the Notes issued under the indenture at a redemption price of 108.5% of the principal amount thereof, plus accrued and unpaid interest from the net proceeds of one or more equity offerings. Otherwise, the Notes are not redeemable until February 15, 2009. Starting on February 15, 2009, we have the option to redeem all or a portion of the Notes at a redemption price equal to a percentage of the principal amount thereof plus accrued and unpaid interest. In the event of this kind of an optional redemption, the redemption price as a percentage of the principal amount would be:

The Notes provide that upon the occurrence of a change in control, as defined, the holders will have an option to require the redemption of the Notes at a redemption price equal to 101.0% of the principal amount thereof plus accrued interest. The indenture governing the Notes contains various covenants which, subject to exception, prohibit, or limit, among other things:

Debt extinguishment

On February 27, 2004, we extinguished $160.0 million of 7.08% senior notes due June 30, 2011 and $44.2 million of 3.67% Yen-denominated senior notes due July 16, 2008 resulting in prepayment penalties of $26.9 million and $3.8 million, respectively. As a result of early extinguishment of debt, we incurred a $0.9 million loss from the write off of deferred financing fees.

Short-term debt

At December 31, 2004, we had approximately 370 million yen (approximately US $3.6 million) of short-term borrowings with Japanese banks. These short-term borrowings have various termination dates and have no restrictive covenants. The interest rate on these borrowings ranges between 0.80% and 0.82% as of December 31, 2004.

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Contractual obligations

The following summarizes our contractual obligations at December 31, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, other than letters of credit which are obtained to ensure the performance and payment to third parties in accordance with specified terms and conditions. Under the Senior Credit Facility, we have the ability to issue up to $40.0 million in letters of credit, and all issued letters of credit are secured by the facility. As of December 31, 2004, $7.2 million of standby letters of credit were outstanding under the facility. We are not required to provide cash collateral for letters of credit issued, but must adhere to the financial covenants set forth in the Senior Credit Facility indenture.

Outlook

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

Contract Dispute Resolution

In November 2001, Solo Illinois entered into an outsourcing agreement (the “Agreement”) with DSC Logistics, Inc. (“DSC”) pursuant to which DSC was to provide customary warehouse and transportation services for Solo Illinois. After the Agreement was executed, disputes arose as to aspects of the Agreement, and Solo Illinois and DSC have been parties to litigation and arbitration. On February 16, 2005, Solo Illinois and DSC entered into a settlement agreement (the “Settlement Agreement”) which terminates the Agreement prior to its stated termination date. Pursuant to the terms of the Settlement Agreement, Solo Illinois will transition its distribution center and transportation services, including attendant real estate, equipment and personnel, where possible, back into its operations over the next four months. In February 2005, as part of the transition, Solo Illinois purchased certain assets from DSC, for which Solo Illinois paid DSC $1.2 million. The Settlement Agreement requires Solo Illinois to assume certain leases from DSC and pay DSC $11.75 million as follows: (1) on February 16, 2005, $3.15 million; (2) on March 15, 2005, $2.15 million; (3) on April 15, 2005, $2.15 million; (4) on May 16, 2005, $2.15 million; and (4) on June 15, 2005, $2.15 million. The Settlement Agreement also includes mutual releases from both parties and requires the parties to dismiss all related outstanding litigation and arbitration.

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Other Contingencies

The Company has entered into agreements with the State of Illinois (“State”) and the City of Chicago (“City”) relating to the acquisition and development of certain property of the Company located in the City. Pursuant to these agreements, the State and City provided certain grants to the Company, paid certain costs on behalf of the Company and undertook certain obligations relating to the property. Under these agreements, the Company is required to fulfill certain obligations relating to the property, which, if not fulfilled, could result in the Company being required to repay the amounts granted or paid by the City and the State.

Net Operating Loss Carryforwards

As of December 31, 2004, we had approximately $159.8 million of U.S. federal tax net operating loss carry-forwards that expire between 2016 and 2024. Approximately $97.5 million of such carry-forwards are subject to the provisions of Internal Revenue Code Section 382. Although future earnings cannot be predicted with certainty, management currently believes that realization of the net deferred tax assets is more likely than not.

Critical Accounting Estimates

In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we must make decisions, that impact the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, current developments and historical experience. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared. Management has discussed the development and selection of these critical accounting estimates with the Board of Directors and the Board of Directors has reviewed this disclosure.

The Company’s significant accounting policies are described in Note 2 to the consolidated financial statements in Item 8. Some of these significant accounting policies require us to make difficult, subjective or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made and (ii) different estimates reasonably could have been used or changes in the estimate that are reasonably likely to occur from period to period would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Our critical accounting estimates include the following:

Accounts receivable valuation. We value accounts receivable, net of an allowance for doubtful accounts. Each quarter, we estimate our ability to collect outstanding receivables and establish an allowance for doubtful accounts that reflects our best estimate of the amount of probable credit losses in our existing accounts receivable. In doing so, we evaluate the age of our receivables, past collection history, current financial condition of key customers and economic conditions. Based on this evaluation, we establish a reserve for specific accounts receivable that we believe are uncollectible, as well as an estimate of uncollectible receivables not specifically known. Our estimate of the allowance for doubtful accounts is a critical accounting estimate because it is highly susceptible to change from period to period. In addition, it requires management to make judgments about the future financial condition of our customers.

Deterioration in the financial condition of any key customer or a significant slowdown in the economy could have a material negative impact on our ability to collect a portion or all of the accounts receivable. We believe that analysis of historical trends and current knowledge of potential collection problems provides us with sufficient information to establish a reasonable estimate of an allowance for doubtful accounts. However, since we cannot predict with certainty future changes in the financial stability of our customers, our actual future losses from uncollectible accounts may differ from our estimates. In the event we determined that a smaller or larger balance of the allowance for uncollectible accounts was appropriate, we would record a credit or charge to selling, general and administrative expense in the period in which we made such a determination.

Customer discounts and allowances. Certain customer discounts and allowances are earned and payable to customers if a specified level of annual sales volume is met. We record such customer discounts and allowances based on the estimated and probable sales volume for the annual period. The amounts are recorded as a reduction of net sales based on the actual customers’ sales volume during the period. If actual annual sales volume differs from management estimates, gross margin and operating income could be affected.

Vendor incentives. Certain vendor incentives are earned only if a specified level of annual purchases is achieved. We record such incentives during the interim periods based on the actual results achieved on a year-to-date basis compared to targets or specified levels of purchases. The amounts are recorded as a reduction of cost of goods sold based on the purchase volume during the interim period. If actual purchase volume differs from management estimates, gross margin and operating income could be affected.

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Inventory reserves. We establish reserves for our inventory to reflect those conditions when the cost of the inventory is not expected to be recovered. We review such circumstances when products are not expected to be saleable based on standards established by our 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. We monitor inventory levels on a regular basis and record changes in inventory reserves as part of costs of goods sold.

Income taxes. We account for income taxes in accordance with the asset and liability method under SFAS No. 109, Accounting for Income Taxes. Deferred income tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement and income tax bases of assets and liabilities and tax credit and operating loss carry forwards using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The recoverability of deferred tax assets is dependent upon our 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. We review our internal forecasted sales and pre-tax earnings estimates to make our assessment about the utilization of deferred tax assets. In the event we determine that our future taxable income will not be sufficient to utilize the deferred tax asset, a valuation allowance will be recorded. If that assessment changes, a charge or a benefit would be recorded in the statement of operations.

Impact of Recently Issued Accounting Standards

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs-an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends Accounting Research Bulletin (“ARB”) No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overhead to inventory be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We are currently assessing the impact that SFAS No. 151 will have on our results of operations, financial position and cash flows.

In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”, which provides guidance under SFAS No. 109, “Accounting for Income Taxes,” with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (“AJCA”) on enterprises’ income tax expense and deferred tax liability. The AJCA creates a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. FSP No. 109-2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the AJCA on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109.

We have not yet completed our evaluation of the foreign repatriation provisions as part of the AJCA for purposes of applying SFAS No. 109 for each period for which financial statements are impacted. We are currently evaluating the repatriation provision for all of our foreign locations. Management estimates that the maximum amount of unremitted earnings to be repatriated under the AJCA will not exceed $12 million. Since we have not yet completed our evaluation of which foreign jurisdictions may remit earnings under the AJCA, the income tax effects of such repatriation cannot be meaningfully quantified.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes Accounting Principles Board Opinion 25 (“APB 25”). Among other items, SFAS 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. For nonpublic companies, as defined, the effective date of SFAS 123R is the beginning of the first annual reporting period that begins after December 15, 2005, which is the first quarter 2006 for calendar year companies, although early adoption is allowed. SFAS 123R permits companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS 123R for all share-based payments granted after that date, and based on the requirements of SFAS 123 for all unvested awards granted prior to the effective date of SFAS 123R. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but it also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS 123. We currently

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expect to adopt SFAS 123R in the first quarter of 2006, but we have not yet determined which of the aforementioned adoption methods we will use. We believe that the best estimate of the effect on our consolidated statement of operations is the pro forma information disclosed in Note 2 to our consolidated financial statements. See Note 15 to our consolidated financial statements for further information on stock-based compensation plans.

Item 7a. Quantitative and Qualitative Disclosures about 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. The Senior Credit Facility and the Canadian Credit Facility both include a revolving and term credit facility, which bear interest at a variable rate. The interest rate on the Senior Credit Facility is either Eurodollar rate based (1, 2, 3 or 6 months) plus a margin or the bank’s base rate plus a margin, whichever the Company selects. The margin varies from 2.0% to 2.75% on the Eurodollar rate borrowing and from 1.0% to 1.75% on the base rate borrowings depending on the Company’s leverage ratio. The Canadian revolving facility bears interest at the Canadian prime rate plus 0.50% or Canadian bankers acceptance rate plus 1.75%, at the Company’s option, and the term loan bears interest at the Canadian prime rate plus 0.75% or Canadian bankers acceptance rate plus 2.00%, at the Company’s option.

The Senior Credit Facility requires us to hedge a portion of the borrowings. On March 10, 2004 with an effective date of March 31, 2004, we entered into interest rate swap agreements to hedge $180.0 million of Eurodollar rate loans at an average rate of 2.375% plus applicable margin for three years. Also, on June 1, 2004 we entered into an interest rate cap agreement with a total notional amount of $30.0 million under which we receive variable interest rate payments when the three month Eurodollar rate rises above 4.0%. The interest rate cap agreement is in effect through March 31, 2005. At December 31, 2004, the interest rate on borrowings under the term loan was 4.88%, and the interest rate on borrowings under the revolving credit facility was 7.00%.

As of December 31, 2004, the outstanding indebtedness under the Senior Credit Facility was $673.8 million and $114.1 million was available under the Senior Credit Facility. As of December 31, 2004, the outstanding indebtedness under the Canadian Credit facility was CAD $14.7 million (approximately US $12.2 million) and CAD $8.7 million (approximately US $7.2 million) was available under the Canadian Credit Facility. Based upon these amounts, the annual net income would change by approximately $2.9 million for each one-percentage point change in the interest rates applicable to the variable rate debt after giving effect to the interest rate swap agreements. The level of the exposure to interest rate movements may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under the revolving credit facilities.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. The words “anticipate,” “intend,” “plan,” “estimate,” “believe,” “expect,” “predict,” “potential,” “project,” “could,” “will,” “should,” “may,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All statements in this report other than statements of historical fact, including statements regarding our business strategy, future operations, financial position, estimated net sales, projected costs, projected cost savings, projected synergies, prospects, plans and objectives, as well as information concerning industry trends and expected actions of third parties, are forward-looking statements. All forward-looking statements speak only as of the date on which they are made. They rely on a number of assumptions concerning future events and are subject to a number of risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from such statements. These risks and uncertainties include, but are not limited to, the factors listed under “Risk Factors” below. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise to reflect actual results or changes in factors or assumptions affecting such forward-looking statement.

RISK FACTORS

We operate in a highly competitive environment and may not be able to compete successfully.

The disposable foodservice products industry is extremely competitive and highly fragmented. We compete for foodservice customers based on price, quality, customer service, breadth of product offering and development partnerships. We compete for consumer customers based on price, brand reputation, quality, product differentiation and innovation. We compete for food packaging customers based on price, product breadth, quality, service and filling equipment capabilities. Our competitors include large multinational companies as well as regional manufacturers. Some of our competitors compete across the full line of our products, while others compete with only some of our products. A few of our competitors are integrated in the manufacture of plastic or paper raw materials which reduces their costs for these materials and gives them greater access to these materials in periods of short supply. Increases in productivity, combined with surplus capacity in the industry, have maintained competitive pricing pressures. Our current or potential competitors may offer products at a lower price or products and service that are superior to ours. In addition, our competitors may be more effective and efficient in integrating new technologies. Our products also compete with metal, glass and other packaging materials, as well as plastic packaging materials made through different manufacturing processes. Any of the factors listed above may cause price reductions, reduced gross margins, decreased sales and reduced ability to attract and retain customers. As a result, we may not be able to compete successfully against our competitors.

We may not successfully integrate all aspects of Solo Illinois and SF Holdings.

If we cannot successfully integrate each of SF Holdings’ operations with those of Solo Illinois, we may experience material negative consequences to our business, financial condition or results of operations. The integration of companies that have previously been operated separately involves a number of risks, including, but not limited to:

Successful integration of SF Holdings’ operations with those of Solo Illinois will depend on our ability to manage the combined operations, to realize opportunities for revenue growth presented by broader product offerings

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and expanded geographic coverage and to eliminate redundant and excess costs. If our integration efforts are not completely successful, we may not be able to maintain the levels of revenue, earnings or operating efficiency that Solo Illinois and SF Holdings had achieved or might achieve separately.

We will incur significant costs to achieve and may not be able to realize all the anticipated savings, synergies or revenue enhancements from combining Solo Illinois and SF Holdings.

Even if we are able to integrate successfully the operations of Solo Illinois and SF Holdings, we may not be able to realize all the cost savings, synergies or revenue enhancements that we anticipate from the integration, either in the amount or the time frame that we currently expect, and the costs of achieving these benefits may be higher than, and the timing may differ from, what we currently expect. Our ability to realize anticipated cost savings, synergies and revenue enhancement may be affected by a number of factors, including but not limited to the following:

Our significant debt could adversely affect our financial health.

We have a significant amount of debt. As of December 31, 2004, we had total debt of $1,014.5 million, of which $325.0 million consisted of the notes and $686.0 million consisted of borrowings under our credit facilities.

Our high level of debt could have important consequences to our note holders, including the following:

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

We also may be able to incur substantial additional debt in the future. Although the indenture governing the notes and the terms of our credit facilities contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions, and debt incurred in compliance with these restrictions could be substantial. In addition, we may refinance all or a portion of our debt, including borrowings under our credit facilities, and incur more debt as a result. As of December 31, 2004, our credit facilities permitted additional borrowing of up to $121.3 million (after giving effect to outstanding letters of credit). If we incur new debt, the significant risks described above would intensify.

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Further consolidation in the foodservice and retail industries may adversely affect our profitability.

Broadline distributors, mass merchandisers, warehouse clubs and our other customers have consolidated and increased in scale. If, as we expect, this trend continues, our customers will likely seek more favorable terms, including pricing, for their purchases of our products, which will limit our ability to raise prices, including to recoup raw material and other cost increases. Sales on terms less favorable to us than our current terms will have an adverse effect on our profitability.

We could be adversely affected by raw material availability and pricing.

Our principal raw materials include resins, paperboard and bond paper. Periods of short supply for these raw materials may occur. In addition, prices for our raw materials fluctuate. For example, the market index price, as disclosed by Chemical Data, Inc. (“CDI”), for high impact polystyrene resin has fluctuated between $0.380/pound and $0.885/pound over the past five years. When raw material prices decrease, our selling prices have historically decreased. When raw material prices increase, our selling prices have historically also increased, although often with a time lag. The impact of raw material price changes is affected by a number of factors, including the level of inventories at the time of price changes, the specific timing and frequency of price changes and the lead and lag time that generally accompanies the implementation of both raw material price changes and subsequent selling price changes. If raw material prices increase and we are unable to pass the price increases on to our customers, our profitability may be adversely affected. For example, in 2004, the price of plastic resin increased by 57%, resulting in lower gross profits, due to our inability, to date, to fully pass along these price increases to our customers. We have not historically employed hedging strategies to limit our exposure to fluctuations in raw material prices on any meaningful level. To the extent that our supply of raw materials is compromised and adequate alternative sources cannot be found, our profitability also may be adversely affected. In the event raw material prices increase over a period of several months, profit margins may be reduced, which could have a material adverse effect on our business, financial condition or results of operations. We cannot project whether the preferences of our customers for the materials used in our products will change over time and what raw materials will be used in the future.

We are subject to extensive environmental regulation and significant potential environmental liabilities.

Our 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, the management of hazardous substances and the disposal of hazardous waste. We are presently, and may in the future be, subject to liability for the investigation and remediation of environmental contamination, including contamination caused by other parties, at properties that we own or operate or that we formerly owned or operated and at other properties where we or our predecessors have arranged for the disposal of hazardous substances. As a result, we are involved from time to time in administrative and judicial proceedings and inquiries relating to environmental matters. Any present or future investigations and remedial efforts relating to environmental matters could entail material costs or otherwise result in material liabilities. Any amount of future clean up costs and other environmental liabilities could also be material. We need to conduct our operations in compliance with the environmental permits granted by federal, state and local authorities and there are various risks associated with noncompliance with these permits, including cessation of our operations at the noncompliant facilities and significant fines and penalties.

We 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 our facilities or at third party sites for which we are liable. Enactment of stricter laws or regulations, stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at our own or third party sites may require us to make additional expenditures, some of which could be material.

Our international operations expose us to risks related to conducting business in multiple jurisdictions outside the United States.

The Company’s international operations consist of operating subsidiaries in five countries as well as international export sales originating both in the U.S and our international subsidiaries. The international scope of our operations may lead to volatile financial results and difficulties in managing our business. The Company generated 16.3% of its net sales outside the United States for the year ended December 31, 2004. We anticipate that international sales may grow as a percentage of net sales. We have committed resources to expanding our international operations and sales channels and these efforts may not be successful. International sales and operations are subject to a number of risks, including:

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Our exposure to currency exchange rate fluctuations results primarily from the translation exposure associated with the preparation of our consolidated financial statements, as well as from transaction exposure associated with generating revenues and incurring expenses in different currencies. While our consolidated financial statements are reported in U.S. dollars, the financial statements of our subsidiaries outside the United States are measured using the local currency as the functional currency and translated into U.S. dollars by applying an appropriate exchange rate. As a result, fluctuations in the exchange rate of the U.S. dollar relative to the local currencies in which our subsidiaries outside the United States report could cause significant fluctuations in our consolidated results. We record sales and expenses in a variety of currencies. While our expenses with respect to foreign operations are generally denominated in the same currency as the corresponding sales, we have transaction exposure to the extent our receipts and expenditures are not offsetting in any currency. Moreover, the costs of doing business abroad may increase as a result of adverse exchange rate fluctuations. In addition, we may lose customers if exchange rate fluctuations, currency devaluation or economic crises increase the local currency price of our products or reduce our customers’ ability to purchase our products. If we are unable to manage the operational challenges associated with our international activities, our business, financial condition or results of operations could be materially and adversely affected.

If we are unable to improve existing products and develop new products, our sales and industry position may suffer.

We believe that our future success will depend, in part, upon our ability to continue making innovations in our existing products and to develop, manufacture and market new products. This will depend, in part, on the success of our research and development and engineering efforts, our ability to expand or modify our manufacturing capacity and the extent to which we convince customers and consumers to accept our new products. If we fail to successfully introduce, market and manufacture new products or product innovations and differentiate our products from those of our competitors, our ability to maintain or expand our net sales and to maintain or enhance our industry position could be adversely affected, which in turn could materially adversely affect our business, financial condition or results of operations.

The loss of the services of our key management and personnel could adversely affect our business.

We believe that our ability to successfully implement our business strategy and to operate profitably depends on the continued employment of some members of our senior management team. If these members of the management team become unable or unwilling to continue in their present positions, our business, financial condition or results of operations could be materially adversely affected. In addition, our continued growth depends on our ability to attract and retain experienced key employees.

We are controlled by the stockholders of Solo Cup Investment Corporation, the interests of which may conflict with the interests of our note holders.

All of our outstanding capital stock is owned by our parent company, Solo Cup Investment Corporation (“SCIC”). Holders of SCC Holding Company LLC’s voting interests control 100% of the outstanding common stock of SCIC, and Vestar Capital Partners (“Vestar”) holds 99.6% of the outstanding convertible participating preferred stock (“CPPS”) of SCIC, with the remaining balance of the CPPS held by members of our management.

The CPPS is currently convertible at any time, at the option of the holders, into 32.7% of the common stock of SCIC. The CPPS is entitled to vote on all matters to be voted upon by holders of common stock, voting together

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with the holders of common stock as a single class. Holders of a majority of the outstanding shares of CPPS, voting as a separate class, are entitled to elect two individuals to the board of directors of SCIC and the registrant. Upon the occurrence of specified events, including specified events of default, if SCIC substantially underperforms based on financial covenants, including minimum EBITDA targets and maximum leverage ratios, or if SCIC fails to redeem the CPPS or other equity securities issued pursuant thereto held by Vestar and certain transferees on or prior to the seventh anniversary of the issue date of the CPPS, holders of the securities subject to redemption would be entitled to elect persons constituting a majority of the board of directors of SCIC. If Vestar acquires control of SCIC, the indenture provision regarding a change of control would not be triggered; therefore, the Company would not be obligated to offer to repurchase the notes under those circumstances.

The interests of SCC Holding Company LLC and the holders of SCIC’s CPPS, including Vestar, could conflict with the interests of our note holders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of these indirect equity holders of ours might conflict with the interests of a note holder. SCIC’s stockholders may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though the transactions might involve risks to a holder of the notes. In addition, SCC Holding Company LLC or its affiliates and Vestar or its affiliates may in the future own businesses that directly compete with ours. While we are subject to certain provisions of the Sarbanes-Oxley Act of 2002, these provisions do not require us to have independent directors. There are no plans at this time to appoint any independent directors to the registrant’s board of directors.

The loss of one or more of our principal customers could have a material adverse effect on our business, financial condition or results of operations.

We have a number of large customers which account for a significant portion of our net sales. For the year ended December 31, 2004, our five largest customers represented approximately 26% of net sales, with no one customer accounting for more than 6.0% of net sales. The loss of one or more of our large customers could have a material adverse effect on our business, financial condition or results of operations. In line with industry practice, we generally do not have long-term sales agreements with customers.

Prolonged work stoppages at plants with union employees could adversely affect our results and jeopardize our business and financial position.

As of December 31, 2004, 18% of our employees were covered by one or more collective bargaining agreements. This percentage may increase in the future. These collective bargaining agreements have staggered expirations over the next five years. Although we consider our employee relations to be generally good, a prolonged work stoppage or strike at any facility with union employees could have a material adverse effect on our business, financial condition or results of operations. In addition, upon the expiration of existing collective bargaining agreements, new agreements may not be reached without union action and any new agreements may not be on terms satisfactory to us.

We may make other acquisitions and consequently face integration, management diversion and other risks.

We may pursue additional acquisitions in the future. Any future acquisitions could be of significant size and may involve either domestic or international parties. To acquire and integrate a separate organization would divert management attention from other business activities. This diversion, together with other difficulties we may encounter in integrating an acquired business, could have a material adverse effect on our business, financial condition or results of operations. Moreover, we may not realize any of the anticipated benefits of an acquisition and integration costs may exceed anticipated amounts. In connection with future acquisitions, we may also assume the liabilities of the businesses we acquire. These liabilities could materially and adversely affect our business and financial condition.

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We may not be able to adequately protect our intellectual property and other proprietary rights.

We rely on a combination of contractual provisions, confidentiality procedures and agreements, and patent, trademark, copyright, unfair competition, trade secrecy and other intellectual property laws to protect our intellectual property and other proprietary rights. Such measures may not provide adequate protection and may not prevent our competitors from gaining access to our intellectual property and proprietary information or independently developing technologies that are substantially equivalent or superior to our technology, which could harm our competitive position and could have a material adverse effect on our business, financial condition or results of operations. Furthermore, we cannot assure you that any pending patent application or trademark application held by us will result in an issued patent or registered trademark, or that any issued or registered patents or trademarks will not be challenged, invalidated, circumvented or rendered unenforceable.

Litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that our products infringe their intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, or whether successful or not, could result in substantial costs and diversion of our resources, which could have a material adverse effect on our business, financial condition or results of operation. Any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, could subject us to significant liabilities, require us to seek licenses on unfavorable terms, prevent us from manufacturing or selling products and require us to redesign or, in the case of trademark claims, rename our products, any of which could have a material adverse effect on our business, financial condition or results of operations.

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Item 8. Financial Statements.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Solo Cup Company:

We have audited the accompanying consolidated balance sheets of Solo Cup Company and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Solo Cup Company and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

Chicago, Illinois

March 11, 2005

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SOLO CUP COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)