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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Thirty-nine Weeks Ended June 24, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the transition period from _________ to_________
Commission file number 333-50683
SF HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3990796
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
373 Park Avenue South, New York, New York 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212/779-7448
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 [ ]
The number of shares outstanding of the Registrant's common stock
as of July 20, 2001:
SF Holdings Group, Inc. Class A Common Stock, $0.001 par value - 562,583 shares
SF Holdings Group, Inc. Class B Common Stock, $0.001 par value - 56,459 shares
SF Holdings Group, Inc. Class C Common Stock, $0.001 par value - 39,900 shares
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SF HOLDINGS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 24, September 24,
2001 2000
------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 7,242 $ 6,352
Cash in escrow 1,064 300
Receivables, less allowances of $4,156 and $3,534,
respectively 164,084 155,684
Due from affiliates 1,995 1,286
Inventories 223,804 226,657
Deferred income taxes 24,454 24,347
Refundable income taxes 843 622
Spare parts 26,415 24,066
Other current assets 9,370 6,428
---------- ----------
Total current assets 459,271 445,742
Property, plant and equipment, net 273,002 263,368
Deferred income taxes 37,100 37,694
Spare parts 8,632 8,313
Goodwill, net 109,826 106,108
Other assets 17,225 19,904
---------- ----------
Total assets $ 905,056 $ 881,129
========== ==========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 93,941 $ 91,068
Accrued payroll and related costs 46,383 55,486
Other current liabilities 56,882 56,114
Current portion of deferred gain on sale of assets 10,275 10,275
Current portion of long-term debt 41,782 57,266
---------- ----------
Total current liabilities 249,263 270,209
Commitments and contingencies (See Notes)
Deferred income taxes 4,209 4,209
Long-term debt 485,280 434,967
Deferred gain on sale of assets 86,241 93,948
Other liabilities 54,997 57,511
---------- ----------
Total liabilities 879,990 860,844
---------- ----------
Exchangeable preferred stock 46,444 41,794
Preferred Stock B, Series 2 15,000 15,000
Minority interest in subsidiaries 6,105 3,169
Redeemable common stock 2,338 2,286
Shareholders' deficit (44,821) (41,964)
---------- ----------
Total liabilities and shareholders' deficit $ 905,056 $ 881,129
========== ==========
See accompanying Notes to Consolidated Financial Statements.
2
SF HOLDINGS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
For the For the For the For the
Thirteen Thirteen Thirty-nine Thirty-nine
weeks ended weeks ended weeks ended weeks ended
June 24, June 25, June 24, June 25,
2001 2000 2001 2000
--------------- --------------- --------------- --------------
Net sales $ 342,072 $ 346,579 $ 961,368 $ 941,773
Cost of sales 291,661 291,358 838,817 799,064
---------- ---------- ---------- ----------
Gross profit 50,411 55,221 122,551 142,709
Selling, general and administrative expenses 24,939 26,347 84,146 86,908
Restructuring expense 407 500 407 500
Other income, net (1,301) (174) (7,679) (1,738)
---------- ---------- ---------- ----------
Operating income 26,366 28,548 45,677 57,039
Interest expense, net of interest income of $-,
$147, $89 and $414, respectively 13,343 18,713 40,171 53,413
---------- ---------- ---------- ----------
Income before income tax expense,
minority interest and extraordinary loss 13,023 9,835 5,506 3,626
Income tax expense 5,441 4,255 2,949 2,404
Minority interest in subsidiaries 931 837 873 1,183
---------- ---------- ---------- ----------
Income before extraordinary loss 6,651 4,743 1,684 39
Extraordinary loss on debt extinguishment (net
of income tax benefit of $225 and $575
respectively) - 337 - 862
---------- ---------- ---------- ----------
Net income (loss) 6,651 4,406 1,684 (823)
Payment-in-kind dividends on exchangeable
preferred stock 1,584 1,390 4,650 4,067
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stockholders $ 5,067 $ 3,016 $ (2,966) $ (4,890)
========== ========== ========== ==========
Comprehensive income (loss):
Net income (loss) $ 6,651 $ 4,406 $ 1,684 $ (823)
Foreign currency translation adjustment 524 (148) 1 (266)
Minimum pension liability adjustment (net
of income tax expense (benefit) of $261,
$(49), $(247) and $(51), respectively) 392 (73) (370) (77)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 7,567 $ 4,185 $ 1,315 $ (1,166)
========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements.
3
SF HOLDINGS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Thirty-nine For the Thirty-nine
weeks ended weeks ended
June 24, 2001 June 25, 2000
----------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,684 $ (823)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 25,138 40,405
Amortization of deferred gain (7,707) (245)
Interest accreted on debt 10,346 8,831
Deferred income tax benefit 2,949 1,857
Gain on sale of assets (427) (4,109)
Minority interest in subsidiaries 873 1,183
Changes in operating assets and liabilities (net of business
acquisitions):
Receivables (5,346) (12,549)
Due from affiliates (709) (5)
Inventories 8,359 (21,938)
Other current assets (5,786) 2,499
Accounts payable and accrued expenses (21,601) 5,518
Other, net (2,289) (959)
--------- ----------
Net cash provided by operating activities 5,484 19,665
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (21,690) (20,745)
Payments for business acquisitions (18,827) (12,411)
Proceeds from sale of property, plant and equipment 369 220,921
--------- ----------
Net cash (used in) provided by investing activities (40,148) 187,765
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under credit facilities 37,394 25,602
Repayments of other debt (5,736) (228,733)
Borrowing for business acquisition 5,000 -
Redemption of minority interest (340) -
Decrease in restricted cash (764) -
--------- ----------
Net cash provided by (used in) financing activities 35,554 (203,131)
--------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 890 4,299
CASH AND CASH EQUIVALENTS, beginning of period 6,352 4,180
--------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 7,242 $ 8,479
========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 23,202 $ 39,375
========= ==========
Income taxes paid $ 619 $ 1,209
========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Note payable associated with business acquisition $ - $ 2,914
========= ==========
See accompanying Notes to Consolidated Financial Statements.
4
SF HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
SF Holdings Group, Inc. ("SF Holdings"), is a holding company that conducts
its operations through its subsidiaries, Sweetheart Holdings Inc. ("Sweetheart")
and The Fonda Group, Inc. ("Fonda") (collectively, the "Company"), and therefore
has no significant cash flows independent of such subsidiaries. The instruments
governing the indebtedness of Sweetheart and Fonda contain numerous restrictive
covenants that restrict Sweetheart and Fonda's ability to pay dividends or make
other distributions to SF Holdings or to each other. The Company believes that
the combined operations of its subsidiaries makes the Company one of the largest
converters and marketers of disposable food service and food packaging products
in North America.
The information included in the foregoing interim financial statements of
the Company are unaudited but, in the opinion of management, include all
adjustments (consisting only of normal recurring adjustments and accruals) which
the Company considers necessary for a fair presentation of the operating results
for these periods. Results for the interim periods are not necessarily
indicative of results for the entire year. These condensed financial statements
should be read in conjunction with the Company's financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal year
ended September 24, 2000. Certain prior period amounts have been reclassified to
conform to the current period presentation.
(2) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities as amended by SFAS No. 137 and SFAS No. 138.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and requires that an entity recognize all derivatives at fair value
in the balance sheet. The adoption of SFAS No. 133 did not have an impact on
the consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 establishes accounting and reporting standards for
revenue recognition and requires that an entity not recognize revenue until it
is realized or realizable and earned. The adoption of SAB No.101 did not have an
impact on the consolidated financial statements.
(3) INVENTORIES
The components of inventories are as follows (in thousands):
(Unaudited)
June 24, September 24,
2001 2000
---------------- -----------------
Raw materials and supplies $ 61,464 $ 66,941
Finished products 150,885 148,231
Work in progress 11,455 11,485
---------- ----------
Total inventories $ 223,804 $ 226,657
========== ==========
5
(4) RELATED PARTY TRANSACTIONS
During the thirty-nine weeks ending June 24, 2001, the Company sold $5.5
million of scrap paper to Fibre Marketing Group, LLC ("Fibre Marketing").
Included in accounts receivable as of June 24, 2001 was $2.5 million due from
Fibre Marketing. Other sales, if any, to affiliates during the thirty-nine weeks
ending June 24, 2001 were not significant.
During the thirty-nine weeks ending June 25, 2000, the Company sold $5.5
million of scrap paper to Fibre Marketing. Included in accounts receivable as of
June 25, 2000 was $1.0 million due from Fibre Marketing. Other sales, if any, to
affiliates during the thirty-nine weeks ending June 25, 2000 were not
significant.
During the thirty-nine weeks ending June 24, 2001, the Company purchased
$5.7 million of corrugated containers from Box USA Group, Inc. ("Box USA"),
formerly known as Four M Corporation, and $0.8 million of travel services from
Emerald Lady, Inc. Included in accounts payable, as of June 24, 2001, was $0.5
million due to Box USA. Other purchases from affiliates, if any, during the
thirty-nine weeks ending June 24, 2001 were not significant. During the period
ended June 24, 2001, the Company paid $1.3 million and $0.9 million of rental
payments to D&L Development, LLC and D&L Andover Property, LLC, respectively.
The Company's Chief Executive Officer has an interest in both entities.
During the thirty-nine weeks ending June 25, 2000, the Company purchased
$7.4 million of corrugated containers and services from Box USA and $0.7 million
of travel services from Emerald Lady, Inc. Included in accounts payable, as of
June 25, 2000, was $0.5 million due to Box USA. Other purchases from affiliates,
if any, during the thirty-nine weeks ending June 25, 2000 were not significant.
The Company leases a building in Jacksonville, Florida from Dennis Mehiel,
the Company's Chief Executive Officer, on terms the Company believes are no less
favorable than could be obtained from independent third parties and were
negotiated on an arm's length basis. Annual payments under the lease are $0.2
million plus annual increases based on changes in the Consumer Price Index
("CPI") through December 31, 2014. In addition, Mr. Mehiel can require the
Company to purchase the facility for $1.5 million, subject to a CPI-based
escalation, until July 31, 2006. In Fiscal 1998, the Company terminated its
operations at this facility and is currently subleasing the entire facility to
an unrelated third party. Rent expense, net of sublease income on the portion of
the premises subleased, is not significant.
All of the above referenced affiliates, other than the D&L entities, are
under the common control of the Company's Chief Executive Officer or a director
of the Company.
(5) BUSINESS ACQUISITIONS
On April 5, 2001, Sweetheart purchased an 80% interest in Global Cup, S.A.
De C.V. and its subsidiaries ("Global Cup"). Global Cup manufactures,
distributes and sells paper cups and lids throughout Mexico and exports to other
Latin American countries. Sweetheart has assumed the liabilities and obligations
of Global Cup arising under contracts or leases that are either assets purchased
by Sweetheart or a part of the accounts payable. The aggregate purchase price
for the assets and working capital was $12.2 million which was paid in cash,
subject to post-closing adjustments. The Global Cup acquisition has
preliminarily resulted in goodwill as of June 24, 2001 of $3.9 million which is
being amortized over 20 years. Amounts and allocations of costs recorded may
require adjustment based upon information coming to the attention of Sweetheart
that is not currently available.
6
On September 25, 2000, pursuant to an asset purchase agreement dated August
9, 2000 (the "Springprint Agreement"), Fonda purchased substantially all of the
property, plant and equipment, intangibles and net working capital of
Springprint Medallion, a division of Marcal Paper Mills, Inc. ("Springprint").
In addition, pursuant to the Springprint Agreement, Fonda has assumed the
liabilities and obligations of Springprint arising under contracts or leases
that are either assets purchased by the Company or a part of the accounts
payable. The aggregate purchase price for the assets and working capital was
$6.7 million which was paid in cash. The Springprint acquisition has resulted in
goodwill of $3.2 million which is being amortized over 20 years.
On May 15, 2000, Sweetheart acquired Sherwood, a manufacturer of paper
cups, containers and cup making equipment. Pursuant to a certain Stock Purchase
Agreement among Sweetheart Cup and the stockholders of Sherwood, Sweetheart Cup
acquired all of the issued and outstanding capital stock (the "Sherwood
Acquisition") of Sherwood and its subsidiaries for an aggregate purchase price
of $16.8 million of which $12.1 million was paid in cash. As part of the
purchase price, Sweetheart Cup issued to the stockholders of Sherwood promissory
notes due May 2005 in an aggregate principal amount of $4.7 million and a
present value of $2.7 million. Sweetheart Cup also assumed $9.3 million of
Sherwood debt, which was paid in full on June 15, 2000. The Sherwood Acquisition
has resulted in goodwill as of June 24, 2001 of $10.7 million, which is being
amortized over 20 years.
The above acquisitions have been accounted for under the purchase method
and the results have been included in the consolidated statements of operations
since the date of acquisition.
(6) LONG-TERM DEBT OBLIGATIONS
On June 19, 2001, Sweetheart's Canadian subsidiary refinanced its credit
agreement (the "Canadian Credit Facility") which provides for a term loan
facility of up to Cdn $15 million and a revolving credit facility of up to Cdn
$15 million. The term loan borrowings are payable quarterly through May 2004.
Both the revolving credit and term loan borrowings have a final maturity date of
June 15, 2004. The Canadian Credit Facility is secured by all existing and
thereafter acquired real and personal tangible assets of Lily, a subsidiary of
Sweetheart Cup, ("Lily") and net proceeds on the sale of any of the foregoing.
Borrowings under the Canadian Credit Facility bear interest at an index rate
plus 1.75% with respect to the revolving credit facility and an index rate plus
2.00% with respect to the term loan borrowings. As of June 24, 2001, Cdn $6.6
million (approximately US $4.4 million) was available under the Canadian Credit
Facility.
(7) SF HOLDINGS STOCK COMPENSATION PLAN
During the thirty-nine weeks ended June 24, 2001, the Company adopted the
SF Holdings Group, Inc. Share Incentive Plan ("the Share Incentive Plan") in
which the Company may grant options to its employees to purchase up to 95,995
shares of the Company's class D common stock. The Company has reserved 95,995
shares of class D common stock for issuance upon exercise of these options. The
exercise price of each option is determined by the Company at the date of grant
and an option's maximum term is 10 years. The options vest over a period of
three years.
During the thirty-nine weeks ended June 24, 2001, the Company granted
options to purchase an aggregate of 40,137 shares of its class D common stock to
certain employees. Certain of the exercise prices of the options were below the
fair market value of the Company's common stock at the date of the grant. During
the three year vesting period, these discounts of $1.6 million are being
amortized as
7
compensation expense and credited to additional paid-in capital by the Company.
Amortization expense relating to the Company's stock options was $0.9 million
for the thirty-nine weeks ended June 24, 2001.
(8) RESTRUCTURING EXPENSE
During the thirty-nine weeks ended June 24, 2001, Fonda established a
restructuring reserve of $0.4 million in conjunction with the consolidation of
the Creative Expression Group, Inc.'s ("CEG") an affiliate of administrative
offices in Indianapolis, Indiana with Fonda's administrative offices in Oshkosh,
Wisconsin. This closing includes the elimination of approximately 40 positions.
During the thirty-nine weeks ended June 25, 2000, Fonda established a
restructuring reserve of $0.5 million in conjunction with the November 2000
closing of a manufacturing facility in Maspeth, New York. This closing included
the elimination of approximately 130 positions.
(9) OTHER (INCOME) EXPENSE
During the thirty-nine weeks ended June 24, 2001, Sweetheart recognized a
$7.7 million gain from the amortization of the deferred gain in connection with
a sale-leaseback transaction. In the quarter ended June 25, 2000, Sweetheart
sold certain production equipment in connection with a sale-leaseback
transaction. Sweetheart is leasing this equipment under an operating lease. The
net proceeds from this sale were partially used to retire the Sweetheart's
Senior Secured Notes ("Sale-Leaseback Transaction"). Also, during the
thirty-nine weeks ended June 24, 2001, Sweetheart recognized $1.1 million of
expense in association with the relocation of a manufacturing facility from
Somerville, Massachusetts to North Andover, Massachusetts.
During the thirty-nine weeks ended June 25, 2000, Sweetheart realized a
$4.1 million gain on the sale of a warehouse facility in Owings Mills, Maryland.
This gain was partially offset by a write-off of a $1.0 million unsecured note
receivable issued in connection with the Fiscal 1998 sale of the bakery business
due to the bankruptcy of the borrower.
(10) EXTRAORDINARY LOSS
During the thirty-nine weeks ended June 25, 2000, CEG retired its long-term
debt in conjunction with the CEG Asset Purchase Agreement. As a result, Fonda
charged $915,000 or $549,000 net of income tax benefit, to results of operations
as an extraordinary loss. This amount represented the unamortized deferred
financing fees and other expenses pertaining to such debt.
(11) CONTINGENCIES
A lawsuit entitled Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan
Benefits Committee and Fort Howard Cup Corporation, Civil Action No. CV 187-084,
was initially filed in state court in Georgia in April 1987 and is currently
pending in federal court. The remaining plaintiffs claimed, among other things,
that Sweetheart wrongfully terminated the Lily-Tulip, Inc. Salary Retirement
Plan (the "Plan") in violation of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The relief sought by plaintiffs was to have the plan
termination declared ineffective. In December 1994, the United States Court of
Appeals for the Eleventh Circuit (the "Circuit Court") ruled that the Plan was
lawfully terminated on December 31, 1986. Following that decision, the
plaintiffs sought a rehearing, which was denied, and subsequently filed a
petition for a writ of certiorari with the United States Supreme Court, which
was also
8
denied. Following remand, in March 1996, the United States District Court for
the Southern District of Georgia (the "District Court") entered a judgment in
favor of Sweetheart. Following denial of a motion for reconsideration, the
plaintiffs, in April 1997, filed an appeal with the Circuit Court. On May 21,
1998, the Circuit Court affirmed the judgment entered in favor of Sweetheart. On
June 10, 1998, the plaintiffs petitioned the Circuit Court for a rehearing of
their appeal which petition was denied on July 29, 1998. In October 1998,
plaintiffs filed a petition for writ of certiorari to the United States Supreme
Court, which was denied in January 1999. Sweetheart has been in the process of
paying out the termination liability and associated expenses and as of June 24,
2001, Sweetheart has disbursed $12.6 million in termination payments. The
estimate of the total termination liability and associated expenses, less
payments, exceeds assets set aside in the Plan by approximately $7.4 million,
which amount has been fully reserved by Sweetheart.
On April 27, 1999, the plaintiffs filed a motion in the District Court for
reconsideration of the court's dismissal without appropriate relief and a motion
for attorneys' fees with a request for delay in determination of entitlement to
such fees. On June 17, 1999, the District Court deferred these motions and
ordered discovery in connection therewith. Discovery has been completed and
Sweetheart is awaiting further action by the plaintiffs. Due to the complexity
involved in connection with the claims asserted in this case, Sweetheart cannot
determine at present with any certainty the amount of damages it would be
required to pay should the plaintiffs prevail; accordingly, there can be no
assurance that such amounts would not have a material adverse effect on
Sweetheart's financial position or results of operations.
The Company is also involved in a number of legal proceedings arising in
the ordinary course of business, none of which is expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
(12) BUSINESS SEGMENTS
The Company is a holding company and its reportable segments consist of the
operations of its two significant operating subsidiaries Sweetheart and Fonda.
Sweetheart primarily manufactures and sells disposable paper, plastic and foam
foodservice and food packaging products to customers in institutional markets.
Fonda primarily manufactures and sells disposable paper and tissue-based
foodservice products to customers in institutional and consumer markets. Data
for such segments and a reconciliations to consolidated amounts are presented in
the table below (in thousands):
For the Thirteen For the Thirteen
weeks ended weeks ended
June 24, 2001 June 25, 2000
---------------------- ---------------------
Net sales:
Sweetheart $ 263,768 $ 264,605
Fonda 88,387 89,702
Corporate and eliminations (10,083) (7,728)
---------- ----------
Net Sales $ 342,072 $ 346,579
========== ==========
Income from operations excluding other
(income) expense:
Sweetheart $ 18,732 $ 24,022
Fonda 6,623 4,268
Corporate and eliminations (290) 84
---------- ----------
Income from operations $ 25,065 $ 28,374
========== ==========
9
For the Thirty-nine For the Thirty-nine
weeks ended weeks ended
June 24, 2001 June 25, 2000
----------------------- -----------------------
Net sales:
Sweetheart $ 716,964 $ 696,200
Fonda 268,326 265,337
Corporate and eliminations (23,922) (19,764)
---------- ----------
Net Sales $ 961,368 $ 941,773
========== ==========
Income from operations excluding other (income) expense:
Sweetheart $ 22,722 $ 42,530
Fonda 16,262 12,797
Corporate and eliminations (986) (26)
---------- ----------
Income from operations $ 37,998 $ 55,301
========== ==========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Forward-looking statements in this filing, including those in the Notes to
Consolidated Financial Statements, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially. Such risks and uncertainties include, but are
not limited to, general economic and business conditions, competitive market
pricing, increases in raw material costs, energy costs and other manufacturing
costs, fluctuations in demand for the Company's products, potential equipment
malfunctions and pending litigation. For additional information, see the
Company's annual report on Form 10-K for the most recent fiscal year.
General
SF Holdings Group, Inc. ("SF Holdings"), is a holding company that conducts
its operations through its subsidiaries, Sweetheart Holdings Inc. ("Sweetheart")
and The Fonda Group, Inc. ("Fonda") (collectively, the "Company"). The Company
conducts all of its operations through its principal operating subsidiaries,
Sweetheart and Fonda, and therefore, has no significant cash flows or operations
independent of such subsidiaries.
Sweetheart and Fonda are converters and marketers of disposable paper,
plastic and foam foodservice and food packaging products. The prices for each
subsidiary's raw materials fluctuate. When raw material prices decrease, selling
prices have historically decreased. The actual impact on each company from raw
materials price changes is affected by a number of factors including the level
of inventories at the time of a price change, the specific timing and frequency
of price changes, and the lead and lag time that generally accompanies the
implementation of both raw materials and subsequent selling price changes. In
the event that raw materials prices decrease over a period of several months,
each company may suffer margin erosion on the sale of such inventory.
Each of Sweetheart and Fonda's business is seasonal with a majority of its
net cash flow from operations realized during the last six months of the fiscal
year. Sales for such periods reflect the high seasonal demands of the summer
months when outdoor and away-from-home consumption increases. In the event that
Sweetheart's and/or Fonda's cash flow from operations is insufficient to provide
working capital necessary to fund their respective requirements, Sweetheart
and/or Fonda will need to borrow under their respective credit facilities or
seek other sources of capital. Sweetheart and Fonda believe that
10
funds available under such credit facilities together with cash generated from
operations, will be adequate to provide for each company's respective cash
requirements for the next twelve months.
Recent Developments
On April 5, 2001, Sweetheart purchased an 80% interest in Global Cup, S.A.
De C.V. and its subsidiaries ("Global Cup"). Global Cup manufactures,
distributes and sells paper cups and lids throughout Mexico and exports to other
Latin American countries. Sweetheart has assumed the liabilities and obligations
of Global Cup arising under contracts or leases that are either assets purchased
by Sweetheart or a part of the accounts payable. The aggregate purchase price
for the assets and working capital was $12.2 million which was paid in cash,
subject to post-closing adjustments. The Global Cup acquisition has
preliminarily resulted in goodwill as of June 24, 2001 of $3.9 million which is
being amortized over 20 years. Amounts and allocations of costs recorded may
require adjustment based upon information coming to the attention of Sweetheart
that is not currently available.
The Global Cup acquisition has been accounted for under the purchase method
and the results have been included in the consolidated statements of operations
since the date of acquisition.
Thirteen Weeks Ended June 24, 2001 Compared to Thirteen Weeks Ended
June 25, 2000 (Unaudited)
Net sales decreased $4.5 million, or 1.3%, to $342.1 million for the
thirteen weeks ended June 24, 2001 compared to $346.6 million for the thirteen
weeks ended June 25, 2000. The following analysis includes sales from Sweetheart
to Fonda and sales from Fonda to Sweetheart which were eliminated in
consolidation.
Sweetheart results:
Net sales decreased $0.8 million, or 0.3%, to $263.8 million for the
thirteen weeks ended June 24, 2001 compared to $264.6 million for the thirteen
weeks ended June 25, 2000, reflecting a 0.6% increase in sales volume and a 0.9%
decrease in average realized price. Net sales to institutional foodservice
customers decreased 0.6%, reflecting a 0.4% increase in sales volume and a 1.0%
decrease in average realized sales price. The volume increase resulted from the
incremental sales obtained from the Global Cup acquisition and the sales price
decrease resulted from competitive market pressures which were partially offset
by a shift in product mix. Net sales to food packaging customers increased 2.4%
reflecting a 2.6% increase in sales volume and a 0.2% decrease in average
realized sales price.
Fonda results:
Net sales decreased $1.3 million, or 1.4%, to $88.4 million for the
thirteen weeks ending June 24, 2001 compared to $89.7 million for the thirteen
weeks ending June 25, 2000, reflecting a 2.7% increase in average realized sales
price partially offset by a 4.1% decrease in sales volume. Net sales to consumer
foodservice customers decreased 7.9%, resulting from a 0.8% increase in average
realized sales price and an decrease in sales volume of 8.7%. Net sales to
consumer foodservice customers was negatively impacted by more competitive
market conditions and Fonda's decision to reduce sales to certain customers
experiencing deteriorating credit conditions. Net sales to institutional
foodservice customers increased 8.4%, resulting from a 0.5% increase in average
realized sales price and a 7.9% increase in sales volume. This increase in
institutional foodservice customers volumes is primarily attributed to the
Springprint acquisition.
Gross profit decreased $4.8 million, or 8.7%, to $50.4 million for the
thirteen weeks ended June 24, 2001 compared to $55.2 million for the thirteen
weeks ended June 25, 2000. As a percentage of net
11
sales, gross profit decreased to 14.7% for the thirteen weeks ended June 24,
2001 from 15.9% for the thirteen weeks ended June 25, 2000.
Sweetheart results:
Gross profit decreased $4.8 million, or 12.5%, to $33.6 million for the
thirteen weeks ended June 24, 2001 compared to $38.4 million for the thirteen
weeks ended June 25, 2000. As a percentage of net sales, gross profit decreased
to 12.7% for the thirteen weeks ended June 24, 2001 from 14.5% for the thirteen
weeks ended June 25, 2000. The decrease in gross profit is primarily
attributable to the effects of a sale-leaseback transaction. In the quarter
ended June 25, 2000, Sweetheart sold certain production equipment in connection
with a sale-leaseback transaction. Sweetheart is leasing this equipment under an
operating lease ("Sale-Leaseback Transaction"). The net proceeds from this sale
were partially used to retire Sweetheart's Senior Secured Notes. This
refinancing enabled Sweetheart to use a portion of its net operating loss
carryforward and obtain more favorable financing. Consequently, cost of sales
has increased due to higher rent expense which has been partially offset by
lower depreciation expense and historically higher interest expense has been
lowered. Specifically, rent expense associated with this transaction was $4.0
million greater than the reduction in depreciation. Additionally, gross profit
declined due to an increase in energy costs of $1.0 million and transportation
costs of $1.9 million.
Fonda results:
Gross profit increased $0.1 million, or 0.6%, to $17.1 million for the
thirteen weeks ending June 24, 2001 compared to $17.0 million for the thirteen
weeks ending June 25, 2000. As a percentage of net sales, gross profit increased
from 18.9% for the thirteen weeks ending June 25, 2000 to 19.4% for the thirteen
weeks ending June 24, 2001. Gross profit for the thirteen weeks ending June 24,
2001 was positively affected by increased selling prices, which were partially
offset by higher raw material and energy costs.
Selling, general and administrative expenses decreased $1.4 million, or
5.3%, to $24.9 million for the thirteen weeks ended June 24, 2001 compared to
$26.3 million for the thirteen weeks ended June 25, 2000 primarily as a result
of a decrease in the workforce resulting from the CEG consolidation at Fonda.
Other (income) expense, net increased $1.1 million, or 550%, to income of
$1.3 million for the thirteen weeks ended June 24, 2001 compared to income of
$0.2 million for the thirteen weeks ended June 25, 2000. This change resulted
from the amortization of the deferred gain in connection with the Sale-Leaseback
Transaction of $2.6 million for the thirteen weeks ended June 24, 2001 compared
to $0.3 million for the thirteen weeks ended June 25, 2000 for Sweetheart. In
addition, Sweetheart incurred $0.4 million in costs associated with the
relocation of the Somerville manufacturing facility to North Andover,
Massachusetts.
Restructuring expense decreased $0.1 million, or 20%, to $0.4 million for
the thirteen weeks ended June 24, 2001 compared to $0.5 million for the thirteen
weeks ended June 25, 2000. In the thirteen weeks ending June 24, 2001, Fonda
recorded a $0.4 million reserve in conjunction with the consolidation of the CEG
administrative office. In the thirteen weeks ended June 25, 2000, Fonda
established a restructuring reserve of $0.5 million in conjunction with the
closing of a manufacturing facility in Maspeth, New York.
Operating income decreased $2.1 million, or 7.4%, to $26.4 million for the
thirteen weeks ended June 24, 2001 compared to $28.5 million for the thirteen
weeks ended June 25, 2000, due to the reasons stated above.
Interest expense, net decreased $5.4 million, or 28.9%, to $13.3 million
for the thirteen weeks ended June 24, 2001 compared to $18.7 million for the
thirteen weeks ended June 25, 2000. This decrease is attributable to lower
interest rates under both Sweetheart's and Fonda's respective revolving credit
facilities and the June 2000 redemption of Sweetheart's Senior Secured Notes, as
a result of the Sale-Leaseback Transaction.
12
Net income (loss) increased $2.3 million, or 52.3%, to $6.7 million for the
thirteen weeks ended June 24, 2001 compared to income of $4.4 million for the
thirteen weeks ended June 25, 2000, due to the reasons stated above.
Thirty-nine Weeks Ended June 24, 2001 Compared to Thirty-nine Weeks Ended
June 25, 2000 (Unaudited)
Net sales increased $19.6 million, or 2.1%, to $961.4 million for the
thirty-nine weeks ended June 24, 2001 compared to $941.8 million for the
thirty-nine weeks ended June 25, 2000. The following analysis includes sales
from Sweetheart to Fonda and sales from Fonda to Sweetheart which were
eliminated in consolidation.
Sweetheart results:
Net sales increased $20.8 million, or 3.0%, to $717.0 million for the
thirty-nine weeks ended June 24, 2001 compared to $696.2 million for the
thirty-nine weeks ended June 25, 2000, reflecting a 1.8% increase in sales
volume and a 1.2% increase in average realized sales price. Net sales to
institutional foodservice customers increased 3.3%, reflecting a 2.1% increase
in sales volume and a 1.2% increase in average realized sales price. The volume
increase resulted from the incremental sales obtained from the Global Cup
acquisition. Selling prices were positively impacted by a shift in product mix.
Net sales to packaging customers did not change significantly.
Fonda results:
Net sales increased $3.0 million, or 1.1%, to $268.3 million for the
thirty-nine weeks ending June 24, 2001 compared to $265.3 million for the
thirty-nine weeks ending June 25, 2000, reflecting a 5.7% increase in average
realized sales price partially offset by a 4.6% decrease in sales volume. Net
sales to consumer foodservice customers decreased 7.2%, resulting from a 4.4%
increase in average realized sales price, offset by a decrease in sales volume
of 11.6%. Net sales to consumer foodservice customers was negatively impacted by
more competitive market conditions and Fonda's decision to reduce sales to
certain customers experiencing deteriorating credit conditions, offset partially
by a more favorable product mix. Net sales to institutional foodservice
customers increased 14.4%, resulting from a 0.4% increase in average realized
sales price, combined with a 14.0% increase in sales volume. This increase in
institutional foodservice customers volumes is primarily attributed to the
Springprint acquisition.
Gross profit decreased $20.1 million, or 14.1%, to $122.6 million for the
thirty-nine weeks ended June 24, 2001 compared to $142.7 million for the
thirty-nine weeks ended June 25, 2000. As a percentage of net sales, gross
profit decreased to 12.8% for the thirty-nine weeks ended June 24, 2001 from
15.2% for the thirty-nine weeks ended June 25, 2000.
Sweetheart results:
Gross profit decreased $20.3 million, or 21.7%, to $73.3 million for the
thirty-nine weeks ended June 24, 2001 compared to $93.6 million for the
thirty-nine weeks ended June 25, 2000. As a percentage of net sales, gross
profit decreased to 10.2% for the thirty-nine weeks ended June 24, 2001 from
13.4% for the thirty-nine weeks ended June 25, 2000. The decrease in gross
profit is partially attributable to the effects of the Sale-Leaseback
Transaction. In the thirteen weeks ended June 25, 2000, Sweetheart sold certain
production equipment in connection with a Sale-Leaseback Transaction. Sweetheart
is leasing this equipment under an operating lease. The net proceeds from this
sale were partially used to retire Sweetheart's Senior Secured Notes. This
refinancing enabled Sweetheart to use a portion of its Net Operating Loss
Carryforward and obtain more favorable financing. Consequently, cost of sales
has increased due to higher rent expense which has been partially offset by
lower depreciation expense and historically higher interest expense has been
lowered. Specifically, rent expense increased by $12.0 million net of a
reduction in depreciation. Additionally, gross profit declined due to an
increase in energy costs of $4.4 million and transportation costs of $4.9
million.
13
Fonda results:
Gross profit increased $0.4 million, or 0.8%, to $50.2 million for the
thirty-nine weeks ending June 24, 2001 compared to $49.8 million for the
thirty-nine weeks ending June 25, 2000. As a percentage of net sales, gross
profit decreased from 18.8% for the thirty-nine weeks ending June 25, 2000 to
18.7% for the thirty-nine weeks ending June 24, 2001. Gross profit for the
thirty-nine weeks ending June 24, 2001 was positively affected by increased
selling prices, which was entirely offset by higher raw material and energy
costs.
Selling, general and administrative expenses decreased $2.8 million, or
3.2%, to $84.1 million for the thirty-nine weeks ended June 24, 2001 compared to
$86.9 million for the thirty-nine weeks ended June 25, 2000. This change is
primarily attributable to a bad debt expense of $2.3 million, which was recorded
by Sweetheart for the thirty-nine weeks ended June 25, 2000, a reduction in
Sweetheart's consulting fees of $1.2 million and a decrease in Fonda's workforce
resulting from the CEG consolidation and a reduction in selling expenses.
Other (income) expense, net increased $6.0 million, or 352.9%, to income of
$7.7 million for the thirty-nine weeks ended June 24, 2001 compared to income of
$1.7 million for the thirty-nine weeks ended June 25, 2000. This change resulted
from the amortization of $7.7 million of the deferred gain in conjunction with
the Sale-Leaseback Transaction for the thirty-nine weeks ended June 24, 2001
compared to a gain of $4.1 million from the sale of a warehouse facility which
was partially offset by a write-off of $1.0 million unsecured note receivable
issued in connection with the Fiscal 1998 sale of the bakery business for the
thirty-nine weeks ended June 25, 2000. Additionally, Sweetheart incurred $1.1
million in costs associated with the relocation of the Somerville manufacturing
facility to North Andover, Massachusetts.
Restructuring expense decreased $0.1 million, or 20%, to $0.4 million for
the thirty-nine weeks ended June 24, 2001 compared to $0.5 million for the
thirty-nine weeks ended June 25, 2000. In the thirty-nine weeks ending June 24,
2001, Fonda recorded a $0.4 million reserve in conjunction with the
consolidation of the CEG administrative office. In the thirty-nine weeks ended
June 25, 2000, Fonda established a restructuring reserve of $0.5 million in
conjunction with the closing of a manufacturing facility in Maspeth, New York.
Operating income decreased $11.3 million, or 19.8% to $45.7 million for the
thirty-nine weeks ended June 24, 2001 compared to $57.0 million for the
thirty-nine weeks ended June 25, 2000, due to the reasons stated above.
Interest expense, net decreased $13.2 million, or 24.7%, to $40.2 million
for the thirty-nine weeks ended June 24, 2001 compared to $53.4 million for the
thirty-nine weeks ended June 25, 2000. This decrease is attributable to lower
interest rates under both Sweetheart's and Fonda's respective revolving credit
facilities and the June 2000 redemption of Sweetheart's Senior Secured Notes, as
a result of the Sale-Leaseback Transaction.
Net income (loss) increased $2.5 million, or 312.5%, to income of $1.7
million for the thirty-nine weeks ended June 24, 2001 compared to a loss of $0.8
million for the thirty-nine weeks ended June 25, 2000, due to the reasons stated
above.
Liquidity And Capital Resources
Historically, the Company's subsidiaries have relied on cash flow from
operations, sale of non-core assets and borrowings to finance their respective
working capital requirements, capital expenditures and acquisitions. The Company
expects to continue this method of funding for its 2001 capital expenditures.
14
Net cash from operating activities decreased $14.2 million to $5.5 million
in the thirty-nine weeks ended June 24, 2001 compared to $19.7 million in the
thirty-nine weeks ended June 25, 2000. The decrease is primarily due to
increased rent expense associated with the Sale-Leaseback Transaction and a
reduction in accounts payable and accrued expenses.
Capital expenditures for the thirty-nine weeks ended June 24, 2001 were
$21.7 million compared to $20.7 million for the thirty-nine weeks ended June 25,
2000. Capital expenditures in the thirty-nine weeks ended June 24, 2001 included
$7.5 million for new production equipment, $10.5 million on growth and expansion
projects, with the remaining consisting primarily of routine capital
improvements.
Pursuant to a lease dated as of June 1, 2000 ("the Lease") between
Sweetheart Cup and State Street Bank and Trust Company of Connecticut, National
Association ("State Street"), as trustee, Sweetheart Cup leases the production
equipment sold in connection with the Sale-Leaseback Transaction from State
Street as owner trustee for several owner participants, through November 9,
2010. Sweetheart Cup has the option to renew the Lease for up to four
consecutive renewal terms of two years each. Sweetheart Cup also has the option
to purchase such equipment for fair market value either at the conclusion of the
Lease term or at a fixed purchase price of $134.7 million on November 21, 2006.
Sweetheart's obligations under the Lease are collateralized by substantially all
of Sweetheart's property, plant and equipment owned as of June 15, 2000. The
Lease contains various covenants, which prohibit, or limit, among other things,
dividend payments, equity repurchases or redemption, the incurrence of
additional indebtedness and certain other business activities.
Sweetheart is accounting for the Sale-Leaseback Transaction as an operating
lease, expensing the $32.0 million annualized rental payments and removing the
property, plant and equipment sold from its balance sheet. A deferred gain of
$107.0 million was realized from this sale and will be amortized over 125
months, which is the term of the Lease.
Sweetheart has a revolving credit facility of $135 million subject to
borrowing base limitations with a maturity of June 15, 2005 and a term loan of
$25 million that requires equal monthly principal payments of $0.4 million
through June 2005. Both the term loan and the revolving credit facility have an
accelerated maturity date of July 1, 2003 if Sweetheart's Senior Subordinated
Notes due September 1, 2003 are not refinanced before June 1, 2003. Borrowings
under the revolving credit facility bear interest, at Sweetheart's election, at
a rate equal to (i) LIBOR plus 2.00% or (ii) a bank's base rate plus 0.25%, plus
certain other fees. Borrowings under the term loan bear interest, at
Sweetheart's election, at a rate equal to (i) LIBOR plus 2.50% or (ii) a bank's
base rate plus 0.50%, plus certain other fees. The credit facility is
collateralized by Sweetheart's inventories and receivables with the term loan
portion of the credit facility further collateralized by certain production
equipment. As of June 24, 2001, $18.7 million was available under such facility
and the current balance of the term loan was $14.2 million. The fee for
outstanding letters of credit is 2.00% per annum and there is a commitment fee
of 0.375% per annum on the daily average unused amount of the commitments. On
June 22, 2001, the Company has received a commitment letter to increase the
revolving credit facility by $10 million, subject to the execution of an
amendment to the credit agreement.
Sweetheart's Canadian subsidiary has a credit agreement (the "Canadian
Credit Facility") which was refinanced on June 19, 2001 and provides for a term
loan facility of up to Cdn $15 million and a revolving credit facility of up to
Cdn $15 million. The term loan borrowings under the Canadian Credit Facility are
payable quarterly through May 2004. Both the revolving credit and term loan
borrowings have a final maturity date of June 15, 2004. The Canadian Credit
Facility is secured by all existing and thereafter acquired real and personal
tangible assets of Lily, a subsidiary of Sweetheart Cup, ("Lily") and net
proceeds on the sale of any of the foregoing. Borrowings under the Canadian
Credit Facility bear interest at an index rate plus 1.75% with respect to the
revolving credit borrowings and an index rate plus
15
2.00% with respect to the term loan borrowings. As of June 24, 2001, Cdn $6.6
million (approximately US $4.4 million) was available under the Canadian Credit
Facility.
Fonda has a $55 million revolving credit facility subject to borrowing base
limitations. The credit facility is collateralized by eligible accounts
receivable, inventories, and certain general intangibles. The credit facility
matures on September 30, 2001. Borrowings are available at the bank's prime rate
plus 0.25% or at LIBOR plus 2.25% at the election of Fonda. At June 24, 2001,
$29.8 million was outstanding and $25.2 million was the maximum remaining
advance available based upon eligible collateral. Although Fonda intends to
refinance this debt, there can be no assurances that Fonda will be able to
obtain such refinancing on terms and conditions acceptable to Fonda.
In addition to the revolving credit facility, Fonda's credit facility also
includes a term loan of $5 million of which $4.3 million was outstanding at June
24, 2001. This amount is payable in equal monthly installments through the
maturity date of September 30, 2001. Borrowings under the term loan bear
interest, at Fonda's election, equal to the bank's prime rate plus 0.5% or LIBOR
plus 2.5%. The proceeds from this term loan were used to partially finance the
purchase of Springprint.
A lawsuit entitled Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan
Benefits Committee and Fort Howard Cup Corporation, Civil Action No. CV 187-084,
was initially filed in state court in Georgia in April 1987 and is currently
pending in federal court. The remaining plaintiffs claimed, among other things,
that Sweetheart wrongfully terminated the Lily-Tulip, Inc. Salary Retirement
Plan (the "Plan") in violation of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The relief sought by plaintiffs was to have the plan
termination declared ineffective. In December 1994, the United States Court of
Appeals for the Eleventh Circuit (the "Circuit Court") ruled that the Plan was
lawfully terminated on December 31, 1986. Following that decision, the
plaintiffs sought a rehearing, which was denied, and subsequently filed a
petition for a writ of certiorari with the United States Supreme Court, which
was also denied. Following remand, in March 1996, the United States District
Court for the Southern District of Georgia (the "District Court") entered a
judgment in favor of Sweetheart. Following denial of a motion for
reconsideration, the plaintiffs, in April 1997, filed an appeal with the Circuit
Court. On May 21, 1998, the Circuit Court affirmed the judgment entered in favor
of Sweetheart. On June 10, 1998, the plaintiffs petitioned the Circuit Court for
a rehearing of their appeal which petition was denied on July 29, 1998. In
October 1998, plaintiffs filed a petition for writ of certiorari to the United
States Supreme Court, which was denied in January 1999. Sweetheart has been in
the process of paying out the termination liability and associated expenses and
as of June 24, 2001, Sweetheart has disbursed $12.6 million in termination
payments. The estimate of the total termination liability and associated
expenses, less payments, exceeds assets set aside in the Plan by approximately
$7.4 million, which amount has been fully reserved by Sweetheart.
On April 27, 1999, the plaintiffs filed a motion in the District Court for
reconsideration of the court's dismissal without appropriate relief and a motion
for attorneys' fees with a request for delay in determination of entitlement to
such fees. On June 17, 1999, the District Court deferred these motions and
ordered discovery in connection therewith. Discovery has been completed and
Sweetheart is awaiting further action by the plaintiffs. Due to the complexity
involved in connection with the claims asserted in this case, Sweetheart cannot
determine at present with any certainty the amount of damages it would be
required to pay should the plaintiffs prevail; accordingly, there can be no
assurance that such amounts would not have a material adverse effect on
Sweetheart's financial position or results of operations.
The Company is also involved in a number of legal proceedings arising in
the ordinary course of business, none of which is expected to have a material
adverse effect on the Company's consolidated financial position or results of
operations.
Management believes that cash generated by each of Sweetheart's and Fonda's
operations, combined with amounts available under its respective credit
facilities, in addition to funds generated by asset sales should be sufficient
to fund each of Sweetheart's and Fonda's respective capital expenditures
16
needs, debt service requirements, payments in conjunction with lease commitments
and working capital needs, including Sweetheart's termination liabilities under
the Plan in the next twelve months.
The Company is contemplating various strategic options which may include a
restructuring of its business, debt and capital structure, including, among
other things, the public sale or private placement of debt or equity securities
of the Company or its subsidiaries, joint venture transactions, new borrowings,
the refinancing of the Company's existing debt agreements, open market
purchases, tender offers or exchange offers of the Company's outstanding
securities. There can be no assurances that any of these strategic options will
be consummated.
Net Operating Loss Carryforwards
As of September 24, 2000, Sweetheart had approximately $32 million of net
operating loss ("NOL") carry-forwards for federal income tax purposes, which
expire in 2018. Although Sweetheart expects that sufficient taxable income will
be generated in the future to realize these NOLs, there can be no assurance that
future taxable income will be generated to utilized such NOLs.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NONE
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K:
None
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and principal financial officer.
SF HOLDINGS GROUP, INC.
(registrant)
Date: July 20, 2001 By: /s/ Hans H. Heinsen
------------- -------------------
Hans H. Heinsen
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer and Duly
Authorized Officer)