================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 for the
Quarterly Period Ended
December 27, 1998
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
for the transition period from _________
to_________
Commission file number 33-91600
SWEETHEART HOLDINGS INC.*
(Exact name of registrant as specified in its charter)
Delaware 06-1281287
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10100 Reisterstown Road, Owings Mills, Maryland 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410/363-1111
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 February 10, 1999:
Sweetheart Holdings Inc. Class A Common Stock, $0.01 par value
- 1,046,000 shares
Sweetheart Holdings Inc. Class B Common Stock, $0.01 par value
- 4,393,200 shares
* The Registrant is the guarantor of the 9 5/8 % Senior Secured Notes due
2000 and the 10 1/2% Senior Subordinated Notes due 2003 (collectively,
the "Notes") of Sweetheart Cup Company Inc., a wholly owned subsidiary
of the Registrant.
================================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
December 27, September 27,
1998 1998
---------------- ----------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 2,262 $ 1,367
Cash in escrow 7,349 5,464
Receivables, less allowances of $1,780 and $1,817,
respectively
82,024 85,248
Inventories 119,467 133,065
Deferred income taxes 11,506 11,506
Spare parts 19,270 19,278
--------- ---------
Total current assets 241,878 255,928
Property, plant and equipment, net 345,939 355,224
Deferred income taxes 45,209 41,395
Other assets 13,468 13,079
--------- ---------
Total assets $ 646,494 $ 665,626
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 57,038 $ 66,205
Accrued payroll and related costs 38,535 39,324
Other current liabilities 44,486 40,866
Current portion of long-term debt 3,421 3,445
--------- ---------
Total current liabilities 143,480 149,840
--------- ---------
Long-term debt 416,821 422,438
Other liabilities 73,216 74,365
Shareholders' equity:
Class A Common stock -- Par value $.01 per share; 1,100,000
shares authorized; 1,046,000 shares issued and outstanding 10 10
Class B Common stock - Par value $.01 per share; 4,600,000
shares authorized; 4,393,200 shares issued and outstanding 44 44
Additional paid-in capital 101,090 101,090
Accumulated deficit (82,957) (75,670)
Accumulated other comprehensive loss (5,210) (6,491)
--------- ---------
Total shareholders' equity 12,977 18,983
--------- ---------
Total liabilities and shareholders' equity $ 646,494 $ 665,626
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirteen Three months
weeks ended ended
December 27, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Net sales $ 203,909 $ 201,952
Cost of sales 189,451 188,006
----------- ----------
Gross profit 14,458 13,946
Selling, general and administrative 16,003 19,102
Other income (213) (3,112)
------------ -----------
Operating loss (1,332) (2,044)
Interest expense, net 10,813 10,779
------------ -----------
Loss before income tax benefit and
cumulative effect of change in
accounting principle (12,145) (12,823)
Income tax benefit (4,858) (5,128)
------------ -----------
Loss before cumulative effect of change in
accounting principle (7,287) (7,695)
Cumulative effect of change in accounting
principle (net of income taxes of $1,007) - (1,511)
------------ -----------
Net loss (7,287) (9,206)
------------ -----------
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment (263) (419)
Minimum pension liability adjustment
(net of income taxes of $1,029) 1,544 -
------------ -----------
Other comprehensive income (loss) 1,281 (419)
------------ -----------
Comprehensive loss $ (6,006) $ (9,625)
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Thirteen Three months
weeks ended ended
December 27, December 31,
1998 1997
------------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (7,287) $ (9,206)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 11,877 11,415
Deferred income tax credit (4,858) (5,128)
Gain on sale of assets (337) (4,245)
Cumulative effect of change in accounting principle, net - 1,511
Changes in operating assets and liabilities:
Receivables 3,224 13,357
Inventories 13,598 8,021
Accounts payable (9,167) (8,063)
Other, net 5,398 (6,924)
---------- ----------
Net cash provided by operating activities 12,448 738
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (9,777) (7,134)
Proceeds from sale of bakery - 14,718
Proceeds from sale of property, plant and equipment 5,508 1,049
---------- ---------
Net cash provided by (used in) investing activities (4,269) 8,633
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) under revolving credit
facilities (5,168) 34,882
Repayment of debt (231) (60,000)
Decrease in restricted cash - 29,016
Increase in cash in escrow (1,885) (10,397)
Payments of financing fees - (835)
---------- ----------
Net cash used in financing activities (7,284) (7,334)
---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 895 2,037
CASH AND CASH EQUIVALENTS, beginning of period 1,367 2,650
---------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,262 $ 4,687
========== =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 2,893 $ 2,348
========== =========
Income taxes paid $ - $ 335
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions of Form 10-Q and rule
10-01 of regulation S-X. Accordingly, these statements do not include all the
information required by GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of Sweetheart Holdings Inc. and its
subsidiaries' (the "Company") financial position as of December 27, 1998 and the
results of operations and cash flows for the thirteen weeks ended December 27,
1998 have been included. Operating results for the thirteen week period ended
December 27, 1998 are not necessarily indicative of the results to be expected
for the fiscal year ending September 26, 1999. Certain prior period amounts have
been reclassified to conform to current period presentation.
(2) CASH IN ESCROW
Cash received as proceeds from the sale of assets is restricted to
qualified capital expenditures under the Bond Indentures, and is held in escrow
with the trustee until utilized. The balance of cash in escrow was $7.3 million
and $5.5 million at December 27, 1998 and September 27, 1998, respectively.
(3) INVENTORIES
The components of inventories were as follows (in thousands):
(Unaudited)
December 27, September 27,
1998 1998
------------------ -----------------
Raw materials and supplies $ 29,756 $ 32,938
Finished goods 82,417 91,666
Work in progress 7,294 8,461
---------- ----------
$ 119,467 $ 133,065
========== ==========
(4) OTHER CURRENT LIABILITIES
The balance of other current liabilities as of September 27, 1998
included $1.6 million of restructuring reserves primarily for severence in
connection with headcount reductions made in March, 1998. The Company considers
its restructuring plan to be substantially complete. Of the remaining balance,
$0.7 million was paid out in cash during the thirteen weeks ended December 27,
1998. The remaining balance of $0.9 million will be paid out within the next six
months.
(5) RELATED PARTY TRANSACTIONS
In December 1998, the Company sold certain of its paper plate
manufacturing assets to The Fonda Group, Inc., an affiliate, for $2.4 million.
An independent appraisal was obtained to determine the fairness of the purchase
price. The Company believes the terms under which it sold such assets to The
Fonda Group, Inc. are at least as favorable as it could have obtained from
unrelated third parties and were negotiated on an arm's length basis.
4
<PAGE>
(6) ACCUMULATED OTHER COMPREHENSIVE LOSS
The Company adopted the comprehensive income statement format required
by Financial Accounting Standards Board statement No. 130, Reporting
Comprehensive Income effective with its first fiscal quarter, and has restated
all prior periods presented. The components of accumulated other comprehensive
loss are as follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
December 27, September 27,
1998 1998
------------------ ------------------
<S> <C> <C>
Foreign currency translation adjustment $ (1,832) $ (1,569)
Minimum pension liability adjustment (3,378) (4,922)
----------- -----------
Accumulated other comprehensive loss $ (5,210) $ (6,491)
=========== ===========
</TABLE>
(7) CONTINGENCIES
On January 11, 1999, the United States Supreme Court denied Plaintiff's
petition for Writ of Certiorari in the matter of Aldridge v. Lily-Tulip, Inc.
Salary Retirement Benefits Committee and Fort Howard Cup Corporation, Civil
Action No. CV 187-084. The court has decided that the Lily-Tulip Salary
Retirement Plan (the "Plan") was lawfully terminated. The Company is in the
process of determining the timing and amount of total payouts for which the Plan
is liable. The initial estimate of the total termination liability exceeds
assets set aside in the Plan by approximately $17 million, which amount has been
fully reserved by the Company. The Company expects to fund such payments within
the next nine months. See Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources.
A patent infringement action seeking injunctive relief and damages
relating to the Company's production and sale of certain paper plates entitled
Fort James Corporation v. Sweetheart Cup Company Inc., Civil Action No.
97-C-1221, was filed in the United States District Court for the Eastern
District of Wisconsin on November 21, 1997. The Company filed an Answer to the
Complaint denying liability and asserting various defenses to the claims.
Discovery proceedings are in progress. In the opinion of management, the
ultimate liability, if any, will not materially affect the Company's financial
position or results of operations.
5
<PAGE>
(8) SWEETHEART CUP COMPANY INC. SUMMARIZED FINANCIAL INFORMATION
Sweetheart Holdings Inc. is the guarantor of the 9 5/8% Senior Secured
Notes due 2000 and the 10 1/2% Senior Subordinated Notes due 2003 of Sweetheart
Cup Company Inc., a wholly owned subsidiary of Sweetheart Holdings Inc.
Summarized financial information for Sweetheart Cup Company Inc. is presented as
follows (in thousands, certain prior period amounts have been reclassified to
conform to current period presentation):
<TABLE>
<CAPTION>
(Unaudited)
December 27, 1998 September 27,1998
--------------------- ----------------------
<S> <C> <C>
Current assets $243,377 $257,399
Noncurrent assets 427,751 433,082
Current liabilities 119,073 122,516
Noncurrent liabilities 550,766 560,446
(Unaudited)
-------------------------------------------------
Thirteen weeks ended Three months ended
December 27, 1998 December 31, 1997
----------------------- ----------------------
Net sales $203,909 $201,952
Gross profit 9,053 8,271
Net loss before cumulative effect
of change in accounting principle
(7,512) (8,766)
Net loss (7,512) (10,173)
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Forward-looking statements in this filing, including those in the
footnotes to the 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, energy 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
The Company markets its products to two principal customer groups:
foodservice and food packaging. Foodservice customers purchase primarily
disposable hot and cold drink cups, lids, food containers, plates, bowls, and
cutlery. These products are sold directly and through distributors to fast food
chains, full service restaurants, hospitals, airlines, theaters and other
institutional customers. Food packaging customers purchase primarily paper and
plastic containers for the dairy and food processing industries. Food packaging
also designs, manufactures and leases filling and packaging machines that fill
and seal the Company's containers in customers' plants.
Thirteen Weeks Ended December 27, 1998 Compared to Three Months Ended
December 31, 1997
Net sales increased $1.9 million, or 1.0%, to $203.9 million in the
thirteen weeks ended December 27, 1998 compared to $202.0 million in the three
months ended December 31, 1997. The December 1997 sale of the bakery business
resulted in a $3.0 million decrease in sales from the prior comparable period.
Excluding the impact of the bakery business sale, net sales increased $4.9
million, or 2.5%, reflecting a 3.4% increase in domestic sales volume and a 0.7%
average decrease in domestic sales price. The decrease in average sales price
reflects a shift in sales mix to lower priced products which was partially
offset by price increases in selected product lines. Foodservice sales volume
increased 3.7% primarily as a result of the Company's focus on revenue growth
with key customers. Food packaging sales volume increased 2.1%. Canadian sales
decreased 2.1% from the prior comparable period due primarily to unfavorable
exchange rates.
Gross profit increased $0.6 million, or 3.4%, to $14.5 million in the
thirteen weeks ended December 27, 1998 compared to $13.9 million for the three
months ended December 31, 1997. As a percentage of net sales, gross profit
increased to 7.1% in the thirteen weeks ended December 27, 1998 from 6.9% in the
three months ended December 31, 1997. The improvement in gross profit is
primarily attributable to headcount reductions at the manufacturing facilities.
Selling, general and administrative expenses decreased $3.1 million, or
16.2%, to $16.0 million in the thirteen weeks ended December 27, 1998 compared
to $19.1 million in the three months ended December 31, 1997. This decrease is
due primarily to cost savings associated with headcount reductions made in the
second quarter of Fiscal Year 1998.
Other income was $0.2 million in the thirteen weeks ended December 27,
1998 and $3.1 million in the three months ended December 31, 1997. The three
months ended December 31, 1997 included a one-time gain of $3.3 million on the
sale of the bakery business.
Operating loss decreased $0.7 million, or 34.8%, to $1.3 million in the
thirteen weeks ended December 27, 1998 compared to $2.0 million in the three
months ended December 31, 1997 due to the reasons described above.
7
<PAGE>
Interest expense, net was $10.8 million in both the thirteen weeks
ended December 27, 1998 and the three months ended December 31, 1997. Lower
market interest rates were offset by a reduction in interest income earned on
smaller escrow fund balances.
Income tax benefit decreased $0.2 million, or 5.3%, to $4.9 million in
the thirteen weeks ended December 27, 1998 compared to $5.1 million in the three
months ended December 31, 1997. The effective tax rate for the thirteen weeks
ended December 27, 1998 and the three months ended December 31, 1997 was 40.0%.
Cumulative effect of change in accounting principle was an expense
recorded in the three months ended December 31, 1997 to write-off previously
capitalized reengineering costs.
Net loss decreased $1.9 million, or 20.9%, to $7.3 million in the
thirteen weeks ended December 27, 1998 compared to $9.2 million in the three
months ended December 31, 1997 due to the reasons described above.
Liquidity And Capital Resources
Historically, the Company has relied on cash flow from operations and
revolving credit borrowings to finance its working capital requirements and
capital expenditures. In Fiscal Year 1998, the Company began to fund a majority
of its capital expenditures from the sale of assets. The Company expects to
continue to fund a majority of its 1999 capital expenditures from the sale of
assets.
Net cash provided by operating activities in the thirteen weeks ended
December 27, 1998 was $12.4 million compared to $0.7 million in the three months
ended December 31, 1997. This increase is primarily due to the Company's efforts
to reduce inventory balances as well as cash expended on nonrecurring charges
and bonus payouts in Fiscal Year 1998. These increases is cash were offset in
part by higher accounts receivable balances in Fiscal Year 1999.
Working capital decreased $7.7 million to $98.4 million at December 27,
1998 from $106.1 million at September 27, 1998. This decrease consisted
primarily of a $13.6 million decrease in inventories partially offset by (i) a
$9.2 million decrease in accounts payable due to seasonal fluctuations in raw
materials purchases and inventory needs, (ii) a $3.2 million decrease in
accounts receivable due to seasonal flucuations in sales, (iii) a $3.6 million
increase in other current liabilities due to interest accruals, and (iv) a $1.9
million increase in escrow funds from asset sales.
Capital expenditures for the thirteen weeks ended December 27, 1998
were $9.8 million compared to $7.1 million in the three months ended December
31, 1997. Capital expenditures in the thirteen weeks ended December 27, 1998
included $5.5 million for new production equipment with the remaining consisting
primarily of routine capital improvements. Funding for such capital expenditures
was provided by funds held in escrow from the sale of the Riverside, CA
manufacturing facility in Fiscal Year 1998 and other equipment sales. During the
current fiscal period, the Company has and will continue to rely principally on
proceeds from the sale of property, plant and equipment to fund capital
expenditures. As of December 27, 1998, the Company had $7.3 million of such
proceeds held in escrow (see Note 2 of the Notes to Consolidated Financial
Statements). The Company does not anticipate any material capital expenditures
in the next twelve months other than those funded through asset sales.
The Company has a revolving credit facility, as amended, in an amount
of up to $135.0 million, subject to borrowing base limitations (the "U.S. Credit
Facility"). Borrowings under the U.S. Credit Facility mature on September 30,
2000 and as of December 27, 1998, $11.9 million was available. Borrowings under
the U.S. Credit Facility bear interest, at Sweetheart's election, at a rate
equal to (i) LIBOR plus 2.25% or (ii) a bank's base rate plus 1.00%, plus
certain other fees. The U.S. Credit Facility
8
<PAGE>
is secured by accounts receivable, inventory, equipment, intellectual property,
general intangibles and the net proceeds on the sale of any of the foregoing.
Lily Canada has a term loan and revolving credit facility agreement
which provides for a term loan facility of up to Cdn $10.0 million and a
revolving credit facility of up to Cdn $10.0 million (the "Canadian Credit
Facility"). Term loan borrowings under the Canadian Credit Facility are payable
quarterly through May 2001 and revolving credit borrowings and term loan
borrowings have a final maturity date of June 15, 2001. As of December 27, 1998,
Cdn $1.7 million (approximately $1.1 million) was available under such facility.
The Canadian Credit Facility is secured by all the existing and after acquired
real and personal, tangible assets of Lily Canada and the net proceeds on the
sale of any of the foregoing. Borrowings bear interest at an index rate of 2.25%
with respect to the revolving credit borrowings, and an index rate of 2.50% with
respect to the term loan borrowings.
The Company may, at its election, redeem the Senior Secured Notes at
any time at a redemption price equal to a percentage (currently 101.604% and
declining to 100% after August 31, 1999) of the principal amount, plus accrued
interest. The Senior Secured Notes are secured by mortgages on the real property
owned by the Company. Payment of principal and interest of the Senior
Subordinated Notes is subordinate to the Senior Indebtedness (as defined
therein), which includes the U.S. Credit Facility and the Senior Secured Notes.
The Company may, at its election, redeem the Senior Subordinated Notes at any
time at a redemption price equal to a percentage (currently 103.938% and
declining in annual increments to 100% after August 31, 2001) of the principal
amount, plus accrued interest. The Sweetheart Notes provide that upon the
occurrence of a Change of Control (as defined therein) the holders will have the
option to require the redemption of the Sweetheart Notes at a redemption price
equal to 101% of the principal amount, plus accrued interest.
The instruments governing the indebtedness of the Company contain
customary covenants and events of default, including without limitation,
restrictions on, subject to defined exceptions, the payment of dividends, the
incurrence of additional indebtedness, investment activities and transactions
with affiliates.
In January 1999, the Company was notified that the United States
Supreme Court had denied plantiffs' petition for Writ of Certiorari in the
matter of Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan Benefits Committee
and Fort Howard Cup Corporation, Civil Action No. CV 187-084. The court has
decided that the Lily-Tulip Salary Retirement Plan (the "Plan") was lawfully
terminated. The Company is in the process of determining the timing and amount
of total payouts for which the Plan is liable. The initial estimate of the total
termination liability exceeds assets set aside in the Plan by approximately $17
million, which amount has been fully reserved by the Company. The Company
expects to fund such payments within the next nine months. The Company's
operating plan contemplates that cash generated by operations and amounts
available under the Company's credit facilities will be sufficient to make the
required payments under the Plan when due. However, there can be no assurance
that the Company will achieve its operating plan and have the necessary cash to
make these payments. Failure by the Company to make such payments will have a
material adverse effect on the Company and its financial condition.
Management believes that cash generated by operations, amounts
available under the Company's credit facilities and funds generated from asset
sales should be sufficient to meet the Company's expected operating needs,
including termination liabilities under the Plan, planned capital expenditures
and debt service requirements through September 30, 1999.
9
<PAGE>
Year 2000
Many of the Company's computer systems may be unable to process dates
beyond December 31, 1999. This could result in system failures or
miscalculations which could have material adverse effect on the Company's
business, financial condition or results of operations. The Company has
implemented a Year 2000 compliance program intended to identify the programs and
infrastructures that could be effected by Year 2000 issues and resolve the
problems that were identified on a timely basis.
The Company has completed the assessment phase, in which it has
identified potential Year 2000 issues with respect to information technology
systems, as well as equipment that interfaces with vendors and third parties,
and developed a compliance project for its hardware, operating systems, and
application systems. The Company has completed its hardware and operating
systems conversion. With respect to the application phase, the Company is
compliant in its planning, order management and warehousing systems.
Manufacturing systems are in final testing and are expected to be compliant by
April 1999. Financial, corporate and in-house developed systems are scheduled
for compliance by July 1999. The Company has completed its internal assessment
phase for technology embedded within equipment and is awaiting responses from
certain vendors. Sweetheart believes a significant portion of its manufacturing
equipment is not affected by Year 2000 issues due to its operations use, or was
compliant when purchased. The Company has or is in the process of contacting key
vendors and business partners, to ensure that key business transactions will be
Year 2000 compliant. Furthermore, in the event the Company is unable to meet
certain key operational dates, it believes its already compliant Year 2000
systems for planning, order management and warehouse management, together with
its manual systems, would allow the Company to ship products to customers and
engage in other critical business functions.
The Company estimates the cost of its Year 2000 program to be $2.7
million, of which $2.0 million had been spent through December 27, 1998, of
which $0.8 million was spent in the thirteen weeks ended December 27, 1998.
Future expenditures will be funded from cash flow from operations or borrowings
under credit facilities. However, there can be no assurance that the Company
will identify all Year 2000 issues in its computer systems in advance of their
occurrence or that they will be able to successfully remedy all problems that
are discovered. Failure by the Company and/or its significant vendors and
customers to complete Year 2000 compliance programs in a timely manner could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the revenue stream and financial
stability of existing customers may be adversely impacted by Year 2000 problems
which could cause fluctuations in the Company's revenues and operating
profitability.
Net Operating Loss Carryforwards
As of September 27, 1998, the Company had approximately $202 million of
net operating loss ("NOL") carryforwards for federal income tax purposes which
expire at various dates through 2018. Although the Company expects that
sufficient taxable income will be generated in the future to realize these NOLs,
there can be no assurance future taxable income will be generated to utilize
such NOLs.
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On January 11, 1999, the United States Supreme Court denied Plaintiff's
petition for Writ of Certiorari in the matter of Aldridge v. Lily-Tulip, Inc.
Salary Retirement Benefits Committee and Fort Howard Cup Corporation, Civil
Action No. CV 187-084.
Item 5. OTHER INFORMATION
On January 5, 1999, Lawrence W. Ward, Jr. resigned as a member of the
Board of Directors.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
A report on Form 8-K was filed on October 30, 1998 under item 8 for the
change in the Company's fiscal year-end.
11
<PAGE>
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.
SWEETHEART HOLDINGS INC.
(registrant)
Date: February 9, 1999 By: /s/ Hans H. Heinsen
-------------------
Hans H. Heinsen
Senior Vice President - Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1999
<PERIOD-START> SEP-28-1998
<PERIOD-END> DEC-27-1998
<CASH> 9,611
<SECURITIES> 0
<RECEIVABLES> 83,804
<ALLOWANCES> 1,780
<INVENTORY> 119,467
<CURRENT-ASSETS> 241,878
<PP&E> 539,096
<DEPRECIATION> 193,157
<TOTAL-ASSETS> 646,494
<CURRENT-LIABILITIES> 143,480
<BONDS> 416,821
0
0
<COMMON> 54
<OTHER-SE> 12,923
<TOTAL-LIABILITY-AND-EQUITY> 646,494
<SALES> 203,909
<TOTAL-REVENUES> 203,909
<CGS> 189,451
<TOTAL-COSTS> 189,451
<OTHER-EXPENSES> 15,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,813
<INCOME-PRETAX> (12,145)
<INCOME-TAX> (4,858)
<INCOME-CONTINUING> (7,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,287)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
