================================================================================ 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 Thirteen Weeks Ended December 24, 2000 [ ] 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 January 31, 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 ================================================================================ PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS SF HOLDINGS GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands, except share data)

~~SF HOLDINGS GROUP, INC. ----------------------- CONSOLIDATED BALANCE SHEETS ---------------------------~~ (~~In thousands, except share data) (~~Unaudited) ~~June~~December 2524, September 2624, 2000 1999*2000 -------------~~-----~~ ---------------- Assets ~~------~~ Current assets: Cash and cash equivalents $ 87,~~479~~586 $ 46,~~180~~352 Cash in escrow 304 300 Receivables, less allowances of $43,~~241~~833 and $63,~~979~~534, respectively ~~149~~147,~~752~~377 ~~136~~155,~~629~~684 Due from affiliates ~~533~~1,286 ~~538~~1,286 Inventories ~~219~~225,~~530~~798 ~~191~~226,~~848~~657 Deferred income taxes 2023,~~757~~947 2024,~~547~~347 Refundable income taxes 622 622 Spare parts 24,731 24,066 Other current assets 226,~~422~~031 246,~~330~~428 ---------- ---------- Total current assets ~~421~~437,~~473~~682 ~~378~~445,~~072~~742 ---------- ---------- Property, plant and equipment, net ~~270~~259,~~768~~149 ~~387~~263,~~309~~368 ~~Goodwill,~~Deferred ~~net~~income ~~106~~taxes 38,~~772~~902 9837,~~176~~694 ~~Deferred~~Spare ~~income~~parts ~~taxes~~8,501 388,~~474~~313 38Goodwill,~~424~~ net 108,760 106,108 Other assets 3318,~~179~~940 3519,~~229~~904 ---------- ---------- Total assets $ ~~870~~871,~~666~~934 $ ~~937~~881,~~210~~129 ========== ========== Liabilities and Shareholders' Equity ~~------------------------------------~~(Deficit) Current liabilities: Accounts payable $ 9782,~~365~~632 $ 8091,~~786~~068 Accrued ~~expenses~~payroll and ~~other~~related costs 44,658 55,486 Other current liabilities ~~106~~59,~~617~~615 ~~112~~56,~~700~~114 Current portion of deferred gain on sale of assets 10,~~276~~275 -10,275 Current portion of long-term debt 1555,~~139~~280 ~~276~~57,~~845~~266 ---------- ---------- Total current liabilities ~~229~~252,~~397~~460 ~~470~~270,~~331~~209 ---------- ---------- Commitments and contingencies - - Deferred income taxes 4,209 4,209 Long-term debt ~~460~~449,~~736~~068 ~~381~~434,~~554~~967 Deferred gain on sale of assets 9691,~~516~~379 -93,948 Other liabilities 6155,~~233~~446 6257,~~494~~511 ~~Deferred income taxes 4,105 4,026~~ ---------- ---------- Total liabilities ~~851~~852,~~987~~562 ~~918~~860,~~405~~844 ---------- ---------- ~~Shareholders' equity:~~ Exchangeable preferred stock 4043,~~358~~293 3641,~~291~~794 Preferred Stock B, Series 2 15,000 15,000 Minority interest in subsidiary 3,~~154~~317 13,~~971~~169 Redeemable common stock 2,~~268~~303 2,~~217~~286 Shareholders' deficit (2744,~~101~~541) (2141,~~674~~964) ---------- ---------- Total liabilities and shareholders' equity $ ~~870~~871,~~666~~934 $ ~~937~~881,~~210~~129 ========== ========== * Restated, see Note 2 of the Notes to Consolidated Financial Statements See accompanying Notes to Consolidated Financial Statements.

See accompanying Notes to Consolidated Financial Statements. 2 SF HOLDINGS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS) (Unaudited) (In thousands)

SF HOLDINGS GROUP, INC. ----------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- AND OTHER 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~~December ~~ended weeks ended June 25~~24, ~~2000~~December ~~June 27~~26, ~~1999* June 25,~~ 2000 ~~June 27,~~ 1999* --------------- --------------- ~~--------------- ---------------~~ Net sales $ ~~346~~326,~~579~~503 $ ~~315~~305,~~179~~820 ~~$ 941,773 $ 873,120~~ Cost of sales ~~291~~288,~~358~~004 ~~267~~260,~~262~~279 ~~799,064 761,007~~ ----------- ----------- ~~----------- -----------~~ Gross profit 5538,~~221~~499 4745,~~917~~541 ~~142,709 112,113~~ Selling, general and administrative expenses 2629,~~347~~440 2730,~~896~~809 ~~86,908 87,513~~ Other (income) expense, net ~~326~~ (~~170~~3,368) (1,~~238)~~448 ~~334~~ ----------- ------------ ~~------------ -----------~~ Operating income 2812,~~548~~427 2013,~~191~~284 ~~57,039 24,266~~ Interest expense, net of interest income of $~~147,~~35 ~~$141, $414~~ and $~~543~~87, respectively 1813,~~713~~379 17,~~792~~563 ~~53,413 53,013~~ ----------- ----------- ~~----------- ----------- Income~~ (~~loss~~Loss) before income tax ~~expense~~ (benefit), and minority interest ~~and~~(952) ~~extraordinary loss 9,835 2,399 3,626~~ (284,~~747~~279) Income tax ~~expense~~ (benefit) ~~4,255~~(238) (1,~~275 2,404 (10,573~~384) Minority interest in subsidiary's income ~~(loss)~~148 ~~837~~117 ~~434 1,183 (814)~~ ----------- ----------- ~~----------- ------------~~ Net ~~income~~ (loss) ~~before extraordinary loss 4,743 690 39~~ (~~17,360) ----------- ----------- ----------- ------------ Extraordinary (loss) on debt extinguishment (net of income tax benefit of $225 and $575 respectively) (337) - (~~862) ~~- ------------ ----------- ------------ ----------- Net income~~ (~~loss) 4~~3,~~406 690 (823~~012) ~~(17,360)~~ ----------- ----------- ~~------------ ------------~~ Payment-in-kind dividends on exchangeable preferred stock (1,~~390)~~499 (1,~~221)~~317 ~~(4,067) (3,586)~~ ------------ ------------ ~~------------ ------------~~ Net ~~income (~~loss) applicable to common ~~stock~~stockholders $ ~~3,016 $~~ (~~531~~2,361) $ (4,~~890~~329) ~~$ (20,946)~~ =========== ============ ~~============ ============~~ Other comprehensive ~~income~~ (loss), net of tax: Net ~~income~~ (loss) ~~4,406~~$ ~~690~~ (~~823~~862) $ (173,~~360~~012) Foreign currency translation adjustment (~~148~~214) ~~323~~11 ~~(266) 312~~ Minimum pension liability adjustment (~~73)~~net ~~627~~of income taxes of $9 and (77$76) 1,~~516~~ ~~------------~~respectively) ~~-----------~~14 (114) ------------ ----------- Other comprehensive ~~income~~ (loss) (~~221~~200) ~~950~~ (~~343~~103) ~~1,828~~ ------------ ----------- ~~------------ -----------~~ Comprehensive ~~income~~ (loss) $ ~~4,185 $ 1,640 $~~ (1,~~166~~062) $ (153,~~532~~115) =========== ==========~~= ============ ============ * Restated, see Note 2 of the Notes to Consolidated Financial Statements See accompanying Notes to Consolidated Financial Statements.~~

See accompanying Notes to Consolidated Financial Statements. 3 SF HOLDINGS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)

~~SF HOLDINGS GROUP, INC. ----------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (Unaudited) (In thousands)~~ For the Thirteen For the ~~Thirty-nine~~Thirteen ~~Thirty-nine~~ weeks ended weeks ended ~~June~~December 2524, ~~June~~December 2726, 2000 1999* ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net ~~income~~ (loss) $ (~~823~~862) $ (173,~~360~~012) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 408,~~405~~791 4213,~~771~~963 Amortization of deferred gain (2,568) - Interest ~~capitalized~~accreted on debt 83,~~831~~370 83,~~188~~020 Deferred income tax ~~credit~~(benefit) ~~1,857~~(238) (82,~~532~~225) (Gain) / Loss on sale of assets (~~4,109~~398) ~~(305)~~53 Minority interest in subsidiary ~~1,183~~148 ~~(814)~~117 Changes in operating assets and liabilities: Receivables ~~(12~~9,~~549)~~615 ~~(13~~6,~~953)~~700 Due from affiliates ~~(5)~~- (~~3,257~~224) Inventories ~~(21~~3,~~938)~~102 (38,~~058~~495) Other current assets ~~2,499~~ (~~156~~313) 1,380 Accounts payable and accrued expenses 5(18,~~518~~506) 23(1,~~380~~322) Other, net 485 (~~1,204~~411) ~~5,974~~ ------------ ----------- Net cash provided by ~~(used in)~~ operating activities 192,~~665~~626 329,~~878~~544 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (203,~~745~~539) (294,~~154~~479) Acquisition of business (1,950) - Proceeds from sale of property, plant and equipment ~~220,921~~197 ~~6,171~~93 ~~Payments for business acquired (12,411)~~ - ---------~~---~~ ----------- Net cash ~~provided by~~ (used in) investing activities ~~187~~(5,~~765~~292) (224,~~983~~386) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayments) under credit facilities 256,~~602~~129 ~~60,574 Net borrowings~~ (~~repayments~~5,836) Repayments of other debt (~~228~~2,~~733~~225) (~~80,910~~376) ~~Decrease~~Change in ~~cash~~ escrow -account ~~3,842~~(4) - ---------- ----------- Net cash provided by (used in) financing activities ~~(203~~3,~~131)~~900 (166,~~494~~212) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 41,~~299~~234 (61,~~599~~054) CASH AND CASH EQUIVALENTS, beginning of period 6,352 4,180 ~~9,898~~ ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 87,~~479~~586 $ 3,~~299~~126 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ 394,~~375~~675 $ 283,~~481~~197 =========== =========== Income taxes paid ~~(refunded)~~ $ ~~1,209~~20 $ (~~6,514~~74) =========== ============ SUPPLEMENTAL NON-CASH INVESTING ACTIVITY: Note payable associated with business acquisition $ 2,914 $ - =========== =========== * Restated, see Note 2 of the Notes to Consolidated Financial Statements See accompanying Notes to Consolidated Financial Statements

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. (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. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and requires that an entity recognize all derivatives at fair value in the statement of financial position. The adoption of SFAS No. 133 did not have a significant impact on the 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 a significant impact on the financial statements. (3) INVENTORIES The components of inventories are as follows (in thousands): (Unaudited) December 24, September 24, 2000 2000 -------------- --------------- Raw materials and supplies $ 62,897 $ 66,941 Finished products 152,208 148,231 Work in progress 10,693 11,485 --------- --------- Total inventories $ 225,798 $ 226,657 ========= ========= 5 (4) BUSINESS ACQUISITIONS 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 assumed the liabilities and obligations of Springprint arising under contracts or leases that are either assets purchased by Fonda or a part of the accounts payable. The aggregate purchase price for the assets and working capital was $6.7 million, subject to post-closing adjustments. The Springprint acquisition has preliminarily resulted in goodwill, as of December 24, 2000, of $3.6 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 Fonda that is not currently available. The Springprint acquisition has been accounted for under the purchase method and the results have been included in the consolidated statements of operations since the respective date of the acquisition. Goodwill amortization was not significant for the thirteen weeks ending December 24, 2000. (5) RELATED PARTY TRANSACTIONS During the thirteen weeks ending December 24, 2000, the Company sold $1.6 million of scrap paper to Fibre Marketing Group, LLC ("Fibre Marketing"). Included in accounts receivable as of December 24, 2000 were $1.4 million due from Fibre Marketing. Other sales, if any, to affiliates during the thirteen weeks ending December 24, 2000 were not significant. During the thirteen weeks ending December 26, 1999, the Company sold $1.3 million of scrap paper to Fibre Marketing. Included in accounts receivable as of December 26, 1999 were $1.2 million due from Fibre Marketing. Other sales, if any, to affiliates during the thirteen weeks ending December 26, 1999 were not significant. During the thirteen weeks ending December 24, 2000, the Company purchased $1.8 million of corrugated containers from Box USA Holding, Inc., formerly known as Four M Corporation ("Box USA") and $0.2 million of travel services from Emerald Lady, Inc. Included in accounts payable, as of December 24, 2000, is $0.1 million due to Box USA. Other purchases from affiliates, if any, during the thirteen weeks ending December 24, 2000 were not significant. During the period ended December 24, 2000, the Company paid $0.6 million and $0.2 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 thirteen weeks ending December 26, 1999, the Company purchased $2.4 million of corrugated containers and $0.1 million of services from Box USA and $0.2 million of travel services from Emerald Lady, Inc. Included in accounts payable, as of December 26, 1999, is $0.5 million due to Box USA. Other purchases from affiliates, if any, during the thirteen weeks ending December 26, 1999 were not significant. Fonda leases a building in Jacksonville, Florida from Dennis Mehiel, the Company's Chief Executive Officer, on terms Fonda 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 Fonda to purchase the facility for $1.5 million, subject to a CPI-based escalation, until July 31, 2006. In Fiscal 1998, Fonda terminated it operations at 6 this facility and is currently subleasing the entire facility to Bradco Supply Corporation. Rent expense, net of sublease income 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. (6) OTHER (INCOME) EXPENSE During the period ended December 24, 2000, Sweetheart recognized $2.6 million of income due to the amortization of deferred gain in conjunction with a sale-leaseback transaction. Sweetheart sold certain production equipment in connection with this transaction and is leasing this equipment under an operating lease. The net proceeds from this sale were partially used to retire Sweetheart's Senior Secured Notes. Additionally, SF Holdings recognized a gain of $0.5 million from the sale of a building in Indianapolis, Indiana. During the period ended December 26, 1999, Sweetheart experienced a one-time write-off of a $1.0 million unsecured note receivable issued to Sweetheart in connection with the Fiscal 1998 sale of the bakery business due to the bankruptcy of the borrower. (7) 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 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 December 24, 2000, has disbursed $12.3 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 $7.9 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. On July 13, 1999, Sweetheart received a letter from the Environmental Protection Agency ("EPA") identifying Sweetheart, among numerous others, as a "potential responsible party" under the 7 Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), at a site in Baltimore, Maryland. The EPA letter states that it does not constitute a final determination by EPA concerning the liability of Sweetheart or any other entity. On December 20, 1999, Sweetheart received an information request letter from the EPA, pursuant to CERCLA, regarding a Container Recycling Superfund Site in Kansas City, Kansas. Sweetheart denies liability and has no reason to believe the final outcomes will have a material effect on Sweetheart's financial condition or results of operations. However, no assurance can be given about the ultimate effect on Sweetheart, if any, given the early stage of the investigations. 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 financial position or results of operations. (8) 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): ------------------ ----------------- (Unaudited) For the Thirteen For the Thirteen weeks ended weeks ended December 24, December 26, 2000 1999 ------------------ ----------------- Net sales: Sweetheart $ 233,579 $ 214,216 Fonda 100,166 97,572 Corporate and eliminations (7,242) (5,968) ---------- ---------- Total Sales $ 326,503 $ 305,820 ========== ========== Income from operations excluding other income: Sweetheart $ 5,019 $ 7,153 Fonda 7,171 5,975 Corporate and eliminations 237 156 ---------- ---------- Total income from operations $ 12,427 $ 13,284 ========== ========== (9) SUBSEQUENT EVENT On January 13, 2001, Sweetheart experienced a casualty loss due to a fire at its Somerville, Massachusetts facility. Sweetheart carries both property damage and business interruption insurance. As a result of which Sweetheart has no reason to believe that this loss will have a material adverse effect on its financial condition or results of operations; however, given the early stage of the loss assessment, no assurance can be given as to the ultimate effect of such loss on Sweetheart. 8 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 Fonda's and/or Sweetheart's cash flow from operations is insufficient to provide working capital necessary to fund their respective requirements, Fonda and/or Sweetheart will need to borrow under their respective credit facilities or seek other sources of capital. Sweetheart and Fonda believe that 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 January 13, 2001, Sweetheart experienced a casualty loss due to a fire at its Somerville, Massachusetts facility. Sweetheart carries both property damage and business interruption insurance. As a result of which Sweetheart has no reason to believe that this loss will have a material adverse effect on its financial condition or results of operations. Given the early stage of the loss assessment, no assurance can be given as to the ultimate effect of such loss on Sweetheart. On December 31, 2000, James Armenakis resigned as a director from SF Holdings. On January 1, 2001, Edith Mehiel was elected as a director of SF Holdings. 9 Thirteen Weeks Ended December 24, 2000 Compared to Thirteen Weeks Ended December 26, 1999 (Unaudited) Net sales increased $20.7 million, or 6.8%, to $326.5 million for the thirteen weeks ended December 24, 2000 compared to $305.8 million for the thirteen weeks ended December 26, 1999. 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 $19.4 million, or 9.1%, (including intercompany sales to Fonda of $4.8 million and $3.5 million for Fiscal 2000 and Fiscal 1999, respectively) to $233.6 million for the thirteen weeks ended December 24, 2000 compared to $214.2 million for the thirteen weeks ended December 26, 1999, reflecting a 6.2% increase in sales volume and a 2.9% increase in average realized sales price. Net sales to institutional foodservice customers increased 7.3%, reflecting a 4.7% increase in sales volume and a 2.6% increase in average realized sales price. Net sales to food packaging customers had no significant change from prior year. Fonda results - Net sales increased $2.6 million, or 2.7%, (including intercompany sales to Sweetheart of $2.5 million and $2.6 million for Fiscal 2000 and Fiscal 1999, respectively) to $100.2 million for the thirteen weeks ending December 24, 2000, compared to $97.6 million for the thirteen weeks ending December 26, 1999, reflecting a 17.8% increase in average realized sales price partially offset by a 15.1% decrease in sales volume. Net sales to consumer foodservice customers decreased 2.0%, resulting from a 20.7% increase in average realized sales price, partially offset by a decrease in sales volume of 22.7%. Net sales to institutional foodservice customers increased 9.5%, resulting from a 5.1% increase in average realized sales price and a 4.4% increase in sales volume. Selling prices to both consumer and institutional customers were positively affected by increases in raw material costs that were passed through to customers as well as more competitive market conditions. These favorable price increases were offset by lower volumes due to competitive market conditions and lower sales to customers that are experiencing financial distress. Gross profit decreased $7.0 million, or 15.4%, to $38.5 million for the thirteen weeks ended December 24, 2000 compared to $45.5 million for the thirteen weeks ended December 26, 1999. As a percentage of net sales, gross profit decreased to 11.8% for the thirteen weeks ended December 24, 2000 from 14.9% for the thirteen weeks ended December 26, 1999. Sweetheart results - Gross profit decreased $7.2 million, or 26.8%, to $19.7 million for the thirteen weeks ended December 24, 2000 compared to $26.9 million for the thirteen weeks ended December 26, 1999. As a percentage of net sales, gross profit decreased to 8.4% for the thirteen weeks ended December 24, 2000 from 12.6% for the thirteen weeks ended December 26, 1999. The decrease in gross profit is primarily attributable to the effects of a sale-leaseback transaction. In Fiscal 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 a more favorable interest rate. Consequently, expenses that were historically recorded as interest and depreciation are now being recorded as operating expenses. Specifically, rent expense increased by $5.2 million net of a reduction in depreciation. Additionally, gross profit declined due to an increase in energy costs of $1.8 million and rent expense from a new leased facility of $0.2 million. Fonda results - Gross profit increased $0.1 million, or 0.5%, to $19.0 million for the thirteen weeks ending December 24, 2000, compared to $18.9 million for the thirteen weeks ending December 26, 1999. As a percentage of net sales, gross profit decreased from 19.4% for the thirteen weeks ending December 26, 1999 to 19.0% for the thirteen weeks ending December 24, 2000. Gross profit for the thirteen weeks ending December 24, 2000 was positively affected by increased selling prices which were offset by higher raw material costs. Selling, general and administrative expenses decreased $1.4 million, or 4.5%, to $29.4 million in the thirteen weeks ended December 24, 2000 compared to $30.8 million in the thirteen weeks ended December 26, 1999. This decrease primarily resulted from a decrease in the workforce from the Creative Expressions Group consolidation and a reduction in selling expenses. 10 Other (income) expense increased $4.8 million, to income of $3.4 million for the thirteen weeks ended December 24, 2000 compared to an expense of $1.4 million in the thirteen weeks ended December 26, 1999 This increase is due to a $2.5 million amortization of deferred gain in Fiscal 2001 in connection with a sale-leaseback transaction and a $1.0 million write-off of an unsecured note receivable issued in connection with the Fiscal 1998 sale of the bakery business which was recorded in Fiscal 2000. Operating income decreased $0.9 million, to $12.4 million in the thirteen weeks ended December 24, 2000 compared to $13.3 million in the thirteen weeks ended December 26, 1999, due to the reasons stated above. Interest expense, net decreased $4.2 million, or 23.9%, to $13.4 million in the thirteen weeks ended December 24, 2000 compared to $17.6 million in the thirteen weeks ended December 26, 1999. This decrease is attributable to lower outstanding balances 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 a sale-leaseback transaction, interest expense has declined while rent expense has increased. Net income (loss) decreased $2.1 million, to loss of $0.9 million in the thirteen weeks ended December 24, 2000 compared to a loss of $3.0 million loss in the thirteen weeks ended December 26, 1999, 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. Net cash provided by operating activities decreased $6.9 million to source of $2.6 million in the thirteen weeks ended December 24, 2000 compared to a source of $9.5 million in the thirteen weeks ended December 26, 1999. This is primarily due to a reduction in accounts payable which resulted from a decrease in inventory purchases. Capital expenditures for the thirteen weeks ended December 24, 2000 were $3.5 million compared to $4.5 million for the thirteen weeks ended December 26, 1999. Capital expenditures in the thirteen weeks ended December 24, 2000 included $1.3 million for new production equipment, $1.5 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 Company, Inc. ("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 also has the option to purchase such equipment for fair market value either at the conclusion of the Lease term or November 21, 2006. Sweetheart's obligations under the Lease are collateralized by substantially all of it'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. 11 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. On June 15, 2000, Sweetheart refinanced its revolving credit facility (the "U.S. Credit Facility") to extend the maturity of the $135 million revolving credit facility, subject to borrowing base limitations, through June 15, 2005 and to add 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 December 24, 2000, $43.7 million was available under such facility. 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. Sweetheart's Canadian subsidiary has a Credit Agreement (the "Canadian Credit Facility") which provides for a term loan facility of up to Cdn $10 million and a revolving credit facility of up to Cdn $10 million. Term loan borrowings under the Canadian Credit Facility are payable quarterly through May 2001 and revolving credit and term loan borrowings have a final maturity date of June 15, 2001. The Canadian Credit Facility is secured by all existing and thereafter acquired real and personal tangible assets of Lily, a subsidiary of Sweetheart Cup, and net proceeds on the sale of any of the foregoing. Borrowings under the Canadian Credit Facility bear interest at an index rate plus 2.25% with respect to the revolving credit borrowings and an index rate plus 2.50% with respect to the term loan borrowings. As of December 24, 2000, Cdn $4.2 million (approximately $2.8 million) was available under the Canadian Credit Facility. Sweetheart intends to refinance this debt prior to its maturity however, there can be no assurances that it will be able to obtain such refinancing on terms and conditions acceptable to Sweetheart. Fonda has a $55 million revolving credit facility subject to borrowing base limitations. The credit facility is collateralized by eligible accounts receivable, inventories, certain general intangibles and the proceeds on the sale of accounts receivable and inventory. 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 December 24, 2000, $36.7 million was outstanding and $18.3 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. Fonda's credit facility includes a term loan of $5 million. This amount is payable in equal monthly installments through the maturity date of September 30, 2001, at an annual rate of 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 12 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 December 24, 2000, has disbursed $12.3 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 $7.9 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. On July 13, 1999, Sweetheart received a letter from the Environmental Protection Agency ("EPA") identifying Sweetheart, among numerous others, as a "potential responsible party" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), at a site in Baltimore, Maryland. The EPA letter states that it does not constitute a final determination by EPA concerning the liability of Sweetheart or any other entity. On December 20, 1999, Sweetheart received an information request letter from the EPA, pursuant to CERCLA, regarding a Container Recycling Superfund Site in Kansas City, Kansas. Sweetheart denies liability and has no reason to believe the final outcomes will have a material effect on Sweetheart's financial condition or results of operations. However, no assurance can be given about the ultimate effect on Sweetheart, if any, given the early stage of the investigations. 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 Fonda's and Sweetheart's respective capital expenditures 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. 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 such assurance that such future taxable income will be generated. Item 3. QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK NONE 13 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS 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 December 24, 2000, Sweetheart has disbursed $12.3 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 $7.9 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. On July 13, 1999, Sweetheart received a letter from the Environmental Protection Agency ("EPA") identifying Sweetheart, among numerous others, as a "potential responsible party" under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), at a site in Baltimore, Maryland. The EPA letter states that it does not constitute a final determination by EPA concerning the liability of Sweetheart or any other entity. On December 20, 1999, Sweetheart received an information request letter from the EPA, pursuant to CERCLA, regarding a Container Recycling Superfund Site in Kansas City, Kansas. Sweetheart denies liability and has no reason to believe the final outcomes will have a material effect on Sweetheart's financial condition or results of operations. However, no assurance can be given about the ultimate effect on Sweetheart, if any, given the early stage of the investigations. Each of Sweetheart and Fonda 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 financial position or results of operations. 14 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.5 Certificate of Amendment of the Certificate of Incorporation of SF Holdings Group, Inc. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the thirteen weeks ended December 24, 2000. 15 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: January 31, 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) 16 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: January 31, 2001 By: _____________________________ ------------------ Hans H. Heinsen Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer and Duly Authorized Officer) 17

(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 25, June 27, June 25, June 27, 2000 1999 2000 1999 --------------- --------------- --------------- --------------- Net Sales: Sweetheart $ 264,605 $ 234,290 $ 696,200 $ 633,588 Fonda 89,702 85,348 265,337 245,163 Intersegment elimination (7,728) (4,459) (19,764) (5,631) ------------ ------------ ------------ ------------ Total Sales $ 346,579 $ 315,179 $ 941,773 $ 873,120 ============ ============ ============ ============ Income from operations, excluding other income: Sweetheart $ 24,022 $ 17,301 $ 42,530 $ 17,358 Fonda 4,768 2,998 13,297 7,666 Corporate and eliminations 84 (278) (26) (424) ----------- ------------ ------------ ------------ Total income from operations $ 28,874 $ 20,021 $ 55,801 $ 24,600 ============ ============ ============ ============

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