November 13, 2009
VIA EDGAR CORRESPONDENCE
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549-7010
Re: | Solo Cup Company | |
Form 10-K for the Fiscal Year Ended December 28, 2008 | ||
Filed March 16, 2009 | ||
File #333-116843 |
Dear Mr. Cash:
This will acknowledge receipt of your letter dated November 3, 2009. Following is Solo Cup Company’s (the “Company”) response to your additional comments on our Form 10-K for the fiscal year ended December 28, 2008 (“2008 Form 10-K”), Commission File No. 333-116843.
For convenience, the comments in your letter of November 3, 2009 are in italics and our response follows each comment.
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 2
Form 10-K for the fiscal year ended December 28, 2008
Note 2. Summary of Significant Accounting Policies, page 34
(l) Impairment of Long-lived Assets, page 36
1. | We note your response to our prior comment three that you performed an impairment analysis in the third quarter of 2009. If you have determined that the estimated fair value of your long-lived assets is not substantially in excess of their carrying value, please provide the following disclosures in future filings: |
• | The percentage by which fair value exceeds carrying value as of the most recent impairment test. |
• | A discussion of the uncertainties associated with each key assumption. |
• | A discussion of any other potential events and/or circumstances that could have a negative effect on estimated fair value. |
Alternatively, if you have determined that the estimated fair values of these assets substantially exceed their carrying values, please disclose this determination.
Company response:
For the third quarter of 2009, an impairment analysis relating to long-lived assets was performed in conjunction with our interim goodwill impairment test for our Europe reporting unit. An impairment loss would be recognized if the carrying amount of these long-lived assets was not recoverable and the carrying amount exceeded their estimated fair value. We first tested these long-lived assets for recoverability by comparing their carrying value to the undiscounted future cash flows expected to result from the use and eventual disposition of these assets. These undiscounted cash flows substantially exceeded their carrying value; therefore, we concluded that the assets were not impaired.
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 3
Note 23. Guarantors, page 65
2. | We note your statement in your response to our prior comment four that the error in your guarantor footnote is entirely related to the amounts reflected as the Guarantor’s investment in the net assets and earnings of the Non-Guarantor subsidiaries. Please clarify for us if these amounts are included in the financial information of the Guarantors. In addition, please provide us with a schedule showing how your financial statement footnote would have been presented for the year ended December 28, 2008 had the amounts been appropriately stated. |
Company response:
In the guarantor footnote included in previous filings, the Company had not reflected investments in its subsidiaries, all of which are 100% owned, within the guarantor footnote using the equity method of accounting. In future filings, beginning with its Form 10-Q for the quarter ended September 27, 2009, the Company presented these investments in its 100% owned subsidiaries within the guarantor footnote using the equity method of accounting in its current and prior period condensed consolidating financial statements. In applying the equity method of accounting for the Guarantors’ investments in Non-Guarantor subsidiaries, our new presentation (included below) reflects eliminations of intercompany transactions, such as intercompany profit not yet realized through the sale to an external party, within the Guarantors column instead of the Eliminations column.
To further clarify, the condensed consolidating balance sheet for the Guarantors had only included the Guarantors’ investments in Non-Guarantor subsidiaries at their original cost basis. This cost basis was not adjusted to reflect the cumulative earnings or losses of the 100% owned Non-Guarantor subsidiaries. Except for the Guarantors’ investment in Non-Guarantor subsidiaries (at original cost), there were no assets or liabilities of the Non-Guarantors reflected in the Guarantors column. In other words, the Non-Guarantors’ assets and liabilities were only included in the Non-Guarantors column. Similarly, in the consolidating Statements of Operations, the Guarantors column only reflected the results of operations for the Guarantors and did not include any earnings or losses of the 100% owned Non-Guarantor subsidiaries. In other words, the Non-Guarantors’ results of operations were only included in the Non-Guarantors column.
Following are the financial statements for the guarantor footnote that would have been presented in the Company’s Form 10-K for the year ended December 28, 2008 had the amounts been appropriately stated, including the condensed consolidating balance sheets as of December 28, 2008 and December 30, 2007 and the consolidating statements of operations for the fiscal years ended December 28, 2008, December 30, 2007 and December 31, 2006. This error did not impact the condensed consolidating statements of cash flows for any period.
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 4
Condensed Consolidated Balance Sheet
December 28, 2008
(In thousands)
Solo Delaware | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 40,310 | $ | 1,028 | $ | 16,166 | $ | — | $ | 57,504 | ||||||
Cash in escrow | — | 50 | — | — | 50 | |||||||||||
Accounts receivable: | ||||||||||||||||
Trade | — | 104,876 | 16,126 | — | 121,002 | |||||||||||
Other | — | 137,044 | 247 | (134,252 | ) | 3,039 | ||||||||||
Inventories | — | 264,133 | 20,911 | (1,783 | ) | 283,261 | ||||||||||
Deferred income taxes | — | 21,647 | 235 | �� | 21,882 | |||||||||||
Prepaid expenses and other current assets | — | 35,170 | 3,702 | — | 38,872 | |||||||||||
Total current assets | 40,310 | 563,948 | 57,387 | (136,035 | ) | 525,610 | ||||||||||
Property, plant and equipment, net | — | 479,697 | 31,432 | — | 511,129 | |||||||||||
Goodwill | — | 15,459 | — | — | 15,459 | |||||||||||
Investment in subsidiaries | 42,537 | 62,300 | — | (104,837 | ) | — | ||||||||||
Other assets | 12,210 | 6,582 | 2,805 | — | 21,597 | |||||||||||
Total assets | $ | 95,057 | $ | 1,127,986 | $ | 91,624 | $ | (240,872 | ) | $ | 1,073,795 | |||||
Liabilities and Shareholder’s Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 40,508 | $ | 151,335 | $ | 17,168 | $ | (134,252 | ) | $ | 74,759 | |||||
Accrued expenses and other current liabilities | 12,673 | 86,278 | 5,442 | — | 104,393 | |||||||||||
Total current liabilities | 53,181 | 237,613 | 22,610 | (134,252 | ) | 179,152 | ||||||||||
Long-term debt, net of current maturities | — | 716,475 | 347 | — | 716,822 | |||||||||||
Deferred income taxes | — | 28,559 | 2,291 | — | 30,850 | |||||||||||
Other liabilities | 10,584 | 102,802 | 2,293 | — | 115,679 | |||||||||||
Total liabilities | 63,765 | 1,085,449 | 27,541 | (134,252 | ) | 1,042,503 | ||||||||||
Total shareholder’s equity | 31,292 | 42,537 | 64,083 | (106,620 | ) | 31,292 | ||||||||||
Total liabilities and shareholder’s equity | $ | 95,057 | $ | 1,127,986 | $ | 91,624 | $ | (240,872 | ) | $ | 1,073,795 | |||||
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 5
Condensed Consolidated Balance Sheet
December 30, 2007
(In thousands)
Solo Delaware | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 10,464 | $ | 4,881 | $ | 18,238 | $ | — | $ | 33,583 | ||||||
Accounts receivable: | ||||||||||||||||
Trade | — | 147,690 | 17,447 | — | 165,137 | |||||||||||
Other | 89,968 | 68,540 | 505 | (149,190 | ) | 9,823 | ||||||||||
Inventories | — | 280,301 | 22,435 | (1,699 | ) | 301,037 | ||||||||||
Deferred income taxes | — | 40,470 | 1,152 | — | 41,622 | |||||||||||
Prepaid expenses and other current assets | 17 | 58,336 | 3,577 | — | 61,930 | |||||||||||
Total current assets | 100,449 | 600,218 | 63,354 | (150,889 | ) | 613,132 | ||||||||||
Property, plant and equipment, net | — | 500,515 | 39,334 | — | 539,849 | |||||||||||
Goodwill and intangible assets, net | — | 23,162 | — | — | 23,162 | |||||||||||
Investment in subsidiaries | 109,158 | 68,202 | — | (177,360 | ) | — | ||||||||||
Other assets | 16,658 | 7,749 | 2,625 | — | 27,032 | |||||||||||
Total assets | $ | 226,265 | $ | 1,199,846 | $ | 105,313 | $ | (328,249 | ) | $ | 1,203,175 | |||||
Liabilities and Shareholder’s Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 117,155 | $ | 101,511 | $ | 17,085 | $ | (149,189 | ) | $ | 86,562 | |||||
Accrued expenses and other current liabilities | 13,513 | 105,921 | 10,308 | — | 129,742 | |||||||||||
Total current liabilities | 130,668 | 207,432 | 27,393 | (149,189 | ) | 216,304 | ||||||||||
Long-term debt, net of current maturities | — | 754,285 | 1,912 | — | 756,197 | |||||||||||
Deferred income taxes | — | 50,711 | 3,697 | — | 54,408 | |||||||||||
Other liabilities | 7,070 | 78,260 | 2,409 | — | 87,739 | |||||||||||
Total liabilities | 137,738 | 1,090,688 | 35,411 | (149,189 | ) | 1,114,648 | ||||||||||
Total shareholder’s equity | 88,527 | 109,158 | 69,902 | (179,060 | ) | 88,527 | ||||||||||
Total liabilities and shareholder’s equity | $ | 226,265 | $ | 1,199,846 | $ | 105,313 | $ | (328,249 | ) | $ | 1,203,175 | |||||
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 6
Consolidated Statement of Operations
For the Year Ended December 28, 2008
(In thousands)
Solo Delaware | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 1,735,079 | $ | 203,297 | $ | (91,342 | ) | $ | 1,847,034 | |||||||||
Cost of goods sold | — | 1,507,991 | 182,577 | (91,298 | ) | 1,599,270 | ||||||||||||||
Gross profit | — | 227,088 | 20,720 | (44 | ) | 247,764 | ||||||||||||||
Selling, general and administrative expenses | 17 | 148,740 | 10,850 | (1 | ) | 159,606 | ||||||||||||||
Loss on asset disposals | — | 22,513 | 47 | — | 22,560 | |||||||||||||||
Operating (loss) income | (17 | ) | 55,835 | 9,823 | (43 | ) | 65,598 | |||||||||||||
Interest (income) expense, net | (13,702 | ) | 75,319 | 7 | — | 61,624 | ||||||||||||||
Foreign currency exchange loss (gain), net | — | 15,910 | (1,803 | ) | — | 14,107 | ||||||||||||||
Equity in loss (earnings) of subsidiaries | 25,582 | (8,196 | ) | — | (17,386 | ) | — | |||||||||||||
(Loss) income from continuing operations before income taxes | (11,897 | ) | (27,198 | ) | 11,619 | 17,343 | (10,133 | ) | ||||||||||||
Income tax provision (benefit) | 154 | (1,467 | ) | 3,380 | — | 2,067 | ||||||||||||||
(Loss) income from continuing operations | (12,051 | ) | (25,731 | ) | 8,239 | 17,343 | (12,200 | ) | ||||||||||||
Loss from discontinued operations, net of income tax provision of $0 | — | (628 | ) | — | — | (628 | ) | |||||||||||||
Gain on sale of discontinued operations, net of income tax provision of $0 | — | 777 | — | — | 777 | |||||||||||||||
Net (loss) income | $ | (12,051 | ) | $ | (25,582 | ) | $ | 8,239 | $ | 17,343 | $ | (12,051 | ) | |||||||
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 7
Consolidated Statement of Operations
For the Year Ended December 30, 2007
(In thousands)
Solo Delaware | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 1,985,292 | $ | 214,171 | $ | (89,361 | ) | $ | 2,110,102 | |||||||||
Cost of goods sold | — | 1,760,528 | 188,428 | (89,273 | ) | 1,859,683 | ||||||||||||||
Gross profit | — | 224,764 | 25,743 | (88 | ) | 250,419 | ||||||||||||||
Selling, general and administrative expenses | (451 | ) | 192,928 | 11,255 | (89 | ) | 203,643 | |||||||||||||
Gain on asset disposals | — | (7,234 | ) | (1,273 | ) | — | (8,507 | ) | ||||||||||||
Operating income | 451 | 39,070 | 15,761 | 1 | 55,283 | |||||||||||||||
Interest expense, net | 4,194 | 80,458 | 404 | — | 85,056 | |||||||||||||||
Foreign currency exchange gain, net | — | (2,158 | ) | (1,932 | ) | — | (4,090 | ) | ||||||||||||
Equity in earnings of subsidiaries | (75,981 | ) | (9,295 | ) | — | 85,276 | — | |||||||||||||
Other income, net | — | (184 | ) | — | — | (184 | ) | |||||||||||||
Income (loss) from continuing operations before income taxes | 72,238 | (29,751 | ) | 17,289 | (85,275 | ) | (25,499 | ) | ||||||||||||
Income tax provision (benefit) | 1,157 | (25,362 | ) | 4,744 | — | (19,461 | ) | |||||||||||||
Income (loss) from continuing operations | 71,081 | (4,389 | ) | 12,545 | (85,275 | ) | (6,038 | ) | ||||||||||||
Income (loss) from discontinued operations, net of income tax provision of $3,043 | — | 3,107 | (3,251 | ) | — | (144 | ) | |||||||||||||
Gain on sale of discontinued operations, net of income tax provision of $17,671 | — | 77,263 | — | — | 77,263 | |||||||||||||||
Net income | $ | 71,081 | $ | 75,981 | $ | 9,294 | $ | (85,275 | ) | $ | 71,081 | |||||||||
Mr. John Cash
Accounting Branch Chief
United States Securities and Exchange Commission
November 13, 2009
Page 8
Consolidated Statement of Operations
For the Year Ended December 31, 2006
(In thousands)
Solo Delaware | Guarantors | Non- Guarantors | Eliminations | Consolidated | ||||||||||||||||
Net sales | $ | — | $ | 2,009,742 | $ | 191,146 | $ | (76,928 | ) | $ | 2,123,960 | |||||||||
Cost of goods sold | — | 1,830,986 | 167,131 | (76,806 | ) | 1,921,311 | ||||||||||||||
Gross profit | — | 178,756 | 24,015 | (122 | ) | 202,649 | ||||||||||||||
Selling, general and administrative expenses | 903 | 204,951 | 10,688 | (122 | ) | 216,420 | ||||||||||||||
Impairment of goodwill | 18,988 | 209,431 | 118 | — | 228,537 | |||||||||||||||
Loss on asset disposals | — | 4,363 | 68 | — | 4,431 | |||||||||||||||
Operating (loss) income | (19,891 | ) | (239,989 | ) | 13,141 | — | (246,739 | ) | ||||||||||||
Interest (income) expense, net | (279 | ) | 74,622 | 949 | — | 75,292 | ||||||||||||||
Foreign currency exchange gain, net | — | (6,353 | ) | (510 | ) | — | (6,863 | ) | ||||||||||||
Equity in loss (earnings) of subsidiaries | 359,394 | (3,951 | ) | — | (355,443 | ) | — | |||||||||||||
Other expense (income), net | — | 62 | (7 | ) | — | 55 | ||||||||||||||
(Loss) income from continuing operations before income taxes | (379,006 | ) | (304,369 | ) | 12,709 | 355,443 | (315,223 | ) | ||||||||||||
Income tax (benefit) provision | (4,638 | ) | 56,277 | 4,645 | — | 56,284 | ||||||||||||||
(Loss) income from continuing operations | (374,368 | ) | (360,646 | ) | 8,064 | 355,443 | (371,507 | ) | ||||||||||||
Income (loss) from discontinued operations, net of income tax provision of $235 | — | 1,252 | (4,113 | ) | — | (2,861 | ) | |||||||||||||
Net (loss) income | $ | (374,368 | ) | $ | (359,394 | ) | $ | 3,951 | $ | 355,443 | $ | (374,368 | ) | |||||||
If you have any further comments or questions, please call me at 847-579-3201.
Very truly yours, | ||
SOLO CUP COMPANY | ||
By: | /s/ Robert D. Koney, Jr. | |
Robert D. Koney, Jr. | ||
Executive Vice President and Chief Financial Officer |
cc: | Tricia Armelin, Securities and Exchange Commission | |
Jeanne Baker, Securities and Exchange Commission |