Solo Cup says it has adequate liquidity regardless of defaults

By Jennifer Lanning Drey

Eugene, Ore., Sept. 20 - Solo Cup Co. has adequate liquidity, despite being in default under the company's primary secured credit facilities, Eric A. Simmonsen, Solo Cup's chief financial officer, said during a company conference call held Wednesday.

At the time of the call, the company had $63 million in cash available, he said.

Solo Cup was declared to be in default under the credit facilities following its announcement that it will restate some of its previously issued financial statements based on an ongoing accounting review that has identified errors in certain accounting practices and procedures, Robert M. Korzenski, chief executive officer of Solo Cup, said Wednesday during the call.

The company is in discussions with the credit facility's administrative agents regarding the possibility of obtaining waivers or amendments to address the issues, he said.

Solo Cup has also received notice from the trustee under the indenture for its 8½% senior subordinated notes due 2014 that it failed to comply with its requirement to provide noteholders with quarterly financial information for the second quarter of 2006. Under the terms of the indenture, the company has until Oct. 16 to meet the requirement.

"We have every intention to comply with our lenders by the 16th of October, Simmonsen said.

When asked by multiple investors about a back up plan, Simmonsen reiterated that the company intends to meet the deadline but would not disclose whether it has developed an alternate plan if it cannot do so.

Simmonsen said Solo Cup is working closely with KPMG LLP, the company's independent registered public accounting firm, to complete the review.

The financial statements expected to be restated are for fiscal years 2005, 2004 and 2003. Certain quarterly financial information for those periods and for the first quarter of 2006 will also be restated, along with selected consolidated financial data for 2002 and 2001, according to a company news release.

The errors are primarily related to the timely recognition of certain customer credits, accounts payable, accrued expenses and the valuation of certain assets, Korzenski said.

"As part of our continuing review of these matters, we are investigating whether any of these errors resulted from intentional actions," Korzenski said, adding that based on its current knowledge of the situation, the company does not have reason to believe that theft was involved.

However, Korzenski said he could not comment on the status of the investigation or quantify the expected amounts of the restatements until the review is finished.

"Until the accounting review and related investigation are complete, it would not be appropriate, or even possible, for us to talk about the ultimate findings or their financial impact," he said.

Solo Cup is a Highland Park, Ill.-based manufacturer of disposable foodservice products for consumer, foodservice, packaging and international markets.

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