-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JlWNfUSW4YrYKPxACI29DEDPi4XINDylLvA/LhKkQCMtzT127pxZBVSCUIAOBCTu dHgYKR+n1eYaHqZUcgsxPw== 0000033073-97-000002.txt : 19970327 0000033073-97-000002.hdr.sgml : 19970327 ACCESSION NUMBER: 0000033073-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961226 FILED AS OF DATE: 19970321 DATE AS OF CHANGE: 19970326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENVIRODYNE INDUSTRIES INC CENTRAL INDEX KEY: 0000033073 STANDARD INDUSTRIAL CLASSIFICATION: 3089 IRS NUMBER: 952677354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-05485 FILM NUMBER: 97560801 BUSINESS ADDRESS: STREET 1: 701 HARGER ROAD STE 190 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085718800 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 26, 1996 --------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to -------------- -------------- Commission file number 0-5485 ---------- ENVIRODYNE INDUSTRIES, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 - - --------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 701 Harger Road, Suite 190, Oak Brook, Illinois 60521 - - ----------------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (630) 571-8800 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Warrants to Purchase Common Stock 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- As of March 19, 1997, the aggregate market value of the voting stock held by non-affiliates of the registrant was $46,589,620. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ----- ----- As of March 19, 1997, there were 14,552,233 shares outstanding of the registrant's Common Stock, $.01 par value. DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III is incorporated by reference from the registrant's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART I ------ ITEM 1. BUSINESS -------- (a) General development of business: ------------------------------- General Envirodyne Industries, Inc. is a Delaware corporation organized in 1970. As used herein, the "Company" means Envirodyne Industries, Inc. and its subsidiaries. The Company, through Viskase Corporation (Viskase), is the leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. The Company is also a leading domestic and international manufacturer of plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food items. Through Sandusky Plastics, Inc. (Sandusky), the Company is a producer of thermoformed vending and promotional cups, plastic containers used in the packaging of cultured dairy and delicatessen products, and of horticultural trays and inserts. Finally, through Clear Shield National, Inc. (Clear Shield), the Company is a major domestic producer of disposable plastic cutlery, drinking straws, custom dining kits and related products. The market positions of the Company's subsidiaries set forth in this Form 10-K represent management's belief based upon internally generated information. No independent marketing information has been used to confirm the stated market position. (b) Financial information about industry segments: --------------------------------------------- Reference is made to Part IV, Item 14, Note 21 of Notes to Consolidated Financial Statements. (c) Narrative description of business: --------------------------------- The Company's operations include food packaging products (Viskase and Sandusky) and disposable foodservice supplies (Clear Shield). VISKASE - - ------- General Viskase developed the basic process for producing cellulosic casings and began commercial production in 1925. Since that time, management believes that Viskase has been the leading worldwide producer of cellulosic casings. In 1964 Viskase entered the specialty films business. Since then, it has continued to introduce new specialty film products to customers in the fresh and processed meat, poultry and cheese industries. Viskase also manufactures and sells PVC plastic film for wrapping fresh meats, poultry and other products. Cellulosic Casings Cellulosic casing products are used in the production of processed meat and poultry products, such as hot dogs, salami and bologna. To manufacture these products, meat is stuffed into the casings prior to smoking and cooking. The casings, which are non-edible, serve to hold the shape of the product during these processes. For certain products, such as hot dogs, the casings are removed and discarded prior to retail sale. Casings made of regenerated cellulose were developed by Viskase to replace casings made of animal intestines. Cellulosic casings generally afford greater uniformity, lower cost and greater reliability of supply. The production of regenerated cellulose casings generally involves three principal steps: production of a viscose slurry from wood pulp, extrusion of a continuous tube during the regeneration process, and "shirring" of the final product. Shirring is a process of folding or compressing the casing in tubular form for subsequent use in high-speed stuffing machines. The production of regenerated cellulose involves a complex and continuous series of chemical and manufacturing processes, and Viskase believes that its facilities and expertise in the manufac- turing of extruded cellulose are important factors in maintaining its product quality and operating efficiencies. Viskase's product line includes both NOJAX (R) cellulosic casings for small sausage products such as hot dogs and paper-reinforced cellulosic casings for large sausages, salami, hams and other processed meat products. Reinforced cellulosic casings are known in the meat industry as fibrous casings. Specialty Film Products Since developing a technology for the extrusion of bioriented plastic films in 1964, Viskase has continued to expand its product line of heat shrinkable bags made from its specialty films. These shrinkable bags are sold under the brand name PERFLEX (R). Viskase's shrinkable plastic bags are used by major poultry, fresh and processed meat and cheese producers to package and preserve their products during wholesale and retail distribution. Viskase also manufactures a thin gauge film used in wrapping applications at poultry processing plants under the brand name TRAY-LOC (R). Viskase produces single layer and multilayer heat shrinkable plastic bags. Single layer film bags are used primarily to protect fresh and frozen whole turkeys and chickens from moisture loss and handling damage. Multilayer film bags, referred to in the food industry as "barrier bags," are made of layers of coextruded films, each of which contributes a special property. For example, individual layers can provide mechanical strength or can reduce the transmission of moisture, oxygen or ultraviolet light and can protect bagged products, such as fresh meats, from weight loss and spoilage. As part of its service orientation, Viskase also provides graphic art and design services to its customers. Viskase's ability to print on the bags and films directly with designs, illustrations and text in up to eight colors further enhances the appeal of its customers' products. PVC and Other Film Products Viskase manufactures PVC stretch and single layer shrink films under the Filmco (R) brand name, used for wrapping grocery products and for packaging foods. In Europe, Viskase also converts oriented polypropylene films for use in packaging bakery goods. International Operations Viskase has seven manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico. The aggregate of domestic exports and net sales of foreign operations represents approximately 58% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluc- tuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties that may raise the possi- bility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes its allowance for doubtful accounts makes adequate provision for the collectibility of receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. Sales and Distribution Viskase has a broad base of customers, with no single customer accounting for more than 5% of sales. Viskase sells its products in virtually every country in the world. In the United States, Viskase has a staff of technical sales teams responsible for sales to fresh meat, processed meat and poultry producers. Approximately 50 distributors market Viskase products to customers in Europe, Africa, Asia, and Latin America. Its products are marketed through its own subsidiaries in the United Kingdom, Germany, France, Italy, Russia, Brazil, Mexico, Argentina and a joint venture in Australia. In the United States, Viskase sells its PVC film products primarily to the retail grocery industry through packaging material distributors, food wholesalers and a direct sales force. Additionally the sales organization is supported by a technical service group. The United Kingdom operation sells directly and through distributors, primarily to the retail grocery and foodservice industries in Europe. In the United States, Viskase operates casings service centers in Atlanta, Georgia, and Bensalem, Pennsylvania, as well as service centers within the Chicago, Illinois, and Pauls Valley, Oklahoma, plants. In Latin America, Viskase operates service centers in Nuevo Laredo, Mexico, and within the Guarulhos, Brazil, plant. In Europe, Viskase operates casings service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. Viskase also operates a service center through a joint venture in Brisbane, Australia. These service centers provide finishing, inventory and delivery services to Viskase customers. Competition Viskase is the world's leading producer of cellulosic casings and is a major producer of films. Viskase seeks to maintain a competitive advan- tage by introducing new products having superior performance character- istics over competitive products, by responding quickly to customer product requirements, by providing customers with assistance in production or formulation problems, by producing niche products to fill particular individual customer requirements, by providing technical support services to its customers and by manufacturing products having outstanding quality and performance. From time to time, Viskase experiences reduced market share or reduced profits due to price competition. Viskase's principal competitors in cellulosic casings are Devro-Teepak, Inc., located in Scotland with plants in the United States and Belgium, and Viscofan, S.A., located in Spain and Brazil. A new competitor, Alphacel, located in Spain, is expected to begin operations in 1997. Some of the other important competitors in the cellulosic casings industry are Kalle Nalo GmbH, a wholly owned subsidiary of Hoechst AG, located in Germany; Wolff Walsrode AG, a wholly owned subsidiary of Bayer AG, located in Germany; Oy Visko AB located in Finland; and Celanese Mexicana located in Mexico. In the specialty films area, the largest producer of heat shrinkable bags is the Cryovac Division of W.R. Grace & Company. Cryovac developed heat shrinkable films and a vacuumizing process for applying them in the early 1960's. Cryovac sells bags on a worldwide basis to all segments of the food industry, including meat and poultry producers. American National Can Company, a subsidiary of Pechiney, is another competitor in the specialty films area. Management believes that Viskase is in the number two position in the world behind Cryovac in the sale of heat shrinkable bags. In the PVC films area, major competitors in the United States and Europe include AEP-Borden, Inc.; Huntsman Film Products Corporation; Anchor Plastics and Linpac. Viskase's primary competitors include several major corporations, some of which are larger and better capitalized than Viskase. Research and Development; Customer Support Viskase's continuing emphasis on research and development is central to its ability to maintain industry leadership. In particular, Viskase focuses on the development of new products that increase customers' operating efficiencies, reduce their operating costs and expand their markets. Viskase's projects include development of new processes and products to improve its manufacturing efficiencies. Viskase's research scientists, engineers and technicians are engaged in continuing product and equipment development and also provide direct technical and educational support to its customers. Viskase founded its Food Science and Quality Institute (Institute) in 1941 to assist the meat and poultry industry in the development of new food items and more efficient production and packaging methods using Viskase products. The Institute's staff works closely with Viskase's sales and marketing professionals providing responsible, high-quality technical service to, and support of, Viskase customers. The Institute is able to reproduce customers' products and processes in order to help customers to solve their problems and to experiment with new foods and production techniques. The Institute conducts Meat Science Seminars that are attended by Viskase customers and production, research and quality assurance personnel, as well as food scientists from leading academic institutions. Seasonality Historically, domestic sales and profits of Viskase have been seasonal in nature, increasing in the spring and summer months and again near the year-end holiday season. There has been a marked change in Viskase's demand pattern due to the increase in international and export sales. Viskase's sales are expected to be less seasonal in the future. Sales of specialty films to the fresh meat industry and sales outside of the United States follow a relatively stable pattern throughout the year. Sales of PVC films experience only minor seasonality with sales generally increasing during the second and third quarters. Raw Materials Raw materials used by Viskase include cellulose (from wood pulp), fibrous paper, petroleum based resins, plasticizers and various other chemicals. Viskase generally purchases its raw materials from a single or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or raw material substitutes that Viskase could modify its processes to utilize. SANDUSKY - - --------- Sandusky is a producer of thermoformed vending and promotional cups, plastic containers used in the packaging of cultured dairy and delicatessen products, and of horticultural trays and inserts. Sandusky sells a majority of its products to dairy product manufacturers for packaging items such as yogurt and cottage cheese and to supermarkets for in-store packaging of take-home foods. The containers are normally custom printed in various colors with product identification, company names, logos, nutritional information and universal product codes in accordance with the customers' requirements. Sandusky sells directly to its dairy and non-food customers through its sales and marketing group. Delicatessen containers and horticultural products are sold both directly and through commissioned brokers. Sandusky markets its products primarily in the northeastern, southern and midwestern regions of the United States. Plastic container sales are somewhat seasonal in nature, with slightly higher delicatessen container sales in late spring and summer and higher dairy sales in the fourth quarter. All of Sandusky's thermoformed products are produced at its Sandusky, Ohio plant. Thermoforming is a process by which plastic resin pellets are melted and extruded into sheet stock, which is then heated and formed into finished containers, lids and trays. The principal raw material used by Sandusky is prime high impact polystyrene, which currently is available from several domestic sources. The dairy and delicatessen containers industry is highly fragmented. Sandusky competes in the manufacture and sale of dairy and delicatessen containers with several domestic manufacturers of thermoformed and injection molded plastic containers. Major competitive factors in the dairy and delicatessen container business are price, quality and customer service. Major competitive factors in the specialized thermoformed container business are price and technical and customer service capabilities. In January 1997, Sandusky made a decision to withdraw from the manufacture and sale of injection molded products. Production at the Sandusky injection molding facility is scheduled to cease in April 1997. Most of the production equipment will be transferred to the Clear Shield operations. CLEAR SHIELD - - ------------ Clear Shield, headquartered in Wheeling, Illinois, is a major domestic producer of disposable plastic cutlery, drinking straws, custom dining kits and related foodservice products. Clear Shield is one of the largest producers of plastic cutlery and drinking straws in the United States. These products are sold primarily to institutional users, principally consisting of major quick serve restaurant chains, schools, and hospitals, and also to consumers through retail outlets. Sales are made under registered trade names including CLEAR SHIELD (R) and CARNIVAL (R). Institutional customers include such leading quick serve restaurant chains as McDonald's Corporation, Burger King Corporation, Taco Bell, Hardee's, KFC Restaurants and Pizza Hut. In addition, retail customers include Wal-Mart Stores, Inc.; The Kroger Co. and other major retail companies. Clear Shield's products are manufactured at plants in Wheeling, Illinois; Leominster, Massachusetts; and Shreveport, Louisiana. The company has announced plans to build a new plant in Twin Falls, Idaho to service the western region of the United States. The plant is expected to begin operations in early 1998. In the interim the company will service the western region from a distribution center located in Twin Falls. Plastic cutlery is made by melting polystyrene or polypropylene beads, which are then injected into specially designed custom molds within high-speed injection molding machines. Drinking straws are made by extruding molten polypropylene through specially designed dies within high-speed extrusion machines. Certain completed products are then specially wrapped using high-speed wrapping machines. Raw materials used in the manufacturing process currently are available from alternative sources. Raw material costs, in particular of polystyrene and polypropy- lene, are a major portion of Clear Shield's production costs. Although Clear Shield is generally able to pass on most raw material cost increases to customers, there can be a delay that varies by customer and market. Sales are made predominantly in the United States, currently east of the Rocky Mountains, using Clear Shield's own sales force augmented by a network of non-exclusive, independent sales representatives. The majority of Clear Shield's sales, consisting of bulk and individually packaged products for institutional users, generally is not seasonal. Sales of retail packaged products are seasonal, however, with the highest sales and operating profits historically being achieved in the second and third quarters. While competitive pricing generally is of key importance, Clear Shield also competes by emphasizing responsive service to customers, by maintaining consistent quality in its products and by capitalizing on its efficient and flexible operations. These efficiencies stem largely from proprietary improvements to the manufacturing process, high-volume manufacturing facilities and a flexible work force that enable Clear Shield to produce and ship more than 50 million items per working day. Clear Shield's primary competitors include several major corporations, some of which are larger and better capitalized than Clear Shield and, in some cases, offer a wider product line than Clear Shield. Clear Shield's competitors periodically engage in aggressive price discounting to gain business. Clear Shield believes, however, that such market conditions will not result in any long-term material loss of business for Clear Shield, although its profit margins may be affected from time to time. General Business Matters - - ------------------------ Employees - - --------- The Company generally maintains productive and amicable relationships with its 4,900 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and its Canadian and European plants have unions. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 1,500 of Viskase's 4,000 employees. None of Clear Shield's employees are represented by unions. Certain of the hourly production personnel of Sandusky's Ohio injection molding and thermoforming facilities are members of a union. Trademarks and Patents - - ---------------------- Viskase holds patents on many of its major technologies, including those used in its manufacturing processes and the technology embodied in prod- ucts sold to its customers. Because it believes its ongoing market leadership depends heavily upon its technology, Viskase vigorously protects and defends its patents against infringement by competitors on an international basis. Viskase, as part of its research and development program, has developed and expects to continue to develop new proprietary technology and has licensed proprietary technology from third parties. Management believes these activities will enable Viskase to maintain its competitive position. Viskase also owns numerous trademarks and registered tradenames that are used actively in marketing its products. Viskase periodically licenses its process and product patents to competitors to generate royalty income. The other Company operations also own trademarks and tradenames that are used actively in marketing products. Sandusky has patents on new product developments, but, with the exception of Viskase, patent protection is not currently material to any of the operations as now conducted. Research and Development - - ------------------------ Research and development costs are expensed as incurred and, on a consolidated basis, totaled $6,841,000, $11,034,000, and $16,852,000, for 1996, 1995 and 1994, respectively. The majority of such costs are attributable to Viskase's extensive research and development program. Viskase believes it has achieved and maintained its position as a leading producer of cellulosic casings and as a major domestic producer of specialty films for packaging meats through significant expenditures on research and development. The Company expects to continue its research and development efforts. The commercialization of certain of these product and process applications and related capital expenditures to achieve commercialization may require substantial financial commitments in future periods. Should these activities be curtailed or if capital resources are not available to develop its projects, Viskase's ability to maintain its present market share could be materially impaired. Environmental Regulations - - ------------------------- In manufacturing its products, the Company employs certain hazardous chemicals and generates toxic and hazardous wastes. The use of these chemicals and the disposal of such waste are subject to stringent regulation by several governmental entities, including the United States Environmental Protection Agency (USEPA) and similar state, local and foreign environmental control entities. The Company is subject to various environmental, health and safety laws, rules and regulations including those of the United States Occupational Safety and Health Administration and USEPA. These laws, rules and regulations are subject to amendment and to future changes in public policy or interpretation, which may affect the operations of the Company. The Company uses its best reasonable efforts to comply with promulgated laws, rules and regulations and participates in the rulemaking process. Certain of the Company's facilities are or may become potentially responsible parties with respect to other off-site waste disposal facilities. As noted above, new environmental and health and safety laws can impose significant compliance costs, including forthcoming rules. Under the Clean Air Act Amendments of 1990, various industries, including casings manufacturers, will be required to meet air emissions standards for certain chemicals based on use of the "maximum achievable control technology" (MACT). MACT standards for casings manufacturers have not yet been proposed or promulgated; therefore, at this time no estimate of the cost of complying with MACT standards can be made. Such rules, however, will likely impose similar costs on all casings manufacturers in the United States. Under the Resource Conservation and Recovery Act (RCRA), regulations have been proposed that, in the future, may impose design and/or operating requirements on the use of surface impoundments of wastewater. Two of Viskase's plants use surface impoundments. The Company does not foresee these regulations being imposed for several years. Various state, local and foreign governments have enacted or are considering enacting laws, rules or regulations concerning the disposal of plastic products. While such legislative action has had a minor effect on certain product sales and may have further effect in the future, the Company is not aware of any existing legislative action that it currently expects to have a material adverse effect on the Company. (d) Financial information about foreign and domestic operations and --------------------------------------------------------------- export sales ------------ Reference is made to Part IV, Item 14, Note 21 of Notes to Consolidated Financial Statements. EXECUTIVE OFFICERS OF THE REGISTRANT - - ------------------------------------ The following table sets forth the names and ages of the Company's executive officers, together with the positions with the Company held by such executive officers, and a summary of their recent business experience. Under the Company's Amended and Restated By-Laws, the Company's officers are elected for such terms as may be determined from time to time by the Board of Directors. On January 7, 1993, Envirodyne and its major domestic subsidiaries filed petitions under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). On December 31, 1993, Envirodyne and the debtor subsidiaries consummated a plan of reorganization and emerged from bankruptcy. In addition, Emerald Acquisition Corporation (Emerald), the sole stockholder of Envirodyne prior to Envirodyne's emergence from bankruptcy, filed a petition under Chapter 11 of the Bankruptcy Code on August 20, 1993. The Emerald case is still pending before the Bankruptcy Court. In addition to the positions with Envirodyne held by the persons specified below for the periods indicated, Messrs. Gustafson and Schuster have served as executive officers of Emerald, since May 1989.
Name, Age and Office Business Experience - - -------------------------- ---------------------------------------------- F. Edward Gustafson, 55, Mr. Gustafson has been Chairman of the Board, Chairman of the Board, President and Chief Executive Officer of the Company President and Chief Executive Officer since March 1996 and a director of the Company since December 1993. From May 1989 to March 1996 Mr. Gustafson served as Executive Vice President and Chief Operating Officer of the Company. Mr. Gustafson was President of Viskase from February 1990 to August 1994. Mr. Gustafson has also served as Executive Vice President and Chief Operating Officer of D.P. Kelly and Associates, L.P. (DPK) since November 1988. Gordon S. Donovan, 43, Mr. Donovan has been Chief Financial Officer of Vice President, Chief Financial Officer, the Company since January 1997. Mr. Donovan has Treasurer and Assistant Secretary served as Treasurer and Assistant Secretary since November 1989 and Vice President since May 1995. Stephen M. Schuster, 40, Mr. Schuster has been Vice President, Secretary Vice President, Secretary and General Counsel of the Company since May 1989. and General Counsel Mr. Schuster has also served as Vice President and General Counsel of DPK since January 1989.
ITEM 2. PROPERTIES ---------- VISKASE FACILITIES LOCATION SQUARE FEET PRIMARY USE - - --------------- --------------- -------------------- Manufacturing Facilities Aurora, Ohio 73,000 PVC film production Barceloneta, Puerto Rico 156,000 Idle plant facilities held for sale Beauvais, France (a) 235,000 Casings production and finishing Centerville, Iowa 223,000 Specialty films production and finishing Chicago, Illinois 991,000 Casings production, administration and research Guarulhos, Brazil 81,000 Specialty films production and casings finishing Kentland, Indiana 125,000 Casings finishing Lindsay, Ontario, Canada 166,000 Casings finishing and specialty films finishing Loudon, Tennessee 250,000 Casings production Nuevo Laredo, Mexico (a) 22,000 Casings finishing Osceola, Arkansas 223,000 Casings production and finishing Pauls Valley, Oklahoma 110,000 Casings finishing, specialty films production and finishing Sedgefield, England 87,000 PVC and OPP conversion Swansea, Wales (Great Britain) 77,000 Specialty films production and finishing Swansea, Wales (a) 28,000 Administrative facilities Thaon, France 239,000 Casings production and finishing Service Centers - Domestic Atlanta, Georgia (a) Bensalem, Pennsylvania Chicago, Illinois Pauls Valley, Oklahoma Service Centers - Foreign Brisbane, Australia (a) Guarulhos, Brazil Milan, Italy Pulheim, Germany (a) Nuevo Laredo, Mexico (a) Moscow, Russia (a) Headquarters Worldwide: Chicago, Illinois Europe: Paris, France (a) (a) Leased. All other properties are owned by the respective company or its subsidiaries. CLEAR SHIELD FACILITIES LOCATION SQUARE FEET PRIMARY USE - - ---------------------- --------------- ----------------------- Leominster, Massachusetts 135,000 Cutlery, straws and combination kits Shreveport, Louisiana 148,000 Cutlery, straws and combination kits Wheeling, Illinois (two plants) 260,000 Cutlery, straws and combination kits; Headquarters SANDUSKY FACILITIES LOCATION SQUARE FEET PRIMARY USE - - ---------------------- --------------- ----------------------- Sandusky, Ohio 195,000 Thermoforming and headquarters Sandusky, Ohio 31,000 Warehouse Sandusky, Ohio (a) 97,000 Warehouse Sandusky, Ohio (a) 90,000 Injection molding and warehouse - - ------------------------ (a) Leased. All other properties are owned by the respective company or its subsidiaries. The Company's headquarters are located in leased facilities in Oak Brook, Illinois. The Company believes that its properties generally are suitable and adequate to satisfy the Company's present and anticipated needs. The Company's United States real property collateralizes the Company's obligations under various financing arrangements. For a discussion of these financing arrangements, refer to Part IV, Item 14, Note 9 of Notes to Consolidated Financial Statements. ITEM 3. LEGAL PROCEEDINGS ----------------- Viskase Jury Award In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC was infringing on various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. On November 8, 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. On December 5, 1996, ANC posted a supersedeas bond in the amount of $108 million and the Court entered an order staying Viskase's enforcement of the judgment. The Court also entered an order permanently enjoining ANC from making or selling infringing products after December 23, 1996. The judgment is not final and the parties are presently engaged in the post-judgment motion phase of the case. ANC has filed motions to reduce the damage award by at least $75 million or alternatively, grant ANC a new trial. Viskase is seeking a determination that the case be deemed "exceptional" and that the award be increased by approximately $46 million which includes compensatory damages for ANC's infringement during the period of October 1, 1996 through December 23, 1996 and additional damages for prejudgment interest, attorneys' fees and related expenses. Due to ANC's willful infringement of the patents, Viskase has asked the court to treble the compensatory award. These motions are all pending before the Court and rulings are expected in the second quarter 1997. Meanwhile post-judgment interest is accruing on the $102.4 million award from November 8, 1996 at an annual rate of 5.49%. The Company expects ANC to vigorously contest the award and to appeal any final judgment. The award and any pending claims for additional damages have not been recorded in the Company's financial statements. Indemnification Claims Litigation is pending with respect to events arising out of the Envirodyne bankruptcy case and the 1989 acquisition of Envirodyne by Emerald Acquisition Corporation (Emerald) with respect to which, although Envirodyne is not presently a party to such litigation, certain defendants have asserted indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, ---------------------------------------------------------------- Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, - - -------------------------------------------------------------------- Charles K. Bobrinskoy, James L. Massey, William Rifkind and Michael - - ------------------------------------------------------------------- Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for the - - --------- Northern District of Illinois, Eastern Division, ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of the Plan of Reorganization (ARTRA I). In ARTRA Group Incorporated v. Salomon ------- ----------------------------------- Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & - - ---------------------------------------------------------------- Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael - - -------------------------------------------------------------------- Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial - - --------- Circuit, DuPage County, Illinois, ARTRA alleges breach of fiduciary duty, fraudulent and negligent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald (ARTRA ----- II). The plaintiff seeks damages in the total amount of $136.2 million - - -- plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. Upon a motion of the defendants, the Bankruptcy Court dismissed ARTRA's claims in ARTRA I. ------- ARTRA appealed to the U.S. District Court and on October 31, 1996, the U.S. District Court affirmed the Bankruptcy Court's decision. ARTRA has appealed to the U.S. Court of Appeals for the Seventh Circuit. All briefs have been filed and the parties are awaiting oral argument. Envirodyne is continuing its evaluation of the merits of the indemnification claims against Envirodyne and the underlying claims in the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event it is ultimately determined that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment of legal fees in ARTRA I. ------- Although the Company is not a party to either case, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in the Envirodyne bankruptcy case, would render it difficult for the plaintiff to establish liability or prove damages. Accordingly, the Company believes that the indemnification claims would not have a material adverse effect upon the business or financial position of the Company, even if the claimants were successful in establishing their right to indemnification. Other Since early 1993, the Antitrust Division of the United States Department of Justice has been investigating the disposable plastic cutlery industry. This investigation has resulted in the indictment and conviction of certain companies and individuals in the industry. Some indictments and criminal trials are pending. Although the United States Department of Justice has advised a former officer and an existing employee of Clear Shield National that they are targets of the investigation, neither person has been indicted. Clear Shield National is cooperating fully with the investigation. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in the following three civil complaints: Eisenberg Brothers, Inc., on behalf of itself and all others ------------------------------------------------------------ similarly situated, v. Amcel Corp., Clear Shield National, Inc., - - -------------------------------------------------------------- Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler - - ---------------------------------------------------------------- Products, Civil Action No. 96-728, United States District Court for the - - -------- Eastern District of Pennsylvania; St. Cloud Restaurant Supply Company v. ------------------------------------- Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and - - --------------------------------------------------------------------- Benchmark Holdings, Inc. t/a Winkler Products, Case No. 96C 0777, - - --------------------------------------------- United States District Court for the Northern District of Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and ----------------------------------------------- all others similarly situated, v. Amcel Corporation, Clear Shield - - ----------------------------------------------------------------- National, Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, - - -------------------------------------------------------------------- Inc. t/a Winkler Products, Civil Action No. 96-1116, United States - - ------------------------- District Court for the Eastern District of Pennsylvania. Each of the complaints alleges, among other things, that from October 1990 through April 1992 the defendants unlawfully conspired to fix the prices at which plastic cutlery would be sold. The Company has informed the plaintiffs that such claims as they relate to Clear Shield were discharged by the order of the Bankruptcy Court and Plan of Reorganization and that the plaintiffs are permanently enjoined from pursuing legal action to collect discharged claims. On February 27, 1996, the plaintiff in the St. Cloud case voluntarily --------- dismissed the action without prejudice and refiled its action in the United States District Court for the Eastern District of Pennsylvania but did not name Clear Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc., St. Cloud and Servall filed a motion in Clear Shield National's Bankruptcy proceeding in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division contending that the Bankruptcy Court's order did not discharge the plaintiff's claim. On March 19, 1997, the Bankruptcy Court denied their motion and granted the Company's cross motion for summary judgment. The time period for appeal by Eisenberg Brothers, Inc. et al. has not passed. For a description of certain environmental matters affecting the Company, refer to Part I, Item 1, "Environmental Regulations." The Company and its subsidiaries are involved in various other legal proceedings arising out of its business, none of which is expected to have a material adverse effect upon its business or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable. PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ------------------------------------------------------------- MATTERS ------- (a) Market Information. Envirodyne's Common Stock is traded in the ------------------ over-the-counter market on the Nasdaq SmallCap Market. The high and low closing bid prices of the Common Stock during 1996 and 1995 are set forth in the following table. Such prices reflect interdealer prices without markup, markdown or commissions and may not represent actual transactions. 1996 First Quarter Second Quarter Third Quarter Fourth Quarter - - ------ ------------- -------------- ------------- -------------- High $3.63 $4.75 $4.75 $5.88 Low 2.88 3.25 3.50 3.88 1995 First Quarter Second Quarter Third Quarter Fourth Quarter - - ------ ------------- -------------- ------------- -------------- High $4.88 $4.75 $4.88 $4.63 Low 3.50 3.75 4.13 2.88 (b) Holders. As of March 14, 1997, there were approximately 243 holders ------- of record of Envirodyne's Common Stock. (c) Dividends. Envirodyne has never paid a cash dividend on shares of --------- its Common Stock. The payment of dividends is restricted by the terms of various financing agreements to which the Company is a party. The Company has no present intention of paying dividends in the foreseeable future. ITEM 6. SELECTED FINANCIAL DATA -----------------------
Post-consummation Pre-consummation ----------------------------------------------- ----------------------------- December December January 1 January 1 December 29, 1995 to 30, 1994 to to to 27, 1991 to December December December December December 26, 1996 28, 1995 29, 1994 31, 1993 31, 1992 (1) ----------- ----------- ----------- --------- ------------- (in thousands, except for per share amounts) Net sales $651,356 $650,212 $599,029 $587,385 $ 575,705 (Loss) before extra- ordinary loss (2)(3) (13,682) (17,323) (3,612) (98,195) (36,996) Income (loss) including extra- ordinary loss (4)(5) (13,682) (21,519) (3,612) 85,589 (36,996) Per share (loss) before extraordinary loss (2)(3) (.96) (1.28) (.27) (306,859) (115,613) Per share income (loss) including extraordinary loss (4)(5) (.96) (1.59) (.27) 267,466 (115,613) Cash and equivalents 41,794 30,325 7,289 7,743 14,062 Working capital (6) 107,706 121,725 91,727 82,440 (736,643) Total assets 873,747 899,567 896,636 867,680 1,026,962 Debt obligations: Short-term debt (7) 11,291 12,504 25,798 15,610 40,365 Long-term debt reclassified as current 758,300 Long-term debt 521,179 530,181 489,358 482,379 12,524 Stockholders' equity (deficit) 103,645 117,096 135,349 135,000 (83,545) Cash dividends none none none none none (1) Due to the implementation of the Plan of Reorganization and Fresh Start Reporting, financial statements including outstanding shares for the new restructured company (effective December 31, 1993) are not comparable to those of the prior years. (Refer to Part IV, Item 14, Note 1 of Notes to Consolidated Financial Statements.) (2) Includes $5.8 million of income (net of book tax provision) in 1994 from the settlement of a patent infringement suit. (3) Includes charges of $104,745 of Reorganization items, net, in 1993. (Refer to Part IV, Item 14, Note 1 of Notes to Consolidated Financial Statements.) (4) Includes an extraordinary gain of $183,784 in 1993 from the implementation of the Plan of Reorganization. (Refer to Part IV, Item 14, Note 1 of Notes to Consolidated Financial Statements.) (5) Includes an extraordinary loss on debt extinguishment in 1995. (6) Includes $758,300 of long-term debt reclassified as current at December 31, 1992. (7) Includes current portion of long-term debt. /TABLE ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ---------------------------------- The accompanying management's discussion and analysis of financial condition and results of operations should be read in conjunction with the following table:
December 29, December 30 January 1 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ------------ ------------ ------------ (in thousands) Net sales: Food packaging products $572,653 $574,266 $530,179 Disposable foodservice supplies 78,865 76,138 68,996 Other and eliminations (162) (192) (146) -------- -------- -------- $651,356 $650,212 $599,029 ======== ======== ======== Operating income: Food packaging products $ 37,310 $ 39,183 $ 48,145 Disposable foodservice supplies 7,342 4,959 6,514 Other and eliminations (4,962) (6,007) (5,982) -------- -------- -------- $ 39,690 $ 38,135 $ 48,677 ======== ======== ======== Depreciation and amortization under capital lease and amortization of intangibles expense: Food packaging products $ 53,413 $ 51,404 $ 47,207 Disposable foodservice supplies 4,949 4,581 4,125 Corporate and other 58 76 55 -------- -------- -------- $ 58,420 $ 56,061 $ 51,387 ======== ======== ======== Capital expenditures: Food packaging products $ 32,934 $ 30,744 $ 28,534 Disposable foodservice supplies 4,135 3,687 4,012 Corporate and other 4 34 20 -------- -------- -------- $ 37,073 $ 34,465 $ 32,566 ======== ======== ========
Results of Operations - - --------------------- The Company's 1996 net sales were $651.4 million, which represented a slight increase over the prior year's sales of $650.2 million. Net sales in 1996 for Viskase decreased by .5% from the prior year. The benefits of stronger world-wide volumes were offset by lower pricing due to competitive pressures in both the domestic and European markets as well as lower casing volumes in the United States. Viscofan, S.A., a Spanish small diameter casing producer entered the United States market in November 1994. The Company and its domestic competitors have experienced significant volume loss to Viscofan; management believes that Viskase will experience further pricing pressures as a result of Viscofan's presence in the domestic market. Viskase's management is aware of other smaller competitors which from time to time attempt penetrating the casing market. In 1997 it is expected that at least two of these will pursue such efforts. Although the Company does not expect to experience significant volume loss to these competitors, management believes that additional pricing pressures will result. The British beef industry continues to be affected by concerns over bovine spongiform encephalopathy (BSE), or mad cow disease. While certain of our product lines in Europe are sold to customers in affected industries, Viskase's results have not been significantly impacted, nor does management expect any significant impact in the future. Sandusky's sales increased by 2.4% due to an increase in vending and promotional cup sales. Dairy and deli container sales declined by 7.6%. Although the Company had expanded its injection molding capacity in recent years, competitive pressures coupled with the softness in the dairy industry resulted in management's decision to cease its injection molding operations and transfer most of the production assets to the Clear Shield operations. Clear Shield's net sales increased by 3.6% over the prior year primarily due to volume increases from new business. Retail sales were particularly strong. These increases more than offset volume loss from softness in the quick serve restaurant market segment. The Company's 1995 net sales were $650.2 million, which represented an 8.5% increase over the prior year's sales of $599.0 million. Net sales in 1995 for Viskase increased 10.4% over the prior year due to the expansion of European, Latin American and Asian Pacific sales, selected price increases, increased worldwide film sales, combined with the favorable effects of foreign currency translation. Net sales in 1995 for Sandusky declined by 15% due to an 11% reduction in dairy and deli container sales combined with the loss of Scott Paper Company's premoistened baby wipe container business. The loss in container sales is primarily attributed to a shift in demand from thermoformed to injection molded containers. Clear Shield's net sales in 1995 increased by 10.4% primarily due to selling price increases along with an increase in the retail product group sales volume. The Company's 1994 net sales were $599 million, which represented a 2.0% increase over the prior year's sales of $587.4 million. Net sales for 1994 for Viskase increased 2.5% over the prior year due to the impact of increased film sales and foreign currency translation. Sandusky's sales declined 8.1% due to the reduction in the baby wipe container sales partially offset by an increase in dairy and deli container volumes. Clear Shield's net sales increased 3.9% primarily due to the impact of third and fourth quarter price increases combined with some volume increases in the wrapped cutlery and retail product lines. Operating income for 1996 was $39.7 million, which represented an increase of $1.6 million from the prior year. Operating income in 1996 reflected lower selling, general and administrative expenses resulting primarily from lower research and development costs and certain cost- cutting measures which resulted in lower domestic selling, general and administrative expenses. The slight decline in gross margins in 1996 was due to continued lower pricing resulting from competitive pressures across most product lines in both domestic and foreign markets, offset by the benefit of shifts in European product mix towards the higher margin product lines. Operating income for 1995 was $38.1 million, which represented a decline of $10.5 million from the prior year. Operating income in 1994 benefitted from a net $8.7 million settlement of a patent infringement suit. The decline in gross margins in 1995 was due to price competition in domestic and foreign markets, lower casing volumes, continued effect of resin price increases through the third quarter of 1995, primarily at Clear Shield and Sandusky, and loss of dairy and deli container and baby wipe container volume. Operating income in 1995 reflected increased selling, general and administrative expenses result- ing from strategic expansion in foreign markets including Europe, Latin America and Australia, partially offset by lower research and development costs and the consolidation of Sandusky's manufacturing operations. Operating income for 1994 was $48.7 million, which represented a decline of $5.0 million from the prior year. Pro forma operating income for 1993, giving effect to fresh start reporting and the implementation of the Plan of Reorgniazation with the related financing as if such events had taken place on January 1, 1993, was $54.6 million. The decline in gross margins in 1994 was due to the impact of price competition in dairy and deli containers and in foreign markets, reduced by baby wipe container sales and increased resin prices. Selling, general and administrative expenses in 1994 included $1.6 million of additional patent legal expenses (approximately $.8 million of which were legal expenses related to the $9.5 million patent infringement litigation settlement), expansion in Central and South America, additional corporate costs relating to increased insurance and other costs associated with Envirodyne's status as a public company following its emergence from bankruptcy, as well as increased expenditures on research and development. On November 8, 1996, a jury awarded $102.4 million in damages to Viskase Corporation in its patent infringement lawsuit against ANC. Viskase brought suit against ANC. with respect to its infringement of various Viskase patents relating to multilayer barrier plastic films used for fresh red meat, processed meat and poultry product applications. The jury found that ANC had willfully infringed Viskase's patents. Envirodyne expects ANC to appeal the award. This award has not been recorded in the Company's financial statements. (Refer to Part I, Item 3, Legal Proceedings - Viskase Jury Award.) Net interest expense for 1996 totaled $57.0 million, which represented an increase of $.3 million from 1995. The increase is attributable to borrowings at higher interest rates, which more than offset the effect of lower borrowing levels. Other expense of $(3.0) million and $(1.7) million in 1996 and 1995, respectively, includes a $(2.0) million charge in 1996 for the termination of the management agreement with D.P. Kelly & Associates, L.P. and net foreign currency translation gains (losses) of $.7 and $(.1) million, respectively. The 1995 extraordinary loss represents the write-off of unamortized financing fees related to the Company's senior secured bank facility that was refinanced by a private placement. The extraordinary loss of $4.2 million is net of a tax benefit of $2.6 million. (Refer to Part IV, Item 14, Note 9 of Notes to Consolidated Financial Statements.) The Company has entered into forward foreign exchange contracts to hedge certain foreign currency transactions on a continuing basis for periods consistent with its committed foreign exchange exposures. The effect of this practice is to minimize the effect of foreign exchange rate movements on the Company's operating results. The Company's hedging activities do not subject the Company to additional exchange risk because gains and losses on these contracts offset losses and gains on the transactions being hedged. The cash flows from forward contracts are classified consistent with the cash flows from the transactions or events being hedged. Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value acounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. The Company has not adopted fair value accounting, and, accordingly, no compensation cost has been recognized for employee stock-based compensation. The Company has complied with the disclosure requirements of SFAS 123. The 1996 and 1995 tax benefits consisted of the benefits of United States losses partially offset by the provision related to income from foreign subsidiaries. The 1994 tax provisions consisted of the provisions on income from the United States and foreign subsidiaries. A benefit of $6.7 million and $2.9 million, respectively, was provided on (loss) before income taxes and extraordinary items of $(20.4) million and $(20.2) million, respectively, for 1996 and 1995. Domestic cash income taxes paid in 1996, 1995 and 1994 were $438 thousand, $640 thousand and $1.5 million, respectively. Foreign cash income taxes paid in 1996, 1995 and 1994 were $1.2 million, $4.3 million and $3.5 million, respectively. The United States tax benefit is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. Liquidity and Capital Resources - - ------------------------------- Cash and equivalents increased by $11.5 million during the fiscal year ended December 26, 1996. Cash flows provided by operating activities of $56.3 million exceeded cash flows used in investing activities of $34.7 million and cash flows used in financing activities of $9.5 million. Cash flows provided by operating activities were principally attributable to the effect of depreciation and amortization and a decrease in operating assets and liabilities offset by the Company's loss from operations. The principal factors contributing to the decrease in operating assets and liabilities were the Company's program to manage and reduce receivable and inventory levels and an increase in accrued liabilities, specifically compensation and employee benefits and taxes payable. Cash flows used by financing activities were principally attributable to the repayment of Viskase's capital lease obligation and Viskase Limited's term loan. Cash flows used in investing activities consist principally of capital expenditures for property, plant and equipment. The Company finances its working capital needs using internally generated cash from operations and can also borrow under its $20 million domestic revolving credit facility (Revolving Credit Facility). The availability of funds under the Revolving Credit Facility is subject to the Company's compliance with certain covenants (which are substantially similar to those included in the Indenture), to borrowing base limita- tions measured by accounts receivable and inventory of the Company and to reserves that may be established in the discretion of the lenders. Currently, there are no drawings under the Revolving Credit Facility. The available borrowing capacity under the Revolving Credit Facility was $20 million at December 26, 1996. The Company anticipates that its operating cash flow will be sufficient to meet its operating expenses and to service its interest payments on the Senior Secured Notes and its other outstanding indebtedness. The Company will be required to satisfy its $80 million mandatory redemption obligation with respect to the Senior Secured Notes in 1999 and to pay the remaining principal amount of the Senior Secured Notes in 2000. Additionally, the Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company expects that in order to make these payments it will be required to pursue one or more alternative strategies, such as refinancing its indebtedness, selling additional equity capital, reducing or delaying capital expenditures, or selling assets. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. Capital expenditures for fiscal 1996 and 1995 totaled $37.1 million and $34.5 million, respectively. Capital expenditures for 1997 are expected to be approximately $45 million and in future years $40 million. The Company acquired the minority shareholder's interest in Viskase's Brazilian subsidiary for $4.2 million during the first quarter of 1994. The Company has spent approximately $7 million to $17 million annually on research and development programs, including product and process development, and on new technology development during each of the past three years. The 1997 research and development and product introduction expenses are expected to be in the $8 million range. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. The Company and its subsidiaries are taking actions to provide that their computer systems are capable of processing for the periods the year 2000 and beyond. The costs associated with this are not expected to significantly affect operating cash flow. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- Financial statements and supplementary financial information meeting the requirements of Regulation S-X are listed in the index to financial statements and schedules, as included under Part IV, Item 14 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- There were no disagreements on accounting and financial disclosure required to be disclosed under this Item. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required by this Item is set forth in the Company's definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (Proxy Statement) in the section entitled "Election of Directors," the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" and in the third paragraph of the section entitled "Certain Relationships and Related Transactions," and is incorporated herein by reference to the Proxy Statement. For information regarding executive officers of the Company, see the information set forth under "Executive Officers of the Registrant" in Part I of this report. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Compensation of Directors and Executive Officers" and is incorporated herein by reference to the Proxy Statement. The information set forth in the Proxy Statement in the sections entitled "Compensation Committee Report on Executive Compensation" and "Performance Graph" is not required by this Item and is not incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Security Ownership" and is incorporated herein by reference to the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required by this Item is set forth in the Proxy Statement in the section entitled "Certain Relationships and Related Transactions" and is incorporated by reference to the Proxy Statement. See also Part IV, Item 14, Note 20 of Notes to Consolidated Financial Statements. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON ------------------------------------------------------ FORM 8-K -------- (a) 1. Financial statements: PAGE -------------------- ---- Report of independent accountants 28 Consolidated balance sheets, December 26, 1996 and December 28, 1995 29 Consolidated statements of operations, for December 29, 1995 to December 26, 1996; December 30, 1994 to December 28, 1995; and January 1 to December 29, 1994; 30 Consolidated statements of stockholders' equity (deficit), for December 29, 1995 to December 26, 1996; December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994; 31 Consolidated statements of cash flows, for December 29, 1995 to December 26, 1996; December 30, 1994 to December 28, 1995; and January 1 to December 29, 1994; 32 Notes to consolidated financial statements 33 (a) 2. Financial statement schedules for the periods December 29, 1995 --------------------------------------------------------------- to December 26, 1996; December 30, 1994 to December 28, 1995; ------------------------------------------------------------ and January 1 to December 29, 1994: ---------------------------------- II Valuation and qualifying accounts 80 Schedules other than those listed are omitted because they are not required, are not applicable, or because equivalent information has been included in the financial statements and notes thereto or elsewhere herein. (b) Reports on Form 8-K. -------------------- None. (c) Exhibits: -------- Exhibit No Description of Exhibits Page - - --------------------------------------------------------------------- 2.1 Debtors First Amended Joint Plan of Reorganization as Twice Modified dated December 15, 1993 of Envirodyne Industries, Inc. and certain of its subsidiaries (incorporated herein by reference to Exhibit 2 to Form 8-K filed January 19, 1994 of Envirodyne Industries, Inc.) * 3.1 Amended and Restated Certificate of Incorporation of Envirodyne Industries, Inc. (incorporated herein by reference to Exhibit 3.1 to Form 8-K filed January 19, 1994, of Envirodyne Industries, Inc.). * 3.2 Amended and Restated By-Laws of Envirodyne Industries, Inc. (incorporated herein by reference to Exhibit 3.2 to Form 8-K filed March 20, 1997 of Envirodyne Industries, Inc.). * 4.1 Indenture dated as of December 31, 1993 between Envirodyne Industries, Inc. and Bankers Trust Company, as Trustee, relating to the 10-1/4% Notes Due 2001 of Envirodyne Industries, Inc. including form of 10-1/4% Note Due 2001 (incorporated herein by reference to Exhibit 4.1 to Form 8-K filed January 19, 1994 of Envirodyne Industries, Inc.). * 4.2 Warrant Agreement dated as of December 31, 1993 between Envirodyne Industries, Inc. and Bankers Trust Company, as Warrant Agent, relating to the Warrants to Purchase Common Stock of Envirodyne Industries, Inc., including form of Warrant to Purchase Common Stock (incorporated herein by reference to Exhibit 4.2 to Form 8-K filed January 19, 1994 of Envirodyne Industries, Inc.). * 4.3 Indenture dated as of June 20, 1995 (the "Indenture") between Envirodyne Industries, Inc. and Shawmut Bank Connecticut, National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 4.4 Forms of the Notes issued pursuant to the Indenture (included in Exhibit 4.3). * 4.5 Exchange and Registration Rights Agreement dated as of June 20, 1995 between Envirodyne Industries, Inc. and the purchasers of the Notes (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 4.6 Guaranty Agreement, dated as of June 20, 1995, made by Clear Shield National, Inc., Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc., Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation, in favor of BT Commercial Corporation, as Collateral Agent (incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 4.7 Pledge Agreement, dated as of June 20, 1995, made by Envirodyne Industries, Inc. to BT Commercial Corporation, as Collateral Agent (incorporated by reference to Exhibit 4.7 to Amendment No. 2 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed September 21, 1995). * 4.8 Security Agreement, dated as of June 20, 1995, made by Envirodyne Industries, Inc. in favor of BT Commercial Corporation, as Collateral Agent (incorporated by reference to Exhibit 4.8 to Amendment No. 2 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed September 21, 1995). * 4.9 Form of Subsidiary Security Agreement, dated as of June 20, 1995, made by each applicable Subsidiary in favor of BT Commercial Corporation, as Collateral Agent (incorporated by reference to Exhibit 4.9 to Amendment No. 2 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed September 21, 1995). * 4.10 Intellectual Property Security Agreement, dated as of June 20, 1995, made by Viskase Corporation in favor of BT Commercial Corporation, as Collateral Agent (incorporated by reference to Exhibit 4.10 to Amendment No. 2 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed September 21, 1995). * 4.11 First Supplemental Indenture, dated as of October 13, 1995, between Envirodyne Industries, Inc. and Shawmut Bank Connecticut, National Association, as Trustee (incorporated by reference to Exhibit 4.11 to Amendment No. 3 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed October 17, 1995). * 4.12 Rights Agreement, dated as of June 26, 1996, between Envirodyne Industries, Inc. and Harris Trust and Savings Bank, as Rights Agent (incorporated herein by reference to Exhibit 4.1 of Form 8-K dated June 26, 1996). * 10.1 Participation Agreement dated as of December 18, 1990 among Viskase Corporation, as Lessee, Envirodyne Industries, Inc., as Guarantor, General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.24 to Form 8-K, filed January 22, 1991, of Envirodyne Industries, Inc.). * 10.2 Lease Agreement dated as of December 18, 1990 between The Connecticut National Bank, Owner Trustee, as Lessor and Viskase Corporation, as Lessee (incorporated herein by reference to Exhibit 10.25 to Form 8-K, filed January 22, 1991, of Envirodyne Industries, Inc.). * 10.3 Appendix A; Definitions relating to the Participation Agreement, the Lease and the Ground Lease (incorporated herein by reference to Exhibit 10.26 to Form 8-K, filed January 22, 1991, of Envirodyne Industries, Inc.). * 10.4 Ground Lease dated as of December 18, 1990 between Viskase Corporation, as Ground Lessor, and The Connecticut National Bank, as Ground Lessee (incorporated herein by reference to Exhibit 10.27 to Form 8-K, filed January 22, 1991, of Envirodyne Industries, Inc.). * 10.5 Guaranty Agreement dated as of December 18, 1990, among Envirodyne Industries, Inc.; Clear Shield National, Inc.; Sandusky Plastics of Delaware, Inc.; Viskase Sales Corporation, all as Guarantors; The Connecticut National Bank, as Owner Trustee; and General Electric Capital Corporation, as Owner Participant (incorporated herein by reference to Exhibit 10.28 to Form 8-K, filed January 22, 1991, of Envirodyne Industries, Inc.). * 10.6 Trust Agreement dated as of December 18, 1990 between General Electric Capital Corporation, as Owner Participant, and The Connecticut National Bank, as Owner Trustee (incorporated herein by reference to Exhibit 10.29 to Form 8-K, filed January 22, 1991, of Envirodyne Industries, Inc.). * 10.7 Envirodyne Industries, Inc. Non-Employee Directors' Compensation Plan (incorporated herein by reference to Appendix B of Envirodyne Industries, Inc.'s Proxy Statement for its 1996 Annual Meeting of Stockholders).+ * 10.8 Envirodyne Industries, Inc. 1993 Stock Option Plan, as amended and restated through March 27, 1996 (incorporated herein by reference to Appendix A of Envirodyne Industries, Inc.'s Proxy Statement for its 1996 Annual Meeting of Stockholders). + * 10.9 Envirodyne Industries, Inc. Corporate Office Management Incentive Plan for Fiscal Year 1996. + ** 10.10 Envirodyne Industries, Inc. Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.34 to Form 10-Q for the fiscal quarter ended June 27, 1991, filed August 12, 1991, of Envirodyne Industries, Inc.). + * 10.11 Envirodyne Industries, Inc. Parallel Envirodyne Non- Qualified Thrift Plan (incorporated herein by reference to Exhibit 10.35 to Form 10-Q for the fiscal quarter ended June 27, 1991, filed August 12, 1991, of Envirodyne Industries, Inc.). + * 10.12 Note Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and each of the purchasers identified therein (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 10.13 Letter Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and certain purchasers of the Notes (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 10.14 Revolving Credit Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and The Prudential Insurance Company of America (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 10.15 Credit Agreement, dated as of June 20, 1995, among Envirodyne Industries, Inc., the lenders identified therein and BT Commercial Corporation, as Agent (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 10.16 Intercreditor and Collateral Agency Agreement, dated as of June 20, 1995, among BT Commercial Corporation, The Prudential Insurance Company of America, Shawmut Bank Connecticut, National Association, and certain other parties identified therein (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 10.17 GECC Intercreditor Agreement, dated as of June 20, 1995, among BT Commercial Corporation, General Electric Capital Corporation, Shawmut Bank Connecticut, National Association, Envirodyne Industries, Inc. and Viskase Corporation (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed July 20, 1995). * 10.18 First Amendment under Revolving Credit Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and The Prudential Insurance Company of America (incorporated by reference to Exhibit 10.16 to Amendment No. 3 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed October 17, 1995). * 10.19 Amendment No. 1 to Credit Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and BT Commercial Corporation, individually and as agent (incorporated by reference to Exhibit 10.17 to Amendment No. 3 to the Registration Statement on Form S-4 of Envirodyne Industries, Inc. filed October 17, 1995). * 10.20 Employment Agreement, dated March 27, 1996, between Envirodyne Industries, Inc. and F. Edward Gustafson.+ ** 10.21 Envirodyne Industries, Inc. Corporate Office Severance Pay Policy. + ** 11.1 Statement re computation of per share earnings. ** 21.1 Subsidiaries of the registrant. ** 23.1 Consent of Independent Accountants. ** * Previously filed, incorporated by reference. + Management contract or compensatory plan or arrangement. ** Filed herewith. (d) Financial statement schedules required by Regulation S-X. --------------------------------------------------------- Index to financial statements of Viskase Holding Corporation and subsidiaries. 63 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENVIRODYNE INDUSTRIES, INC. ---------------------------- (Registrant) By: /s/ ---------------------------------------- F. Edward Gustafson Chairman, Chief Executive Officer and President By: /s/ ---------------------------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on this 21st day of March 1997. /s/ /s/ - - --------------------------------- -------------------------------- F. Edward Gustafson Gordon S. Donovan Chairman of the Board, Chief Vice President, Chief Financial Executive Officer and President Officer and Treasurer (Principal (Principal Executive Officer) Financial and Accounting Officer) /s/ /s/ - - --------------------------------- -------------------------------- Robert N. Dangremond (Director) Michael E. Heisley (Director) /s/ /s/ - - --------------------------------- -------------------------------- Avram A. Glazer (Director) Gregory R. Page (Director) /s/ /s/ - - --------------------------------- -------------------------------- Malcolm I. Glazer (Director) Mark D. Senkpiel (Director) REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Envirodyne Industries, Inc. We have audited the consolidated financial statements and the financial statement schedules of Envirodyne Industries, Inc. and Subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Envirodyne Industries, Inc. and Subsidiaries as of December 26, 1996 and December 28, 1995, and the consolidated results of their operations and their cash flows for the period December 29, 1995 to December 26, 1996, December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994, in conformity with generally accepted accounting principles. In addition, in our opinion the schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Chicago, Illinois March 20, 1997 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 26, December 28, 1996 1995 -------------- --------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 41,794 $ 30,325 Receivables, net 79,174 89,454 Inventories 95,012 99,474 Other current assets 22,141 21,646 -------- -------- Total current assets 238,121 240,899 Property, plant and equipment, including those under capital leases 578,704 545,491 Less accumulated depreciation and amortization 116,896 75,987 -------- -------- Property, plant and equipment, net 461,808 469,504 Deferred financing costs 5,902 8,090 Other assets 42,809 45,589 Excess reorganization value 125,107 135,485 -------- -------- $873,747 $899,567 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 11,291 $ 12,504 Accounts payable 37,015 39,117 Accrued liabilities 82,109 67,553 -------- -------- Total current liabilities 130,415 119,174 Long-term debt including obligations under capital leases 521,179 530,181 Accrued employee benefits 53,697 55,626 Deferred and noncurrent income taxes 64,811 77,490 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,545,107 shares issued and outstanding at December 26, 1996 and 13,579,460 shares at December 28, 1995 145 136 Paid in capital 135,100 134,864 Accumulated (deficit) (38,813) (25,131) Cumulative foreign currency translation adjustments 7,305 7,227 Unearned restricted stock issued for future service (92) -------- -------- Total stockholders' equity 103,645 117,096 -------- -------- $873,747 $899,567 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
52 weeks 52 weeks 52 weeks December 29, December 30, January 1, 1995 to 1994, to to December 26, December 28, December 29, 1996 1995 1994 -------------- -------------- ------------- (in thousands, except for number of shares and per share amounts) NET SALES $651,356 $650,212 $599,029 Patent infringement settlement income 9,457 COSTS AND EXPENSES Cost of sales 488,244 485,048 435,760 Selling, general and administrative 107,088 111,230 108,437 Amortization of intangibles and excess reorganization value 16,334 15,799 15,612 -------- -------- -------- OPERATING INCOME 39,690 38,135 48,677 Interest income 1,568 670 307 Interest expense 58,565 57,336 49,514 Other expense (income), net 3,075 1,710 (1,668) Minority interest in loss of subsidiary 50 -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (20,382) (20,241) 1,188 Income tax provision (benefit) (6,700) (2,918) 4,800 -------- -------- -------- (LOSS) BEFORE EXTRAORDINARY ITEM (13,682) (17,323) (3,612) Extraordinary (loss), net of tax (4,196) -------- -------- -------- NET (LOSS) $(13,682) $(21,519) $ (3,612) ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES 14,325,595 13,516,771 13,500,703 ========== ========== ========== PER SHARE AMOUNTS: (LOSS) BEFORE EXTRAORDINARY ITEM $(.96) $(1.28) $(.27) ===== ====== ===== NET (LOSS) $(.96) $(1.59) $(.27) ===== ====== ===== The accompanying notes are an integral part of the consolidated financial statements. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Cumulative Unearned Foreign Restricted Total Currency Stock Stockholders' Common Paid in Accumulated Translation Issued For Equity Stock Capital (Deficit) Adjustments Future Service (Deficit) ------ -------- ----------- ------------- -------------- ------------ (in thousands) Balance December 31, 1993 $135 $134,865 $135,000 Net (loss) $ (3,612) (3,612) Translation adjustments $3,961 3,961 ---- -------- -------- ------ ---- -------- Balance December 29, 1994 135 134,865 (3,612) 3,961 135,349 Net (loss) (21,519) (21,519) Issuance of Common Stock 1 (1) Translation adjustments 3,266 3,266 ---- -------- -------- ------ ---- -------- Balance December 28, 1995 $136 $134,864 $(25,131) $7,227 $117,096 Net (loss) (13,682) (13,682) Issuance of Common Stock 9 236 $(92) 153 Translation Adjustment 78 78 ---- -------- -------- ------ ---- -------- Balance December 26, 1996 $145 $135,100 $(38,813) $7,305 $(92) $103,645 ==== ======== ======== ====== ==== ======== The accompanying notes are an integral part of the consolidated financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
52 weeks 52 weeks 52 weeks December 29, December 30, January 1, 1995 to 1994, to to December 26, December 28, December 29, 1996 1995 1994 -------------- -------------- ------------- (in thousands) Cash flows from operating activities: (Loss) before extraordinary item $(13,682) $(17,323) $ (3,612) Extraordinary (loss) (4,196) -------- -------- -------- Net (loss) (13,682) (21,519) (3,612) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital leases 42,086 40,262 35,775 Amortization of intangibles and excess reorganization value 16,334 15,799 15,612 Amortization of deferred financing fees and discount 2,272 2,196 1,569 Decrease in deferred and noncurrent income taxes (11,065) (6,450) (52) Loss on debt extinguishment 6,778 Foreign currency transaction gain (810) (1,233) (3,465) Loss (gain) on sales of property, plant and equipment 165 73 (9) Changes in operating assets and liabilities: Accounts receivable 10,180 (839) (11,257) Inventories 4,383 12,741 (10,548) Other current assets (788) (1,837) (1,607) Accounts payable and accrued liabilities 12,463 (1,670) 3,774 Other (5,214) (5,334) (2,894) -------- -------- -------- Total adjustments 70,006 60,486 26,898 -------- -------- -------- Total net cash provided by operating activities 56,324 38,967 23,286 Cash flows from investing activities: Capital expenditures (37,073) (34,465) (32,566) Proceeds from sale of property, plant and equipment 2,356 86 359 Purchase of minority interest in subsidiary (4,200) -------- -------- -------- Net cash (used in) investing activities (34,717) (34,379) (36,407) Cash flows from financing activities: Issuance of common stock 153 Proceeds from revolving loan and long-term borrowings 2,186 207,922 37,668 Deferred financing costs (142) (7,887) (1,608) Repayment of revolving loan, long-term borrowings and capital lease obligations (11,705) (181,375) (22,617) -------- -------- -------- Net cash provided by (used in) financing activities (9,508) 18,660 13,443 Effect of currency exchange rate changes on cash (630) (212) (776) -------- -------- -------- Net increase (decrease) in cash and equivalents 11,469 23,036 (454) Cash and equivalents at beginning of period 30,325 7,289 7,743 -------- -------- -------- Cash and equivalents at end of period $41,794 $30,325 $ 7,289 - - -------------------------------------------------------------------------------------------------------------------- Supplemental cash flow information and noncash investing and financing activities: Interest paid $55,798 $55,030 $ 43,484 Income taxes paid $ 1,647 $ 4,895 $ 5,058 Capital lease obligations (machinery and equipment) $ 2,186 $ 2,081 Issuance of common stock for directors' compensation and employee stock grant $ 153 The accompanying notes are an integral part of the consolidated financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CHAPTER 11 REORGANIZATION PROCEEDINGS (dollars in thousands) On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the United States Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance Company each filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as twice modified (Plan of Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization was consummated and Envirodyne and certain of its subsidiaries emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the Plan of Reorganization was deemed to be effective as of December 31, 1993. 2. NATURE OF BUSINESS Envirodyne manufactures food packaging products and foodservice supplies through three primary operating subsidiaries - Viskase, Sandusky and Clear Shield. The operations of these subsidiaries are primarily in North and South America and Europe. Viskase is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. The Company is also a leading domestic and international manufacturer of plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food items. Through Sandusky, the Company is a producer of thermoformed plastic containers, used in the packaging of cultured dairy and delicatessen products, and of horticultural trays and inserts. Finally, through Clear Shield, the Company is a major domestic producer of disposable plastic cutlery, drinking straws, custom dining kits and related products. International Operations Viskase has seven manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico. The aggregate of domestic exports and net sales of foreign operations represents approximately 58% of Viskase's total net sales. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluc- tuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties which may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase believes that its allowance for doubtful accounts makes adequate provision for the collectibility of its receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. All of Sandusky's and Clear Shield's operations are located in the United States. Sales and Distribution Viskase sells its products in virtually every country in the world with principal markets in North America, Europe, Latin America and Asia Pacific. In the United States, Viskase has a staff of technical sales teams responsible for sales to fresh meat, processed meat and poultry producers. Approximately 50 distributors market Viskase products to customers in Europe, Africa, Asia, and Latin America. Its products are marketed through its own subsidiaries in the United Kingdom, Germany, France, Italy, Russia, Brazil, Mexico, Australia and Argentina. In the United States, Viskase sells its PVC film products primarily to the retail grocery industry through packaging material distributors, food wholesalers and a direct sales force. Additionally the sales organization is supported by a technical service group. The United Kingdom operation sells directly and through distributors, primarily to the retail grocery and foodservice industries in Europe. In the United States, Viskase operates casings service centers in Atlanta, Georgia, and Bensalem, Pennsylvania, as well as service centers within the Chicago, Illinois, and Pauls Valley, Oklahoma, plants. In Latin America, Viskase operates service centers in Monterrey, Mexico, and within the Guarulhos, Brazil, plant. In Europe, Viskase operates casings service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. Viskase also operates a service center through a joint venture in Brisbane, Australia. These service centers provide finishing, inventory and delivery services to Viskase customers. Sandusky's and Clear Shield's sales are predominantly in the United States. Competition Viskase is one of the world's leading producers of cellulosic casings and a major producer of films. From time to time, Viskase experiences reduced market share or reduced profits due to price competition; however, management believes that such market conditions will not result in any long-term material loss of business. The dairy and delicatessen containers industry is highly fragmented. Sandusky competes in the manufacture and sale of dairy and delicatessen containers with several domestic manufacturers of thermoformed and injection molded plastic containers. Major competitive factors in the dairy and delicatessen container business are price, quality and customer service. Major competitive factors in the specialized thermoformed container business are price and technical and customer service capabilities. Clear Shield's primary competitors include several major corporations, some of which are larger and better capitalized than Clear Shield and, in some cases, offer a wider product line than Clear Shield. Clear Shield's competitors periodically engage in aggressive price discounting to gain business. Clear Shield management believes, however, that such market conditions will not result in any long-term material loss of business for Clear Shield, although its profit margins may be affected from time to time. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of presentation Effective in 1990 Envirodyne adopted a 52/53 week fiscal year ending on the last Thursday of December. The 1993 financial statements include December 31, 1993 in order to present the effect of the consummation of the Plan of Reorganization. (B) Principles of consolidation The consolidated financial statements include the accounts of Envirodyne Industries, Inc. and its subsidiaries (the Company). Reclassifications have been made to the prior years' financial statements to conform to the 1996 presentation. (C) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (D) Cash equivalents (dollars in thousands) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $26,338 and $24,536 of short-term investments at December 26, 1996 and December 28, 1995, respectively. (E) Inventories Domestic inventories are valued primarily at the lower of last-in, first-out (LIFO) cost or market. Remaining amounts, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (F) Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Property and equipment additions include acquisition of property and equipment and costs incurred for computer software purchased for internal use including related external direct costs of materials and services and payroll costs for employees who are directly associated with the project. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. (G) Deferred financing costs Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (H) Patents Patents are amortized on the straight-line method over an estimated average useful life of ten years. The carrying value of patents is periodically reviewed by the Company and impairments are recognized when the expected undiscounted future operating cash flows derived from such patents is less than the carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the asset's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least on a quarterly basis. (I) Excess reorganization value, net Excess reorganization value is amortized on the straight-line method over 15 years. Accumulated amortization of excess reorganization value totaled $31 million and $20 million at December 26, 1996, and December 28, 1995, respectively. The Company continues to evaluate the recoverability of excess reorganization value based on operating performance and undiscounted cash flows of the operating business units. Impairment will be recognized when the expected undiscounted future operating cash flows derived from such intangible is less than its carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the intangible's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least on a quarterly basis. (J) Pensions The North American operations of Viskase and the Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable federal and foreign laws and regulations. (K) Postretirement benefits other than pensions The North American operations of Viskase have postretirement health care and life insurance benefits. Effective January 1, 1993, postretirement benefits other than pensions are accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." (L) Postemployment benefits Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, the Company adopted SFAS No. 112 "Employers Accounting for Postemployment Benefits." The impact of adopting SFAS No. 112 was not material. (M) Income taxes Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. (N) Net income (loss) per share Net income (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. No effect has been given to options outstanding under the Company's stock option plans and warrants issued pursuant to the Plan of Reorganization as their effect is anti-dilutive. (O) Revenue recognition Sales to customers are recorded at the time of shipment net of discounts and allowances. (P) Foreign currency contracts The Company maintains a hedging program to partially hedge its forecasted foreign currency revenue cash flows. The hedging program principally addresses revenue cash flows within its European operations. The foreign exchange contracts are denominated predominantly in the major European currencies and have varying maturities up to eighteen months. The effect of this practice is to minimize the effect of foreign exchange rate movements on the Company's operating results. The Company's hedging activities do not subject the Company to additional exchange rate risk because gains and losses on these contracts offset losses and gains on the transactions being hedged. The cash flows from forward contracts accounted for as hedges of identifiable transactions or events are classified consistent with the cash flows from the transactions or events being hedged. (Q) Stock-based compensation Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options and other equity instruments to employees based on new fair value acounting rules. Although expense recognition for employee stock-based compensation is not mandatory, SFAS 123 requires companies that choose not to adopt the new fair value accounting to disclose pro forma net income and earnings per share under the new method. The Company has not adopted fair value accounting, and, accordingly, no compensation cost has been recognized for employee stock-based compensation. The Company has complied with the disclosure requirements of SFAS 123 (refer to Note 16). 4. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $2,051 and $3,224 at December 26, 1996, and at December 28, 1995, respectively. Envirodyne has a broad base of customers, with no single customer accounting for more than 5% of sales. 5. INVENTORIES (dollars in thousands) Inventories consisted of: December 26, December 28, 1996 1995 ----------- ----------- Raw materials $14,960 $17,150 Work in process 29,057 32,800 Finished products 50,995 49,524 ------- ------- $95,012 $99,474 ======= ======= Approximately 55% and 54% of the Company's inventories at December 26, 1996, and December 28, 1995, respectively, were valued at LIFO. These LIFO values exceeded current manufacturing cost by approximately $4,000 at both December 26, 1996, and December 28, 1995. Inventories were net of reserves for obsolete and slow moving inventory of $4,397 and $3,818 at December 26, 1996, and December 28, 1995, respectively. Raw materials used by Viskase include cellulose (from wood pulp), fibrous paper, petroleum based resins, plasticizers and various other chemicals. Viskase generally purchases its raw materials from a single or small number of suppliers with whom it maintains good relations. Certain primary and alternative sources of supply are located outside the United States. Viskase believes, but there can be no assurance, that adequate alternative sources of supply currently exist for all of Viskase's raw materials or raw material substitutes that Viskase could modify its processes to utilize. The principal raw materials used by Sandusky and Clear Shield are thermoplastic resins, which are readily available from several domestic sources. 6. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands) December 26, December 28, 1996 1995 ----------- ------------- Property, plant and equipment: Land and improvements $ 15,644 $ 16,369 Buildings and improvements 84,778 81,767 Machinery and equipment 312,185 292,176 Construction in progress 25,889 15,938 Capital leases: Machinery and equipment 140,208 139,241 -------- -------- $578,704 $545,491 ======== ======== Maintenance and repairs charged to costs and expenses for 1996, 1995, and 1994 aggregated $34,887, $33,227 and $33,045, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. 7. OTHER ASSETS (dollars in thousands) Other assets were comprised of: December 26, December 28, 1996 1995 ----------- ----------- Patents $50,000 $50,000 Less accumulated amortization 15,000 10,000 -------- -------- Patents, net 35,000 40,000 Other 7,809 5,589 -------- -------- $42,809 $45,589 ======== ======== Patents are amortized on the straight-line method over an estimated average useful life of ten years. 8. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of: December 26, December 28, 1996 1995 ----------- ----------- Compensation and employee benefits $38,122 $31,997 Taxes 11,103 6,535 Accrued volume and sales discounts 14,959 13,218 Other 17,925 15,803 -------- -------- $82,109 $67,553 ======== ======== 9. DEBT OBLIGATIONS (dollars in thousands) On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate principal amount of senior secured notes (Senior Secured Notes) to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. The Company finances its working capital needs through a combination of cash generated through operations and borrowings under the Revolving Credit Facility. The availability of funds under the Revolving Credit Facility is subject to the Company's compliance with certain covenants (which are substantially similar to those included in the Indenture), borrowing base limitations measured by accounts receivable and inventory of the Company and reserves which may be established at the discretion of the lenders. Currently, there are no drawings under the Revolving Credit Facility. The available borrowing capacity under the Revolving Credit Facility was $20 million at December 26, 1996. The Company recognized an extraordinary loss of $6,778 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable income taxes of $2,582, was included in the Company's Statement of Operations for the quarter ended June 29, 1995. The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The current interest rate on the floating rate tranche is approximately 11.4%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15. On June 15, 1999, $80,000 of the aggregate principal amount of the Senior Secured Notes is subject to a mandatory redemption. The remaining principal amount outstanding will mature on June 15, 2000. In the event the Company has Excess Cash Flow (as defined) in excess of $5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be required to make an offer to purchase Senior Secured Notes together with any borrowed money obligations outstanding under the Revolving Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price of 100% plus any accrued interest to the date of purchase. There was no Excess Cash Flow for fiscal 1996. The Senior Secured Notes are redeemable, in whole or from time to time in part, at Envirodyne's option, at the greater of (i) the outstanding principal amount or (ii) the present value of the expected future cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. ---- Upon the occurrence of a Change of Control (which includes the acquisition by any person of more than 50% of Envirodyne's Common Stock), each holder of the Senior Secured Notes has the right to require the Company to repurchase such holder's Senior Secured Notes at a price equal to the greater of (i) the outstanding principal amount or (ii) the present value of the expected cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon ---- to the date of purchase. The Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends or redeem or repurchase common stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv) certain affiliate transactions and (v) the ability to consolidate with or merge into another entity and to dispose of assets. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the three month London Interbank Offered Rate (LIBOR) on the first day of each calendar quarter plus 300 basis points. The Revolving Credit Facility expires on June 20, 1998. The Letter of Credit Facility expires on June 20, 1998. Fees on the outstanding amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. There is a commitment fee of 0.5% per annum on the unused portion of the Letter of Credit Facility. The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between Envirodyne and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the unsecured senior obligations of Envirodyne, bear interest at the rate of 10-1/4% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to time in part, at the option of Envirodyne, at the percentages of principal amount specified below plus accrued and unpaid interest to the redemption date, if the 10-1/4% Notes are redeemed during the twelve-month period commencing on January 1 of the following years: Year Percentage 1997 103% 1998 102% 1999 101% 2000 and thereafter 100% The 10-1/4% Note Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends on or redeem or repurchase capital stock, (ii) the incurrence of indebtedness, (iii) certain affiliate transactions and (iv) the ability of the Company to consolidate with or merge with or into another entity or to dispose of substantially all its assets. Outstanding short-term and long-term debt consisted of: December December 26, 1996 28, 1995 -------- -------- Short-term debt, current maturity of long-term debt and capital lease obligations: Current maturity of Viskase Capital Lease Obligation $ 6,633 $ 6,012 Current maturity of Viskase Limited Term Loan (4.7%) 1,876 2,033 Other 2,782 4,459 ------- ------- Total short-term debt $11,291 $12,504 ======= ======= Long-term debt: 12% Senior Secured Notes due 2000 $160,000 $160,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 134,549 141,182 Viskase Limited Term Loan (4.7%) 4,690 7,115 Other 2,678 2,622 -------- -------- Total long-term debt $521,179 $530,181 ======== ======== The fair value of the Company's debt obligation (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At December 26, 1996, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $387,539 and $390,265, respectively. The average interest rate on short-term borrowing during 1996 was 9.7%. On December 28, 1990, Viskase and GECC entered into a sale and leaseback transaction. The sale and leaseback of assets included the production and finishing equipment at Viskase's four domestic casing production and finishing facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the relevant agreements, will continue to operate all of the facilities. Sales proceeds on the sale-leaseback transaction were $171.5 million; proceeds were used to repay approximately $154 million of bank debt and a $15 million convertible note outstanding at the time. The lease has been accounted for as a capital lease. The principal terms of the sale and leaseback transaction include: (a) a 15-year basic lease term (plus selected renewals at Viskase's option); (b) annual rent payments in advance beginning in February 1991; and (c) a fixed price purchase option at the end of the basic 15-year term and fair market purchase options at the end of the basic term and each renewal term. Further, the Lease Documents contain covenants requiring maintenance by the Company of certain financial ratios and restricting the Company's ability to pay dividends, make payments to affiliates, make investments and incur indebtedness. Annual rental payments under the Lease will be approximately $19.2 million through 1997, $21.4 million in 1998 and $23.5 million through the end of the basic 15-year term. Viskase is required to provide credit support consisting of a standby letter of credit in an amount up to one year's rent through at least 1997. This credit support can be reduced up to $4 million currently if the Company achieves and maintains certain financial ratios. As of December 26, 1996, the Company had met the required financial ratios and the letter of credit has been reduced by $4 million. The letter can be further reduced in 1997 or eliminated after 1998 if the Company achieves and maintains certain financial ratios. Envirodyne and its other principal subsidiaries guaranteed the obligations of Viskase under the Lease. The 1996 GECC lease payment of $19,227 was paid on February 28, 1997. Principal payments under the capital lease obligations for the years ended 1997 through 2001 range from approximately $7 million to $16 million. The following is a schedule of minimum future lease payments under the capital lease obligations together with the present value of the net minimum lease payments as of December 26, 1996: Year ending December 1997 $ 19,775 1998 21,812 1999 23,948 2000 23,948 2001 23,948 Thereafter 94,522 ======== Net minimum lease payments 207,953 Less: Amount representing interest (63,022) ======== $144,931 ======== Aggregate maturities of remaining long-term debt for each of the next five fiscal years are: Total --------- 1997 $ 10,492 1998 12,214 1999 95,479 2000 95,756 2001 235,551 10. OPERATING LEASES (dollars in thousands) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 26, 1996, are: 1997 $2,248 1998 1,338 1999 641 2000 141 2001 69 Total thereafter - ------ Total minimum lease payments $4,437 ====== Total rent expense during 1996, 1995 and 1994 amounted to $5,026, $6,749, and $5,982, respectively. 11. RETIREMENT PLANS The Company and its subsidiaries have defined contribution and defined benefit plans varying by country and subsidiary. At December 26, 1996, the North American operations of Viskase maintained several non-contributory defined benefit retirement plans. The Viskase plans cover substantially all salaried and full-time hourly employees, and benefits are based on final average compensation and years of credited service. The Company's policy is to fund the minimum actuarially computed annual contribution required under the Employee Retirement Income Security Act of 1974 (ERISA). As of the Viskase acquisition date, the former owner assumed the liability for the accumulated benefit obligation under its plans. The effect of expected future compensation increases on benefits accrued is recorded as a liability on the Company's consolidated balance sheet. PENSIONS -- NORTH AMERICA (dollars in thousands): Net pension cost for the Viskase North American plans consisted of: December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Service cost -- benefits earned during the year $ 3,301 $ 3,238 $ 3,662 Interest cost on projected benefit obligation 5,121 4,794 4,249 Actual (gain) loss on plan assets (4,712) (7,012) 874 Net amortization and deferral 1,061 4,086 (3,696) ------- ------- ------- Net pension cost $ 4,771 $ 5,106 $ 5,089 ====== ====== ======= The amounts included in the consolidated balance sheet for the North American plans of Viskase were: December 26, December 28, 1996 1995 ----------- ----------- Actuarial present value of benefit obligation: Vested benefits $48,058 $45,208 Nonvested benefits 4,112 4,435 ------- ------- Accumulated benefit obligation 52,170 49,643 Effect of projected future compensation increases 22,840 16,566 ------- ------- Projected benefit obligation 75,010 66,209 Plan assets at fair value, primarily listed stocks and investment grade corporate bonds 51,896 43,190 ------- ------- Amount underfunded 23,114 23,019 Unrecognized gain 5,975 7,578 Unrecognized prior service costs 55 63 ------- ------- Accrued liability included in consolidated balance sheet $29,144 $30,660 ======= ======= Assumed discount rate 7.5% 7.5% Assumed long-term compensation factor 5.0% 4.5% Assumed long-term return on plan assets 8.5% 8.5% SAVINGS PLANS (dollars in thousands): The Company also has defined contribution savings and similar plans, which vary by subsidiary, and, accordingly, are available to substantially all full-time United States employees not covered by collective bargaining agreements. The Company's aggregate contributions to these plans are based on eligible employee contributions and certain other factors. The Company expense for these plans was $2,207, $2,134, and $2,109 in 1996, 1995, and 1994, respectively. INTERNATIONAL PLANS (dollars in thousands): The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1996, 1995 and 1994 was $1,972, $1,383 and $1,043, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,204; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,569. OTHER POSTRETIREMENT BENEFITS (dollars in thousands): The Company provides postretirement health care and life insurance benefits to Viskase's North American employees. The Company does not fund postretirement health care and life benefits in advance, and has the right to modify these plans in the future. Effective January 1, 1993, the company adopted the provisions of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires that the expected cost of these benefits must be charged to expense during the years that the employee renders service. In connection with the 1989 acquisition of the Company, an accrual of $15,000 had been recorded for the estimated postretirement benefits liability at the acquisition date. On January 1, 1993, an additional liability and transition obligation was recorded on a prospective basis for $6,500. The transaction obligation was to be amortized over 20 years. Subsequently, Fresh Start Reporting resulted in the write-off of the transition obligation and statement of the liability for postretirement health care and life insurance benefits at fair value. Net periodic postretirement benefit cost for 1996 and 1995 includes the following components:
Medical Life Total ----------------- ------------------ ------------------- 1996 1995 1996 1995 1996 1995 -------- -------- -------- ------ ------- -------- Components of net periodic postretirement benefit cost: Service cost -- benefits earned during the current year $515 $ 413 $ 163 $ 162 $ 678 $ 575 Interest cost -- on accumulated post- retirement benefit obligation 1,404 1,182 499 472 1,903 1,654 Amortization of unrecognized net loss or (net gain) 15 (71) (10) (16) 5 (87) Amortization of prior service cost (credit) 73 (2) 5 (1) 78 (3) ------ ------- ------- ------ ------ ------- Net periodic benefit cost $2,007 $ 1,522 $ 657 $ 617 $2,664 $ 2,139 ====== ======= ======= ====== ====== ======= Accumulated postretirement benefit obligations: Retirees $ 9,565 $ 6,937 $ 3,402 $2,745 $12,967 $ 9,682 Fully eligible active participants 2,043 2,309 2,173 2,409 4,216 4,718 Other active participants 8,422 7,411 1,712 1,624 10,134 9,035 ------- ------- ------- ------ ------- ------- Total 20,030 16,657 7,287 6,778 27,317 23,435 Unrecognized gains or (losses) (322) 1,616 702 622 380 2,238 Unrecognized prior service costs (616) (109) (45) (661) (109) ------- ------- ------- ------ ------- ------- Accrued postretirement benefit cost $19,092 $18,164 $ 7,944 $7,400 $27,036 $25,564 ======= ======= ======= ====== ======= =======
Assumed discount rate 7.50% Assumed medical trend rate 10.50% in 1996 decreasing to 6.50% in 2004 Assumed long-term compensation factor 4.50% The postretirement benefit obligation was determined by application of the terms of the various plans, together with relevant actuarial assumptions. The effect of a 1% annual increase in these assumed cost trend rates would increase the accumulated postretirement benefit obligation at December 26, 1996 and December 28, 1995 by $322 and $178, respectively, and the service and interest cost components for 1996 and 1995 by a total of $69 and $16, respectively. EMPLOYEE RELATIONS The Company generally maintains productive and amicable relationships with its 4,900 employees worldwide. One of Viskase's domestic plants, located in Loudon, Tennessee, is unionized, and all of its Canadian and European plants have unions. Employees at the Company's European plants are unionized with negotiations occurring at both local and national levels. Based on past experience and current conditions, the Company does not expect a protracted work stoppage to occur stemming from union activities; however, national events outside of the Company's control may give rise to such risk. From time to time union organization efforts have occurred at other individual plant locations. Unions represent a total of approximately 1,500 of Viskase's 4,000 employees. None of Clear Shield's employees are represented by unions. Certain of the hourly production personnel at Sandusky's Ohio thermoforming and injection molding facilities are members of a union. As of December 26, 1996, approximately 1,425 of the Company's employees are covered by collective bargaining agreements that will expire within one year. 12. INCOME TAXES (dollars in thousands) The provision (benefit) for income taxes consisted of: December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Current: Federal $ 200 Foreign $ 4,365 $ 950 4,652 State and local ------- ------ ------ $ 4,365 $ 950 4,852 ------- ------ ------ Deferred: Federal (9,911) (7,219) (194) Foreign 393 2,098 128 State and local (1,547) (1,329) 14 ------- ------- ------ (11,065) (6,450) (52) ------- ------- ------ $(6,700) $(5,500) $4,800 ======= ======= ====== The income tax benefit for the 1995 period was allocated between loss before extraordinary loss for $2,918 and to the extraordinary loss for $2,582. A reconciliation from the statutory federal tax rate to the consolidated effective tax rate follows: December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Statutory federal tax rate (35.0)% (35.0)% 35.0% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit (4.9) (3.2) .8 Net effect of taxes relating to foreign operations 6.3 .8 140.3 Intangibles amortization 12.5 9.4 214.1 Other (11.8) 7.6 13.8 ----- ----- ----- Consolidated effective tax rate (32.9)% (20.4)% 404.0% ===== ===== ===== Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1996 are as follows:
Temporary Difference Tax Effected -------------------------------- ---------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------- ------------ ------------ ------------ Depreciation basis differences $286,750 $109,383 Inventory basis differences 30,096 11,775 Intangible basis differences 34,916 13,617 Lease transaction $141,182 $55,061 Pension and healthcare 55,235 21,593 Employee benefits accruals 15,119 5,896 Valuation allowances 3,721 1,451 Other accruals and reserves 2,569 921 Foreign exchange and other 38,354 14,958 -------- -------- ------- -------- $217,826 $390,116 $84,922 $149,733 ======== ======== ======= ========
At December 26, 1996, the Company had $16,393 of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. At December 26, 1996, the Company had federal income tax net operating loss carryforwards of approximately $88 million, which have been substantially offset by a valuation allowance. Such losses will expire in the year 2009, if not previously utilized. In addition the Company has alternative minimum tax credit carryforwards of $3.5 million. Alternative minimum tax credits have an indefinite carryforward period. Significant limitations on the utilization of the net operating loss carryforwards and the alternative minimum tax credit carryforwards exist under federal income tax rules. Domestic (losses) after extraordinary loss and before income taxes were approximately $(30,323), $(30,138) and $(7,705) in 1996, 1995 and 1994, respectively. Foreign earnings or (losses) before income taxes were approximately $9,942, $3,118 and $8,893 in 1996, 1995 and 1994, respectively. The Company joins in filing a United States consolidated federal income tax return including all of its domestic subsidiaries. 13. COMMITMENTS As of December 26, 1996, the Company had capital expediture commitments outstanding of approximately $2.5 million. 14. CONTINGENCIES (dollars in thousands) In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC was infringing on various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. On November 8, 1996, after a three week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. On December 5, 1996, ANC posted a supersedeas bond in the amount of $108 million and the Court entered an order staying Viskase's enforcement of the judgment. The Court also entered an order permanently enjoining ANC from making or selling infringing products after December 23, 1996. The judgment is not final and the parties are presently engaged in the post-judgment motion phase of the case. ANC has filed motions to reduce the damage award by at least $75 million or alternatively, grant ANC a new trial. Viskase is seeking a determination that the case be deemed "exceptional" and that the award be increased by approximately $46 million which includes compensatory damages for ANC's infringement during the period of October 1, 1996 through December 23, 1996 and additional damages for prejudgment interest, attorneys' fees and related expenses. Due to ANC's willful infringement of the patents, Viskase has asked the court to treble the compensatory award. These motions are all pending before the Court and rulings are expected in the second quarter 1997. Meanwhile post-judgment interest is accruing on the $102.4 million award from November 8, 1996 at an annual rate of 5.49%. The Company expects ANC to vigorously contest the award and to appeal any final judgment. The award and any pending claims for additional damages have not been recorded in the Company's financial statements. A class action lawsuit by former employees of subsidiary corporations comprising most of the Company's former steel and mining division (SMD) was pending as of the commencement of the bankruptcy case in which the plaintiffs were seeking substantial damages. In March 1996, Envirodyne completed a settlement of the lawsuit under which Envirodyne was released and discharged from all claims in exchange for 900,000 shares of Envirodyne common stock without any admission or finding of liability or wrongdoing. Litigation is pending with respect to events arising out of the Envirodyne bankruptcy case and the 1989 acquisition of Envirodyne by Emerald Acquisition Corporation (Emerald) with respect to which, although Envirodyne is not presently a party to such litigation, certain defendants have asserted indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, ---------------------------------------------------------------- Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, - - -------------------------------------------------------------------- Charles K. Bobrinskoy, James L. Massey, William Rifkind and Michael - - ------------------------------------------------------------------- Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for the - - --------- Northern District of Illinois, Eastern Division, ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of the Plan of Reorganization (ARTRA I). In ARTRA Group Incorporated v. Salomon ------- ----------------------------------- Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & - - ---------------------------------------------------------------- Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael - - -------------------------------------------------------------------- Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial - - --------- Circuit, DuPage County, Illinois, ARTRA alleges breach of fiduciary duty, fraudulent and negligent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald (ARTRA ----- II). The plaintiff seeks damages in the total amount of $136.2 million - - -- plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. Upon a motion of the defendants, the Bankruptcy Court dismissed ARTRA's claims in ARTRA I. ------- ARTRA appealed to the U.S. District Court and on October 31, 1996, the U.S. District Court affirmed the Bankruptcy Court's decision. ARTRA has appealed to the U.S. Court of Appeals for the Seventh Circuit. All briefs have been filed and the parties are awaiting oral argument. Envirodyne is continuing its evaluation of the merits of the indemnification claims against Envirodyne and the underlying claims in the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event it is ultimately determined that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment of legal fees in ARTRA I. ------- Although the Company is not a party to either case, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in the Envirodyne bankruptcy case, would render it difficult for the plaintiff to establish liability or prove damages. Accordingly, the Company believes that the indemnification claims would not have a material adverse effect upon the business or financial position of the Company, even if the claimants were successful in establishing their right to indemnification. Since early 1993, the Antitrust Division of the United States Department of Justice has been investigating the disposable plastic cutlery industry. This investigation has resulted in the indictment and conviction of certain companies and individuals in the industry. Some indictments and criminal trials are pending. Although the United States Department of Justice has advised a former officer and an existing employee of Clear Shield National that they are targets of the investigation, neither person has been indicted. Clear Shield National is cooperating fully with the investigation. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in the following three civil complaints: Eisenberg Brothers, Inc., on behalf of itself and all others ------------------------------------------------------------ similarly situated, v. Amcel Corp., Clear Shield National, Inc., - - -------------------------------------------------------------- Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler - - ---------------------------------------------------------------- Products, Civil Action No. 96-728, United States District Court for the - - -------- Eastern District of Pennsylvania; St. Cloud Restaurant Supply Company v. ------------------------------------- Amcel Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and - - --------------------------------------------------------------------- Benchmark Holdings, Inc. t/a Winkler Products, Case No. 96C 0777, - - --------------------------------------------- United States District Court for the Northern District of Illinois, Eastern Division; and Servall Products, Inc., on behalf of itself and ----------------------------------------------- all others similarly situated, v. Amcel Corporation, Clear Shield - - ----------------------------------------------------------------- National, Inc., Dispoz-O Plastics Corporation and Benchmark Holdings, - - -------------------------------------------------------------------- Inc. t/a Winkler Products, Civil Action No. 96-1116, United States - - ------------------------- District Court for the Eastern District of Pennsylvania. Each of the complaints alleges, among other things, that from October 1990 through April 1992 the defendants unlawfully conspired to fix the prices at which plastic cutlery would be sold. The Company has informed the plaintiffs that such claims as they relate to Clear Shield were discharged by the order of the Bankruptcy Court and Plan of Reorganization and that the plaintiffs are permanently enjoined from pursuing legal action to collect discharged claims. On February 27, 1996, the plaintiff in the St. Cloud case voluntarily --------- dismissed the action without prejudice and refiled its action in the United States District Court for the Eastern District of Pennsylvania but did not name Clear Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc., St. Cloud and Servall filed a motion in Clear Shield National's Bankruptcy proceeding in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division contending that the Bankruptcy Court's order did not discharge the plaintiff's claim. On March 19, 1997, the Bankruptcy Court denied their motion and granted the Company's cross motion for summary judgment. The time period for appeal by Eisenberg Brothers, Inc. et al. has not passed. The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 15. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS Authorized shares of preferred stock ($.01 par value per share) and common stock ($.01 par value per share) for the reorganized Envirodyne are 25,000,000 shares and 50,000,000 shares, respectively. 14,545,107 shares of common stock were issued and outstanding as of December 26, 1996. In accordance with the Plan of Reorganization, a total of 900,261, 64,460 and 15,000 additional shares of common stock were issued to the general unsecured creditors of Envirodyne during 1996, 1995 and 1994, respectively. Envirodyne issued 1,500,000 warrants pursuant to the Plan of Reorganization, exercisable at any time until December 31, 1998. Each warrant was initially exercisable for one share of common stock at an initial exercise price of $17.25 per share. The exercise price and the number of shares of common stock for which a warrant is exercisable were adjusted as a result of the issuance of certain shares of Envirodyne after the consummation of the Plan of Reorganization, including the issuance of shares in settlement of the SMD lawsuit discussed in Note 14. Under terms of the warrant agreement, the exercise price has been adjusted from $17.25 to $16.08 per share and the number of common shares for which each warrant is exercisable has been adjusted from 1.000 share to 1.073 shares. On June 26, 1996, the Board of Directors adopted a Shareholder Rights Plan (Plan). Under the Plan, the Board declared a dividend of one Common Stock Purchase Right (Right) for each outstanding common share of the Company. Rights were issued to the shareholders of record on June 26, 1996. The Rights are attached to and automatically trade with the outstanding shares of the Company's common stock. The Rights will only become exercisable ten days after a public announcement that a person or group has acquired or obtained the right to acquire 41% or more of the Company's Common Stock or ten business days after a person or group commences a tender or offer that would result in such person or group owning 41% or more of the outstanding shares (even if no purchases actually occur). When the Rights first become exercisable, each Right will entitle the holder thereof to buy from the Company one share of Common Stock for $20.00, subject to adjustment. If any person acquires 41% or more of the Company's Common Stock, other than pursuant to a tender or exchange offer for all outstanding shares of the Company approved by a majority of the independent directors not affiliated with a 40%-or-more stockholder, after receiving advice from one or more investment banking firms, each Right not owned by a 41%-or-more stockholder would become exercisable for shares of the Company having a market value of two times the exercise price of the Right. If the Company is involved in a merger or other business combination, or sells 50% or more of its assets or earning power to another person, at any time after the Rights become exercisable, the Rights will entitle the holder thereof to buy shares of common stock of the acquiring company having a market value of twice the exercise price of each Right. Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration on June 26, 2006. 16. STOCK-BASED COMPENSATION (dollars in thousands) The Company maintains several stock option plans and agreements. The plans provide for the granting of incentive and nonqualified stock options to employees, officers, and directors. Stock options have been granted at prices at or above the fair market value on the date of grant. Options generally vest in three equal installments beginning one year from the grant date and expire ten years from the grant date. Non- employee director options, however, vest on the date of grant. The options are subject to acceleration upon the occurrence of certain events, such acceleration event occurred in both November 1994 and August 1995. The Company accounts for these plans under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations. Accordingly, compensation expense is recognized using the intrinsic value-based method for options granted under the plans. The Company has adopted only the disclosure provisions required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123). A summary of the Company's stock option activity during the fiscal years ended as of December 26, 1996, December 28, 1995 and December 29, 1994 is presented below:
1996 1995 1994 ----------------------- ----------------------- --------------------- Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price -------- -------------- -------- -------------- ------ -------------- Outstanding at beginning of year 424,230 $5.06 388,920 $5.06 Granted 536,500 4.26 97,200 5.02 402,020 $5.06 Exercised Forfeited (61,900) 4.79 (61,890) 5.06 (13,100) 5.06 ------- ------- ------- Outstanding at year end 898,830 4.60 424,230 5.06 388,920 5.06 ======= ======= ======= Options exercisable at year end 392,730 5.04 424,230 5.04 388,920 5.06 ======= ======= =======
There were 651,170 shares of common stock reserved for future stock option grants at December 26, 1996. As of December 26, 1996, total stock options outstanding have a weighted-average remaining contractual life of 9.86 years. The exercise price of options outstanding as of December 26, 1996 ranged from $3.50 to $5.06. The weighted average grant date fair value of options granted during fiscals 1996 and 1995 was $2.202 and $1.812, respectively. As option prices per share have not been below the underlying stock price on the grant dates, no compensation expense associated with these plans has been recognized to date in accordance with APB 25. Had the Company elected to apply the provisions of SFAS 123 regarding recognition of compensation expense to the extent of the calculated fair value of compensatory options, reported net income and earnings per share would have been reduced to the following amounts (only options granted in 1995 and 1996 are included in the calculation of pro forma net income and earnings per share): 1996 1995 -------- -------- (Loss) before extraordinary item $(13,682) $(17,323) Pro forma (loss) before extraordinary item (13,826) (17,356) Net (loss) $(13,682) $(21,519) Pro forma net (loss) (13,826) (21,552) PER SHARE AMOUNTS: (Loss) before extraordinary item $(.96) $(1.28) Pro forma (loss) before extraordinary item (.97) (1.28) Net (loss) $(.96) $(1.59) Pro forma net (loss) (.97) (1.59) The effects of applying SFAS 123 in the above pro forma disclosure are not likely to be representative of the effects disclosed in future years as SFAS 123 does not apply to grants prior to 1995. The fair value of each option granted during 1996 and 1995 is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: (1) expected volatility of 40.04% for both years, (2) risk-free interest rate equaling the 5-year treasury yield on the grant date, which ranged from 6.11% to 6.52% in 1996 and 5.97% to 7.06% in 1995, and (3) expected life of 5 years in both years. The Company has never declared dividends, nor does it currently expect to declare dividends in the foreseeable future. Pursuant to the employment agreement between the Company and its chief executive officer, the Company issued 35,000 shares of common stock to its chief executive officer. These shares carry voting and dividend rights; however sale of the shares is restricted prior to vesting. Subject to continued employment, vesting occurs on March 27, 1999. The shares issued under the employment agreement have been recorded at fair market value on the date of grant with a corresponding charge to stockholders' equity for the unearned portion of the award. The fair market value per share was $3.50. The unearned portion is being amortized as compensation expense on a straight-line basis over the related vesting period. Compensation expense related to the plan totaled $31 during fiscal 1996. The Company also has a stock compensation plan for the non-employee directors of the Company that was approved during fiscal 1996. These directors may elect to receive directors fees in the form of common stock of the Company based upon the average market price of the Company's common stock on the grant date. During fiscal 1996 30,386 shares of common stock were issued under this plan at $4.03 per share. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands) The following table presents the carrying value and estimated fair value as of December 26, 1996 of the Company's financial instruments. (Refer to Notes 3 and 9.) Carrying Estimated Value Fair Value -------- ---------- Assets: Cash and equivalents $ 41,794 $ 41,794 Foreign currency contracts 12,995 12,337 Liabilities: Long-term debt (excluding capital leases) 387,539 390,265 18. PATENT LITIGATION SETTLEMENT (dollars in thousands) In 1989 certain competitors of Viskase filed a declaratory action challenging the validity and enforceability of a Viskase patent relating to casings used in the manufacture of food products. In May 1994, the trial court upheld the validity and enforceability of the Viskase patent and found infringement of the patent. Before the trial on damages was conducted, Viskase entered into agreements to settle the claims and grant licenses to the competitors. Under the terms of these agreements Viskase received $9,457 for past infringement and advance royalties and established royalty rates for future patent use. 19. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs are expensed as incurred and totaled $6,841, $11,034 and $16,852 for 1996, 1995, and 1994, respectively. 20. RELATED PARTY TRANSACTIONS (dollars in thousands) In March 1996, the Company terminated its management agreement with D.P. Kelly and Associates, L.P. (DPK). Upon termination of the agreement, the Company was required to pay the amount of $2,000 to DPK pursuant to provisions in the agreement. In addition to the above amount, the Company paid management fees to DPK during 1996 totaling $193. During each of 1995 and 1994, the Company paid DPK $770 for management services. During fiscal 1996, 1995 and 1994, the Company made payments of approximately $18, $156, and $560, respectively, to an affiliate of DPK for the use of a jet aircraft on an as-needed basis. During fiscal 1996, 1995, and 1994, the Company purchased product and services from affiliates of DPK in the amounts of approximately $904, $1,537, and $1,367, respectively. During fiscal 1996, 1995, and 1994, the Company sublet office space from DPK for which it paid approximately $139, $151, and $151, respectively, in rent. During fiscal 1996 and 1995, the Company reimbursed a non-affiliated medical plan in the aggregate amount of $41 and $79 for medical claims of Messrs. Kelly, Gustafson and Corcoran. During fiscal years 1994 through 1996, the Company advanced funds to and made payments on behalf of DPK and Donald P. Kelly totaling approximately $171 for legal fees related to the litigation involving ARTRA Group Incorporated (refer to Note 14). During fiscal 1996, the Company sold two autos to an affiliate of DPK. The total sum received was $135 and was based on the fair market value of the autos. A gain on the sale of $117 was recognized by the Company. During fiscal years 1996, 1995 and 1994, Viskase Corporation, a wholly owned subsidiary of the Company, had sales of $19,795, $18,035 and $14,779, respectively, to Cargill, Inc. and its affiliates. Such sales were made in the ordinary course. During 1996 Cargill Financial Services Corporation had beneficial ownership of approximately 9.4% of the Company's outstanding Common Stock, and Gregory R. Page, President of the Red Meat Group of Excel Corp., a subsidiary of Cargill, Inc., is a director of the Company. 21. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC AREA INFORMATION (dollars in thousands) Envirodyne primarily manufactures and sells polymeric food casings and plastic packaging films and containers (food packaging products) and disposable foodservice supplies. The Company's operations are primarily in North, South America and Europe. Intercompany sales and charges (including royalties) have been reflected as appropriate in the following information. Other income for 1996, 1995, and 1994 includes net foreign exchange transaction gains (losses) of approximately $687, $(61), and $2,707, respectively. Business Segment Information December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Net sales: Food packaging products $572,653 $574,266 $530,179 Disposable foodservice supplies 78,865 76,138 68,996 Other and eliminations (162) (192) (146) -------- -------- -------- $651,356 $650,212 $599,029 ======== ======== ======== Earnings before income taxes: Operating income: Food packaging products $37,310 $39,183 $ 48,145 Disposable foodservice supplies 7,342 4,959 6,514 Unallocated expenses, net -- primarily corporate (4,962) (6,007) (5,982) -------- -------- -------- 39,690 38,135 48,677 Interest expense, net 56,997 56,666 49,207 Other expense (income), net 3,075 1,710 (1,668) Minority interest in loss of subsidiary 50 -------- -------- -------- $(20,382) $(20,241) $ 1,188 ======== ======== ======== Identifiable assets: Food packaging products $762,233 $796,655 $814,731 Disposable foodservice supplies 69,725 69,812 71,530 Corporate and other, primarily cash equivalents 41,789 33,100 10,375 -------- -------- -------- $873,747 $899,567 $896,636 ======== ======== ======== Depreciation and amortization under capital lease and amortization of intangibles expense: Food packaging products $53,413 $51,404 $ 47,207 Disposable foodservice supplies 4,949 4,581 4,125 Corporate and other 58 76 55 -------- -------- -------- $58,420 $56,061 $ 51,387 ======== ======== ======== Capital expenditures: Food packaging products $32,934 $30,744 $ 28,534 Disposable foodservice supplies 4,135 3,687 4,012 Corporate and other 4 34 20 -------- -------- -------- $37,073 $34,465 $ 32,566 ======== ======== ======== Geographic Area Information December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Net sales: North America $423,092 $417,408 $407,761 South America 40,498 31,381 22,507 Europe 201,926 213,618 184,395 Other and eliminations (14,160) (12,195) (15,634) -------- -------- -------- $651,356 $650,212 $599,029 ======== ======== ======== Operating profit: North America $22,425 $22,504 $ 29,520 South America 1,883 524 (1,396) Europe 15,445 15,373 20,553 Other and eliminations (63) (266) -------- -------- -------- $39,690 $38,135 $ 48,677 ======== ======== ======== Identifiable assets: North America $633,201 $645,504 $639,831 South America 33,007 31,873 27,527 Europe 205,446 219,802 229,278 Other and eliminations 2,093 2,388 -------- -------- -------- $873,747 $899,567 $896,636 ======== ======== ======== United States export sales: (reported in North America sales above) Asia $28,300 $22,509 $10,362 South and Central America 17,056 18,691 18,656 South Africa 9,484 Other International 259 219 147 -------- -------- -------- $45,615 $41,419 $38,649 ======== ======== ======== The total assets and net assets of foreign businesses were approximately $273,895 and $116,503 at December 26, 1996. 22. QUARTERLY DATA (unaudited) Quarterly financial information for 1996 and 1995 is as follows (in thousands, except for per share amounts): First Second Third Fourth Fiscal 1996 Quarter Quarter Quarter Quarter Annual - - ---------------- -------- -------- -------- -------- -------- Net Sales $159,736 $165,747 $163,825 $162,048 $651,356 Operating Income 9,294 9,275 8,708 12,413 39,690 Net income (loss) (5,927) (4,165) (3,924) 334 (13,682) Net income (loss) per share (.43) (.29) (.27) .02 (.96) Net income (loss) per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. The sum of the quarterly per share amounts in 1996 do not equal the total for the year because of rounding and 1996 stock issuances, as shown on the Consolidated Statement of Stockholders' Equity. First Second Third Fourth Fiscal 1995 Quarter Quarter Quarter Quarter Annual - - -------------------- -------- -------- -------- -------- -------- Net Sales $155,824 $165,184 $166,688 $162,516 $650,212 Operating Income 8,689 10,089 8,653 10,704 38,135 Net (loss) (3,895) (7,513) (4,475) (5,636) (21,519) Net (loss) per share (.29) (.56) (.33) (.42) (1.59) The second quarter net (loss) includes an extraordinary loss of $(4.2) million on debt extinguishment. Net income (loss) per share amounts are computed independently for each of the quarters presented using weighted average shares outstanding during each quarter. The sum of the quarterly per share amounts in 1995 do not equal the total for the year because of rounding and 1995 stock issuances, as shown on the Consolidated Statement of Stockholders' Equity. 23. SUBSEQUENT EVENTS (dollars in thousands) In March 1997 the Company announced that it was exploring the potential sale of Viskase Corporation's PVC film business. Viskase's plants in Aurora, Ohio, and Sedgefield, England, would be affected by a sale. Net sales of PVC films in 1996 totaled approximately $54 million. In March 1997 Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase Corporation is cooperating fully with the investigation. 24. SUBSIDIARY GUARANTORS Envirodyne's payment obligations under the Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis (collectively, Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation, Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent substantially all of the operations of Envirodyne conducted in the United States. The remaining subsidiaries of Envirodyne generally are foreign subsidiaries or otherwise relate to foreign operations. The obligations of each Guarantor under its Subsidiary Guarantee are the senior obligation of such Guarantor, and are collateralized, subject to certain permitted liens, by substantially all of the domestic assets of the Guarantor and, in the case of Viskase Holding Corporation, by a pledge of 65% of the capital stock of Viskase Europe Limited. The Subsidiary Guarantees and security are shared with the lenders under the Revolving Credit Agreement on a pari passu basis and are subject to the priority interest of the holders of obligations under the Letter of Credit Facility, each pursuant to an intercreditor agreement. The following consolidating condensed financial data illustrate the composition of the combined Guarantors. No single Guarantor has any significant legal restrictions on the ability of investors or creditors to obtain access to its assets in the event of default on the Subsidiary Guarantee other than its subordination to senior indebtedness described above. Separate financial statements of the Guarantors are not presented because management has determined that these would not be material to investors. Based on the book value and the market value of the pledged securities of Viskase Corporation, Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. and Sandusky Plastics of Delaware, Inc., these Subsidiary Guarantors do not constitute a substantial portion of the collateral and, therefore, the separate financial statements of these subsidiaries have not been provided. Separate audited financial statements of Viskase Holding Corporation are being filed within. Investments in subsidiaries are accounted for by the parent and Subsidiary Guarantors on the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are therefore reflected in the parent's and Subsidiary Guarantors' investment accounts and earnings. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 26, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total --------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 25,785 $ (162) $ 16,171 $ 41,794 Receivables and advances, net 61,960 70,258 46,032 $ (99,076) 79,174 Inventories 59,730 36,509 (1,227) 95,012 Other current assets 187 11,730 10,224 22,141 -------- -------- -------- --------- -------- Total current assets 87,932 141,556 108,936 (100,303) 238,121 Property, plant and equipment including those under capital lease 133 420,396 158,175 578,704 Less accumulated depreciation and amortization 95 86,715 30,086 116,896 -------- -------- -------- --------- -------- Property, plant and equipment, net 38 333,681 128,089 461,808 Deferred financing costs 5,144 758 5,902 Other assets 40,784 2,025 42,809 Investment in subsidiaries 64,433 123,236 (187,669) Excess reorganization value 87,702 37,405 125,107 -------- -------- -------- --------- -------- $157,547 $726,959 $277,213 $(287,972) $873,747 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 7,182 $ 4,109 $ 11,291 Accounts payable and advances $ 35 85,156 50,900 $ (99,076) 37,015 Accrued liabilities 6,197 44,235 31,677 82,109 -------- -------- -------- --------- -------- Total current liabilities 6,232 136,573 86,686 (99,076) 130,415 Long-term debt including obligation under capital lease 379,262 137,063 4,854 521,179 Accrued employee benefits 49,366 4,331 53,697 Deferred and noncurrent income taxes 29,088 10,824 24,899 64,811 Intercompany loans (360,680) 340,000 20,681 (1) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,545,107 shares issued and outstanding 145 3 32,738 (32,741) 145 Paid in capital 135,100 87,899 87,871 (175,770) 135,100 Accumulated earnings (deficit) (38,813) (42,050) 7,872 34,178 (38,813) Cumulative foreign currency translation adjustments 7,305 7,281 7,281 (14,562) 7,305 Unearned restricted stock issued for future services (92) (92) -------- -------- -------- --------- -------- Total stockholders' equity 103,645 53,133 135,762 (188,895) 103,645 -------- -------- -------- --------- -------- $157,547 $726,959 $277,213 $(287,972) $873,747 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total --------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 18,013 $ 486 $ 11,826 $ 30,325 Receivables and advances, net 52,462 70,458 57,082 $ (90,548) 89,454 Inventories 63,355 38,233 (2,114) 99,474 Other current assets 176 12,364 9,106 21,646 -------- -------- -------- --------- -------- Total current assets 70,651 146,663 116,247 (92,662) 240,899 Property, plant and equipment including those under capital lease 261 394,813 150,417 545,491 Less accumulated depreciation and amortization 150 55,620 20,217 75,987 -------- -------- -------- --------- -------- Property, plant and equipment, net 111 339,193 130,200 469,504 Deferred financing costs 7,048 1,042 8,090 Other assets 43,720 1,869 45,589 Investment in subsidiaries 77,766 117,578 (195,344) Excess reorganization value 94,968 40,517 135,485 -------- -------- -------- --------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 6,407 $ 6,097 $ 12,504 Accounts payable and advances $ 80 78,848 50,737 $ (90,548) 39,117 Accrued liabilities 8,126 37,488 21,939 67,553 -------- -------- -------- --------- -------- Total current liabilities 8,206 122,743 78,773 (90,548) 119,174 Long-term debt including obligation under capital lease 379,262 143,198 7,721 530,181 Accrued employee benefits 51,345 4,281 55,626 Deferred and noncurrent income taxes 34,088 17,507 25,895 77,490 Intercompany loans (383,076) 340,000 43,083 (7) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,579,460 shares issued and outstanding 136 3 32,738 (32,741) 136 Paid in capital 134,864 87,899 87,871 (175,770) 134,864 Accumulated earnings (deficit) (25,131) (27,752) 2,334 25,418 (25,131) Cumulative foreign currency translation adjustments 7,227 7,179 7,179 (14,358) 7,227 -------- -------- -------- --------- -------- Total stockholders' equity 117,096 67,329 130,122 (197,451) 117,096 -------- -------- -------- --------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 26, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $418,732 $273,435 $(40,811) $651,356 COSTS AND EXPENSES Cost of sales 322,422 207,520 (41,698) 488,244 Selling, general and administrative $4,973 57,927 44,188 107,088 Amortization of intangibles and excess reorganization value 12,947 3,387 16,334 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (4,973) 25,436 18,340 887 39,690 Interest income 1,061 507 1,568 Interest expense 43,504 12,813 2,248 58,565 Intercompany interest expense (income) (40,596) 37,394 3,202 Management fees (income) (7,226) 5,704 1,522 Other expense (income), net 850 646 1,579 3,075 Equity loss (income) in subsidiary 13,411 (5,538) (7,873) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (13,855) (25,583) 10,296 8,760 (20,382) Income tax provision (benefit) (173) (11,285) 4,758 (6,700) -------- -------- -------- --------- -------- NET INCOME (LOSS) $(13,682) $(14,298) $ 5,538 $ 8,760 $(13,682) ======== ======== ======== ========= ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 26, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $(14,896) $ 30,440 $ 40,780 $ 56,324 Cash flows from investing activities: Capital expenditures (4) (27,496) (9,573) (37,073) Proceeds from sales of property, plant and equipment 136 1,767 453 2,356 -------- -------- -------- --------- -------- Net cash provided by (used in) investing activities 132 (25,729) (9,120) (34,717) Cash flows from financing activities: Issuance of common stock 153 153 Proceeds from revolving loan and long term borrowings 1,130 1,056 2,186 Deferred financing costs (142) (142) Repayment of revolving loan, long-term borrowings and capital lease obligations (6,489) (5,216) (11,705) Increase (decrease) in Envirodyne loan and advances 22,525 (22,525) -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities 22,536 (5,359) (26,685) (9,508) Effect of currency exchange rate changes on cash (630) (630) -------- -------- -------- --------- -------- Net increase (decrease) in cash and equivalents 7,772 (648) 4,345 11,469 Cash and equivalents at beginning of period 18,013 486 11,826 30,325 -------- -------- -------- --------- -------- Cash and equivalents at end of period $ 25,785 $ (162) $ 16,171 $ 41,794 ======== ======== ======== ========= ======== /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $417,756 $267,212 $(34,756) $650,212 COSTS AND EXPENSES Cost of sales 312,419 207,232 (34,603) 485,048 Selling, general and administrative $ 6,004 65,318 39,908 111,230 Amortization of intangibles and excess reorganization value 12,466 3,333 15,799 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (6,004) 27,553 16,739 (153) 38,135 Interest income 203 12 455 670 Interest expense 40,081 13,902 3,353 57,336 Intercompany interest expense (income) (38,218) 34,007 4,211 Management fees (income) (8,086) 6,377 1,709 Other expense (income), net (2,400) 52 4,058 1,710 Equity loss (income) in subsidiary 19,571 216 (19,787) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (16,749) (26,989) 3,863 19,634 (20,241) Income tax provision (benefit) 1,264 (7,570) 3,388 (2,918) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (18,013) (19,419) 475 19,634 (17,323) Extraordinary loss, net of tax 3,506 690 4,196 -------- -------- -------- --------- -------- NET (LOSS) $(21,519) $(19,419) $ (215) $ 19,634 $(21,519) ======== ======== ======== ========= ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $(13,276) $ 32,242 $ 20,001 $ 38,967 Cash flows from investing activities: Capital expenditures (34) (27,842) (6,589) (34,465) Proceeds from sale of property, plant and equipment 39 47 86 -------- -------- -------- --------- -------- Net cash (used in) investing activities (34) (27,803) (6,542) (34,379) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 164,000 1,706 42,216 207,922 Deferred financing costs (6,721) (1,166) (7,887) Repayment of revolving loan, long-term borrowings and capital lease obligations (123,275) (7,512) (50,588) (181,375) Increase (decrease) in Envirodyne loan and advances (3,236) 3,236 -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities 30,768 (5,806) (6,302) 18,660 Effect of currency exchange rate changes on cash (212) (212) -------- -------- -------- --------- -------- Net increase (decrease) in cash and equivalents 17,458 (1,367) 6,945 23,036 Cash and equivalents at beginning of period 555 1,853 4,881 7,289 -------- -------- -------- --------- -------- Cash and equivalents at end of period $ 18,013 $ 486 $ 11,826 $ 30,325 ======== ======== ======== ========= ======== /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 29, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $406,988 $220,787 $(28,746) $599,029 Patent infringement settlement income 9,457 9,457 COSTS AND EXPENSES Cost of sales 295,356 168,891 (28,487) 435,760 Selling, general and administrative $ 6,015 71,092 31,330 108,437 Amortization of intangibles and excess reorganization value 12,266 3,346 15,612 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (6,015) 37,731 17,220 (259) 48,677 Interest income 13 46 248 307 Interest expense 31,937 14,124 3,453 49,514 Intercompany interest expense (income) (35,077) 31,170 3,907 Management fees (income) (7,400) 6,544 856 Other expense (income), net (3,448) 7 1,923 (150) (1,668) Equity loss (income) in subsidiary 8,392 (2,549) (5,843) Minority interest in loss of subsidiary 50 50 -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (406) (11,519) 7,329 5,784 1,188 Income tax provision 3,206 (3,186) 4,780 4,800 -------- -------- -------- --------- -------- NET INCOME (LOSS) $ (3,612) $ (8,333) $ 2,549 $ 5,784 $ (3,612) ======== ======== ======== ========= ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THE YEAR ENDED DECEMBER 29, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total --------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $ (1,414) $ 13,575 $ 11,125 $ 23,286 Cash flows from investing activities: Capital expenditures (20) (21,666) (10,880) (32,566) Proceeds from sales of property, plant and equipment 239 120 359 Purchase of minority interest in subsidiary (4,200) (4,200) -------- -------- -------- --------- -------- Net cash (used in) investing activities (20) (25,627) (10,760) (36,407) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 27,600 10,068 37,668 Deferred financing costs (1,608) (1,608) Repayment of revolving loan, long-term borrowings and capital lease obligations (8,325) (5,180) (9,112) (22,617) Increase (decrease) in Envirodyne loan and advances (16,608) 17,163 (555) -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities 1,059 11,983 401 13,443 Effect of currency exchange rate changes on cash (776) (776) -------- -------- -------- --------- -------- Net (decrease) in cash and equivalents (375) (69) (10) (454) Cash and equivalents at beginning of period 930 1,922 4,891 7,743 -------- -------- -------- --------- -------- Cash and equivalents at end of period $ 555 $ 1,853 $ 4,881 $ 7,289 ======== ======== ======== ========= ======== /TABLE Financial statement schedules required by Regulation S-X - - -------------------------------------------------------- VISKASE HOLDING CORPORATION AND SUBSIDIARIES Consolidated Financial Statements: - - --------------------------------- Report of independent accountants 64 Consolidated balance sheets, December 26, 1996 and December 28, 1995 65 Consolidated statements of operations, for December 29, 1995 to December 26, 1996; December 30, 1994 to December 28, 1995; and January 1 to December 29, 1994 66 Consolidated statements of stockholders' equity (deficit), for December 29, 1995 to December 26, 1996; December 30, 1994 to December 28, 1995; and January 1 to December 29, 1994 67 Consolidated statements of cash flows, for December 29, 1995 to December 26, 1996; December 30, 1994 to December 28, 1995; and January 1 to December 29, 1994 68 Notes to consolidated financial statements 69 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Viskase Holding Corporation We have audited the consolidated financial statements and the financial statement schedules of Viskase Holding Corporation and Subsidiaries. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Viskase Holding Corporation and Subsidiaries as of December 26, 1996 and December 28, 1995, and the consolidated results of their operations and their cash flows for the period December 29, 1995 to December 26, 1996, December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994, in conformity with generally accepted accounting principles. In addition, in our opinion the schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Chicago, Illinois March 20, 1997 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 26, December 28, 1996 1995 (in thousands) ASSETS Current assets: Cash and equivalents $ 16,171 $ 11,826 Receivables, net 43,634 53,022 Receivables, affiliates 51,269 51,829 Inventories 36,509 38,233 Other current assets 10,224 9,106 -------- -------- Total current assets 157,807 164,016 Property, plant and equipment 158,175 150,417 Less accumulated depreciation 30,086 20,217 -------- -------- Property, plant and equipment, net 128,089 130,200 Deferred financing costs 758 1,042 Other assets 2,025 1,869 Excess reorganization value 37,405 40,517 -------- -------- $326,084 $337,644 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 4,109 $ 6,097 Accounts payable 13,736 13,720 Accounts payable and advances, affiliates 51,891 54,152 Accrued liabilities 31,677 21,942 -------- -------- Total current liabilities 101,413 95,911 Long-term debt 4,854 7,721 Accrued employee benefits 4,331 4,281 Deferred and noncurrent income taxes 24,899 25,895 Intercompany loans 58,691 81,094 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital 103,463 103,463 Retained earnings 21,152 12,100 Cumulative foreign currency translation adjustments 7,281 7,179 -------- -------- Total stockholders' equity 131,896 122,742 -------- -------- $326,084 $337,644 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
52 weeks 52 weeks 52 weeks December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- (in thousands, except for number of shares and per share amounts) NET SALES $273,435 $267,212 $220,787 Patent infringement settlement income 9,457 COSTS AND EXPENSES Cost of sales 207,520 207,232 168,891 Selling, general and administrative 38,386 36,288 27,654 Amortization of intangibles and excess reorganization value 3,387 3,333 3,346 -------- -------- -------- OPERATING INCOME 24,142 20,359 30,353 Interest income 507 455 248 Interest expense 2,248 3,353 3,453 Intercompany interest expense 3,202 4,199 3,861 Management fees 1,522 1,709 856 Other expense (income), net 1,579 3,754 2,518 Minority interest in loss of subsidiary 50 -------- -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 16,098 7,799 19,963 Income tax provision 7,046 4,947 10,025 -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 9,052 2,852 9,938 Extraordinary loss, net of tax 690 -------- -------- -------- NET INCOME $ 9,052 $ 2,162 $ 9,938 ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES 100 100 100 === === === PER SHARE AMOUNTS: NET INCOME $ 90,520 $ 21,620 $ 99,380 ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements. /TABLE VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Cumulative Foreign Currency Total Common Paid in Retained Translation Stockholder's Stock Capital Earnings Adjustments Equity ------ ------- ---------- ------------- ------------- (in thousands) Balance December 31, 1993 $ 82,686 $ 0 $ 0 $ 82,686 Net income 9,938 9,938 Capital contributions 16,056 16,056 Fresh start revaluation adjustments 4,721 4,721 Translation adjustments 3,912 3,912 -------- ------- ------ -------- Balance December 29, 1994 $103,463 $ 9,938 $3,912 $117,313 Net income 2,162 2,162 Translation adjustments 3,267 3,267 -------- ------- ------ -------- Balance December 28, 1995 $103,463 $12,100 $7,179 $122,742 Net income 9,052 9,052 Translation adjustments 102 102 -------- ------- ------ -------- Balance December 26, 1996 $103,463 $21,152 $7,281 $131,896 ======== ======= ====== ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ------------ ----------- ----------- (in thousands) Cash flows from operating activities: Income before extraordinary item $ 9,052 $ 2,852 $ 9,938 Extraordinary loss 690 ------- ------- ------- Net income 9,052 2,162 9,938 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,687 11,202 9,018 Amortization of intangibles and excess reorganization value 3,387 3,333 3,346 Amortization of deferred financing fees and discount 227 208 210 Increase in deferred and noncurrent income taxes 393 2,098 128 Loss on debt extinguishment 1,030 Foreign currency transaction loss 159 Loss (gain) on sales of property, plant and equipment (39) 30 32 Changes in operating assets and liabilities: Accounts receivable 11,078 (4,441) (9,076) Accounts receivable, affiliates (1,802) (2,847) (18,214) Inventories (743) 7,224 (8,895) Other current assets (1,787) (2,144) (1,462) Accounts payable and accrued liabilities 9,681 (6,926) 8,314 Accounts payable, affiliates 860 8,383 21,739 Other (214) (790) 288 ------- ------- ------- Total adjustments 31,728 16,519 5,428 ------- ------- ------- Net cash provided by operating activities 40,780 18,681 15,366 Cash flows from investing activities: Capital expenditures (9,573) (6,589) (10,880) Proceeds from sale of property, plant and equipment 453 47 120 Purchase of minority interest in subsidiary (4,200) ------- ------- ------- Net cash (used in) investing activities (9,120) (6,542) (14,960) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 1,056 42,216 10,068 Deferred financing costs (1,166) Repayment of revolving loan and long-term borrowings (5,216) (50,588) (9,112) Increase (decrease) in Envirodyne loan and advances (22,525) 3,236 (555) ------- ------- ------- Net cash provided by (used in) financing activities (26,685) (6,302) 401 Effect of currency exchange rate changes on cash (630) (212) (776) ------- ------- ------- Net increase in cash and equivalents 4,345 5,625 31 Cash and equivalents at beginning of period 11,826 6,201 6,170 ------- ------- ------- Cash and equivalents at end of period $16,171 $ 11,826 $ 6,201 ======= ======== ======== ---------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $791 $1,919 $ 1,808 Income taxes paid $1,209 $4,255 $ 3,548
Supplemental schedule of noncash investing and financing activities: Fiscal 1994 - - ----------- Viskase S.A. and its subsidiary Viskase Canada Inc.'s capital increased by $16 million due to the forgiveness of an Envirodyne loan. Viskase Corporation transferred equipment totaling $1.5 million, $174 thousand and $2.1 million to Viskase S.A., Viskase de Mexico S.A. de C.V., and Viskase Brasil Embalagens Ltda, respectively. Fiscal 1995 - - ----------- Viskase Corporation transferred equipment totaling $497 thousand to Viskase S.A. Viskase Holding Corporation contributed capital consisting of $250 thousand of equipment to Viskase de Mexico S.A. de C.V. Fiscal 1996 - - ----------- Viskase Corporation transferred equipment totaling $441 thousand to Viskase de Mexico S.A. de C.V. The accompanying notes are an integral part of the consolidated financial statements. VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Viskase Holding Corporation is a wholly owned subsidiary of Viskase Corporation. Viskase Corporation, in turn, is a wholly owned subsidiary of Envirodyne Industries, Inc. Viskase Holding Corporation serves as the direct or indirect parent company for the majority of Viskase Corporation's non-domestic operations. These subsidiaries are as follows:
Name of Subsidiary Parent of Subsidiary Country of Business - - ------------------------------- --------------------------- --------------------- Viskase Argentina S.A. Viskase Holding Corporation Argentina Viskase Australia Limited Viskase Holding Corporation Australia Viskase Brasil Embalagens Ltda. Viskase Holding Corporation Brazil Viskase Europe Limited Viskase Holding Corporation United Kingdom Viskase de Mexico S.A. de C.V. Viskase Holding Corporation Mexico Viskase S.A. Viskase Europe Limited France Viskase Gmbh Viskase S.A. Germany Viskase SPA Viskase S.A. Italy Viskase Canada Inc. Viskase S.A. Canada Viskase ZAO Viskase S.A. Russia Viskase Holdings Limited Viskase S.A. United Kingdom Filmco International Limited Viskase Holdings Limited United Kingdom Viskase Limited Viskase Holdings Limited United Kingdom Viskase (UK) Limited Viskase Limited United Kingdom Envirodyne S.A.R.L. Viskase (UK) Limited France
Viskase Holding Corporation conducts its operations through its subsidiaries and, for the most part, has no assets or liabilities other than its investments, accounts receivable and payable with affiliates, and intercompany loan and advances. On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the United States Bankruptcy Code. On January 7, 1993, several of the subsidiaries of Envirodyne Industries, Inc., including Viskase Holding Corporation, each filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court). None of the subsidiaries of Viskase Holding Corporation entered into Chapter 11. On December 17, 1993, the Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as twice modified (Plan of Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and certain of its subsidiaries, including Viskase Holding Corporation. The Plan of Reorganization was consummated and Envirodyne and certain of its subsidiaries emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the Plan of Reorganization was deemed to be effective as of December 31, 1993. The Chapter 11 filing was related only to the Company's domestic operations and did not include the foreign subsidiaries and various inactive domestic subsidiaries. 2. NATURE OF BUSINESS Viskase Holding Corporation's subsidiaries manufacture food packaging products. The operations of these subsidiaries are primarily in Europe and South and North America. Through its subsidiaries, the Company is a leading producer of cellulosic casings used in preparing and packaging processed meat products and is a major producer of heat shrinkable plastic bags and specialty films for packaging and preserving fresh and processed meat products, poultry and cheeses. The Company is also a leading international manufacturer of plasticized polyvinyl chloride (PVC) films, primarily for use in packaging food items. International Operations Viskase Holding Corporation's subsidiaries have seven manufacturing facilities located outside the continental United States, in Beauvais, France; Thaon, France; Lindsay, Ontario, Canada; Sedgefield, England (Great Britain); Swansea, Wales (Great Britain); Guarulhos, Brazil and Nuevo Laredo, Mexico. International sales and operations may be subject to various risks including, but not limited to, possible unfavorable exchange rate fluctuations, political instability, governmental regulations (including import and export controls), restrictions on currency repatriation, embargoes, labor relations laws and the possibility of governmental expropriation. Viskase Holding Corporation's foreign operations generally are subject to taxes on the repatriation of funds. International operations in certain parts of the world may be subject to international balance of payments difficulties which may raise the possibility of delay or loss in the collection of accounts receivable from sales to customers in those countries. Viskase Holding Corporation believes that its subsidiaries' allow- ance for doubtful accounts makes adequate provision for the collectibility of its receivables. Management believes that growth potential exists for many of Viskase's products outside the United States and that Viskase is well positioned to participate in these markets. Sales and Distribution Viskase Holding Corporation's subsidiaries' principal markets are in Europe, Latin America, North America and Asia Pacific. The United Kingdom operation sells its PVC films directly and through distributors, primarily to the retail grocery and foodservice industries in Europe. In Europe, Viskase Holding Corporation's subsidiaries operate casings service centers in Milan, Italy, Pulheim, Germany, and Moscow, Russia. The Company also operates a service center in Brisbane, Australia. These service centers provide finishing, inventory and delivery services to customers. The subsidiaries also use outside distributors to market their products to customers in Europe, Africa, Asia and Latin America. Competition From time to time, Viskase Holding Corporation's subsidiaries experience reduced market share or reduced profits due to price competition; however, management believes that such market conditions will not result in any long-term material loss of business. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Basis of presentation Effective in 1990 Envirodyne Industries, Inc. adopted a 52/53 week fiscal year ending on the last Thursday of December. Viskase Holding Corporation's 1993 financial statements include December 31, 1993 in order to present the effect of the consummation of the Plan of Reorganization. (B) Principles of consolidation The consolidated financial statements reflect the accounts of Viskase Holding Corporation and its subsidiaries. All significant intercompany transactions and balances between and among Viskase Holding Corporation and its subsidiaries have been eliminated in the consolidation. Reclassifications have been made to the prior years' financial statements to conform to the 1996 presentation. (C) Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (D) Cash equivalents (dollars in thousands) For purposes of the statement of cash flows, the Company considers cash equivalents to consist of all highly liquid debt investments purchased with an initial maturity of approximately three months or less. Due to the short-term nature of these instruments, the carrying values approximate the fair market value. Cash equivalents include $4,074 and $8,074 of short-term investments at December 26, 1996 and December 28, 1995, respectively. (E) Inventories Inventories, primarily foreign, are valued at the lower of first-in, first-out (FIFO) cost or market. (F) Property, plant and equipment Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. Upon retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in results of operations. Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, property, plant and equipment was reported at the estimated fair value. (G) Deferred financing costs Deferred financing costs are amortized on a straight-line basis over the expected term of the related debt agreement. Amortization of deferred financing costs is classified as interest expense. (H) Excess reorganization value and excess investment over net assets acquired, net Excess reorganization value is amortized on the straight-line method over 15 years. The Company continues to evaluate the recoverability of excess reorganization value based on operating performance and undiscounted cash flows of the operating business units. Impairment will be recognized when the expected undiscounted future operating cash flows derived from such intangible is less than its carrying value. If impairment is identified, valuation techniques deemed appropriate under the particular circumstances will be used to determine the intangible's fair value. The loss will be measured based on the excess of carrying value over the determined fair value. The review for impairment is performed at least on a quarterly basis. (I) Pensions The Company's operations in Europe have defined benefit retirement plans covering substantially all salaried and full time hourly employees. Pension cost is computed using the projected unit credit method. The Company's funding policy is consistent with funding requirements of the applicable foreign laws and regulations. (J) Postemployment benefits Effective December 31, 1993 and in conjunction with the Fresh Start Reporting, the Company adopted SFAS No. 112 "Employers Accounting for Postemployment Benefits." The impact of adopting SFAS No. 112 was not material. (K) Income taxes Income taxes are accounted for in accordance with SFAS No. 109. Tax provisions and benefits are recorded at statutory rates for taxable items included in the consolidated statements of operations regardless of the period for which such items are reported for tax purposes. Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities for which income tax benefits will be realized in future years. (L) Net income (loss) per share Net income (loss) per share of common stock is based upon the weighted average number of shares of common stock outstanding during the year. (M) Revenue recognition Sales to customers are recorded at the time of shipment net of discounts and allowances. (N) Foreign currency contracts The Company maintains a hedging program to partially hedge its forecasted foreign currency revenue cash flows. The hedging program principally addresses revenue cash flows within its European operations. The foreign exchange contracts are denominated predominantly in the major European currencies and have varying maturities up to eighteen months. The effect of this practice is to minimize the effect of foreign exchange rate movements on the Company's operating results. The Company's hedging activities do not subject the Company to additional exchange rate risk because gains and losses on these contracts offset losses and gains on the transactions being hedged. The cash flows from forward contracts accounted for as hedges of identifiable transactions or events are classified consistent with the cash flows from the transactions or events being hedged. 4. RECEIVABLES (dollars in thousands) Receivables consisted primarily of trade accounts receivable and were net of allowances for doubtful accounts of $1,404 and $2,256 at December 26, 1996, and at December 28, 1995, respectively. 5. INVENTORIES (dollars in thousands) Inventories consisted of: December 26, December 28, 1996 1995 ----------- ----------- Raw materials $ 3,728 $ 5,299 Work in process 11,395 13,342 Finished products 21,386 19,592 ------- ------- $36,509 $38,233 ======= ======= Inventories were net of reserves for obsolete and slow moving inventory of $1,283 and $1,331 at December 26, 1996 and December 28, 1995, respectively. 6. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands) December 26, December 28, 1996 1995 ----------- ----------- Property, plant and equipment: Land and improvements $ 5,394 $ 5,319 Buildings and improvements 30,349 30,236 Machinery and equipment 117,312 114,212 Construction in progress 4,916 283 Capital Leases: Machinery and equipment 204 367 -------- -------- $158,175 $150,417 ======== ======== Maintenance and repairs charged to costs and expenses for 1996, 1995, and 1994 aggregated $8,374, $10,288 and $10,748, respectively. Depreciation is computed on the straight-line method over the estimated useful lives of the assets ranging from 3 to 32 years. 7. ACCRUED LIABILITIES (dollars in thousands) Accrued liabilities were comprised of: December 26, December 28, 1996 1995 ----------- ----------- Compensation and employee benefits $10,287 $ 9,446 Taxes 6,073 1,585 Accrued volume and sales discounts 5,101 5,320 Inventory received not billed 2,805 1,205 Other 7,411 4,386 ------- ------- $31,677 $21,942 ======= ======= 8. DEBT OBLIGATIONS (dollars in thousands) As described in Note 1, Chapter ll Reorganization Proceedings, Envirodyne and certain of its domestic Subsidiaries (including Viskase Holding Corporation) emerged from Chapter 11 on December 31, 1993. On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate principal amount of senior secured notes to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. The Company finances its working capital needs through a combination of cash generated through operations and borrowings local unsecured credit facilities and intercompany loans. The Company recognized an extraordinary loss of $1,030 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable income taxes of $340, was included in the Company's Statement of Operations for the quarter ended June 29, 1995. The Viskase Limited term facility is with a foreign financial institution. The term facility, which is collateralized by substantially all of the assets of Viskase Limited, bears a variable interest rate and is payable in 16 equal semiannual installments that began in December 1992. Outstanding short-term and long-term debt consisted of: December 26, December 28, 1996 1995 ----------- ----------- Short-term debt and current maturity of long-term debt: Current maturity of Viskase Limited Term Loan (4.7%) $1,876 $2,033 Other 2,233 4,064 ------ ------ Total short-term debt $4,109 $6,097 ====== ====== Long-term debt: Viskase Limited Term Loan (4.7%) $4,690 $7,115 Other 164 606 ------ ------ Total long-term debt $4,854 $7,721 ====== ====== The fair value of the Company's debt obligation is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. The fair values of debt obligations approximated their carrying values. Aggregate maturities of remaining long-term debt for each of the next five fiscal years are: Total ------ 1997 $3,211 1998 1,981 1999 1,875 2000 939 2001 - 9. OPERATING LEASES (dollars in thousands) The Company has operating lease agreements for machinery, equipment and facilities. The majority of the facilities leases require the Company to pay maintenance, insurance and real estate taxes. Future minimum lease payments for operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 26, 1996, are: 1997 $ 745 1998 247 1999 129 2000 6 2001 3 Total thereafter ------ Total minimum lease payments $1,130 ====== Total rent expense during 1996, 1995 and 1994 amounted to $2,905, $3,750, and $2,350, respectively. 10. RETIREMENT PLANS (dollars in thousands) The Company maintains various pension and statutory separation pay plans for its European employees. The expense for these plans in 1996, 1995 and 1994 was $1,972, $1,383, and $1,043, respectively. As of their most recent valuation dates, in plans where vested benefits exceeded plan assets, the actuarially computed value of vested benefits exceeded those plans' assets by approximately $2,204; conversely, plan assets exceeded the vested benefits in certain other plans by approximately $2,569. The Company's postretirement benefits are not material. 11. CONTINGENCIES (dollars in thousands) In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC was infringing on various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. On November 8, 1996, after a three week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. On December 5, 1996, ANC posted a supersedeas bond in the amount of $108 million and the Court entered an order staying Viskase's enforcement of the judgment. The Court also entered an order permanently enjoining ANC from making or selling infringing products after December 23, 1996. The judgment is not final and the parties are presently engaged in the post-judgment motion phase of the case. ANC has filed motions to reduce the damage award by at least $75 million or alternatively, grant ANC a new trial. Viskase is seeking a determination that the case be deemed "exceptional" and that the award be increased by approximately $46 million which includes compensatory damages for ANC's infringement during the period of October 1, 1996 through December 23, 1996 and additional damages for prejudgment interest, attorneys' fees and related expenses. Due to ANC's willful infringement of the patents, Viskase has asked the court to treble the compensatory award. These motions are all pending before the Court and rulings are expected in the second quarter 1997. Meanwhile post-judgment interest is accruing on the $102.4 million award from November 8, 1996 at an annual rate of 5.49%. The Company expects ANC to aggressively contest the award and to appeal any final judgment. The award and any pending claims for additional damages have not been recorded in the Company's financial statements. The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 12. INCOME TAXES (dollars in thousands) The provision (benefit) for income taxes consisted of: December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Current: Federal $1,909 $1,316 $4,479 Foreign 4,365 950 4,652 State and local 379 243 766 ------ ------ ------ 6,653 2,509 9,897 ------ ------ ------ Deferred: Federal Foreign 393 2,098 128 State and local ------- ------- ------- 393 2,098 128 ------- ------- ------- $ 7,046 $ 4,607 $10,025 ======= ======= ======= A reconciliation from the statutory federal tax rate to the consolidated effective tax rate follows: December 29, December 30, January 1, 1995 to 1994 to to December 26, December 28, December 29, 1996 1995 1994 ----------- ----------- ----------- Statutory federal tax rate 35.0% 35.0% 35.0% Increase (decrease) in tax rate due to: State and local taxes net of related federal tax benefit 1.5 2.3 2.5 Net effect of taxes relating to foreign operations 7.9 30.4 11.1 Other (.6) .4 1.6 ---- ---- ---- Consolidated effective tax rate 43.8% 68.1% 50.2% ==== ==== ==== Temporary differences and carryforwards which give rise to a significant portion of deferred tax assets and liabilities for 1996 are as follows:
Temporary Difference Tax Effected -------------------------- --------------------------- Deferred Tax Deferred Tax Deferred Tax Deferred Tax Assets Liabilities Assets Liabilities ------------ ------------ ------------ ------------ Depreciation basis differences $70,911 $25,206 Pension and healthcare 1,684 605 Other accruals, reserves, and other $6,457 3,813 $2,363 1,451 ------ ------- ------ ------- $6,457 $76,408 $2,363 $27,262 ====== ======= ====== =======
At December 26, 1996, the Company had $16,393 of undistributed earnings of foreign subsidiaries considered permanently invested for which deferred taxes have not been provided. Domestic earnings or (losses) after extraordinary gain or loss and before income taxes were approximately $6,156, $3,937 and $12,634 in 1996, 1995 and 1994, respectively. Foreign earnings or (losses) before income taxes were approximately $9,942, $2,832 and $7,329 in 1996, 1995 and 1994, respectively. 13. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands) Research and development costs are expensed as incurred and totaled $1,282, $1,106, and $1,562, for 1996, 1995, and 1994, respectively. 14. RELATED PARTY TRANSACTIONS (dollars in thousands) Intercompany loans and advances: - - -------------------------------
December 26, December 28, 1996 1995 ----------- ----------- Viskase S.A. 12% promissory note due to Envirodyne $ 7,000 $25,142 Viskase Limited 12% promissory note due to Envirodyne 13,681 Viskase S.A. promissory note due to Envirodyne 17,440 Accrued interest on Viskase S.A. promissory note 83 Viskase United Kingdom Limited promissory note due to Envirodyne, including accrued interest 419 Advances: Viskase Corporation to Viskase Holding Corporation 38,010 38,010 ------- ------- $58,691 $81,094 ======= =======
The 12% promissory notes due to Envirodyne are payable on demand. Interest is payable semiannually on June 30 and December 31. The Viskase S.A. promissory note due to Envirodyne was payable on demand and bore interest at a rate of 10.00%. The note was repaid in fiscal 1996. The $2.5 million Viskase United Kingdom Limited promissory note due to Envirodyne was payable on demand and bore interest at a rate of 8.00%. The balance of the note was repaid in fiscal 1996. The Viskase Corporation advance to Viskase Holding Corporation is payable on demand. License Agreements - - ------------------ Viskase Holding Corporation has been granted the right to license Viskase Corporation's patents and technology pursuant to a license agreement between Viskase Corporation and Viskase Holding Corporation. Intercompany transactions: - - ------------------------- In 1996, 1995 and 1994, the Company was charged $999, $1,022 and $756, respectively, by Viskase Corporation for management services. In 1996, 1995 and 1994, the Company was charged $520, $687 and $100, respectively, by Envirodyne for management services. During 1996, 1995 and 1994, the Company purchased semi-finished and finished inventory from Viskase Sales Corporation in the amount of $32,489, $26,953 and $23,114, respectively. In addition, during 1996, 1995 and 1994, the Company had sales of inventory to Viskase Sales Corporation in the amount of $7,842, $7,329 and $5,632, respectively. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying value and estimated fair value as of December 26, 1996 of the Company's financial instruments. (Refer to Notes 3 and 8.) Carrying Estimated Value Fair Value -------- ----------- Assets: Cash and equivalents $16,171 $16,171 Foreign currency contracts 12,995 12,337 Liabilities: Long-term debt 7,742 7,742 16. PATENT LITIGATION SETTLEMENT (dollars in thousands) In 1989 certain competitors of Viskase filed a declaratory action challenging the validity and enforceability of a Viskase patent relating to casings used in the manufacture of food products. In May 1994, the trial court upheld the validity and enforceability of the Viskase patent and found infringement of the patent. Before the trial on damages was conducted, Viskase entered into agreements to settle the claims and grant licenses to the competitors. Under the terms of these agreements Viskase received $9,457 for past infringement and advance royalties and established royalty rates for future patent use. 17. SUBSEQUENT EVENTS (dollars in thousands) In March 1997 the Company announced that it was exploring the potential sale of Viskase Corporation's PVC film business. Viskase's plants in Aurora, Ohio, and Sedgefield, England, would be affected by a sale. Net sales of PVC films in 1996 totaled approximately $54 million. In March 1997, Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase Corporation has cooperated fully with the investigation. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Balance at Provision Balance Beginning Charged to at End Description of Period Expense Write-offs Recoveries Other(1) of Period -------------------- ---------- ----------- ---------- ---------- ------- --------- 1996 for the year ended December 26 Allowance for doubtful accounts $3,224 $ 659 $(2,293) $ 469 $ (8) $2,051 1995 for the year ended December 28 Allowance for doubtful accounts 2,136 1,403 (472) 6 151 3,224 1994 for the year ended December 29 Allowance for doubtful accounts 2,872 939 (1,824) 21 128 2,136 1996 for the year ended December 26 Reserve for obsolete and slow moving inventory 3,818 1,805 (1,210) (16) 4,397 1995 for the year ended December 28 Reserve for obsolete and slow moving inventory 5,353 1,264 (2,868) 69 3,818 1994 for the year ended December 29 Reserve for obsolete and slow moving inventory 5,425 2,936 (3,123) 115 5,353 (1) Foreign currency translation.
EX-10.20 2 EMPLOYMENT AGREEMENT THIS AGREEMENT entered into as of the 27th day of March, 1996 by and between Envirodyne Industries, Inc., a Delaware corporation with its principal office at 701 Harger Road, Oak Brook, Illinois 60521 (the "Company") and F. Edward Gustafson, an individual ("Executive") (hereinafter together referred to as "the parties"). WHEREAS, Executive has served as Executive Vice President and Chief Operating Officer of the Company; and WHEREAS, the Company and Executive desire that Executive serve as Chairman of the Board, President and Chief Executive Office of the Company on the terms set forth herein. NOW, THEREFORE, in consideration of the mutual agreements and covenants of the parties contained herein, the parties agree as follows: 1. Employment Term. The Company shall employ Executive --------------- and Executive agrees to be employed by the Company; pursuant to the terms and conditions hereof; for the period (the "Employment Term") commencing on the date hereof and ending on March 26, 1999; provided, -------- however, that on March 26, 1997 and on each subsequent anniversary - - ------- thereof, the Employment Term shall automatically be extended for a period of one year unless either party shall have given written notice to the other party not less than thirty days prior to March 27, 1997 or any subsequent anniversary thereof that the Employment Term shall not be so extended. 2. Duties. During the Employment Term, Executive shall ------ serve as Chairman of the Board, President and Chief Executive Officer of the Company, and the Company shall use its best efforts to cause Executive to be elected as a director of the Company during the Employment Term. Executive shall perform such services and duties prescribed for such positions by the Company's By-laws and as are otherwise incident to such positions and such other services and duties not inconsistent with such positions as may be determined from time to time by the Board of Directors of the Company (the "Board"). Subject to the terms and conditions of this Agreement, Executive shall devote his full business time, attention and skills, to the best of his abilities, to the performance of such services and duties, and use his best efforts to promote the interests of the Company and its subsidiaries. Nothing in this Agreement shall preclude Executive from engaging in charitable and community affairs, from managing his personal investments or, except as otherwise provided in Sections 9(b) and (c), from serving as a member of the board of directors or a trustee of other companies, associations or entities, provided, however, that such activities do not interfere in -------- ------- any material respect with Executive's performance of his obligations to the Company hereunder. Executive's principal place of employment shall be located in the greater Chicago metropolitan area, and the Company shall not require Executive to relocate from such area without Executive's prior written consent. 3. Compensation. In consideration of the performance by ------------ Executive of his obligations hereunder, the Company shall pay Executive the amounts hereinafter set forth. (a) During the Employment Term, the Company shall pay Executive (i) a salary (the "Base Salary") at an annual rate of not less than $450,000, plus (ii) $30,000 per year in lieu of a Company-provided automobile, both payable in substantially equal installments in accordance with the normal payroll practices of the Company then in effect for other offices of the Company. As of each anniversary of the date of this Agreement, Executive's Base Salary shall be increased by such amount as shall be determined by the Compensation Committee of the Board in a manner consistent with its most recent determination of increases in base salary of other senior officers of the Company. (b) If for the fiscal year of the Company ending during 1996, the Company's Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (as determined by the Company's independent accounts based on the Company's audited financial statements for such fiscal year) exceeds $100,000,000, the Company shall pay Executive, within 2-1/2 months after the end of such fiscal year, an annual bonus equal to the percentage of Executive's Base Salary set forth on Schedule A attached hereto, based on the amount by which EBITDA exceeds $100,000,000. The annual bonus payable to Executive for subsequent fiscal years of the Company ending during the Employment Term shall be based upon such financial or other performance criteria related to the Company and its businesses are attained, which criteria shall be established by the Compensation Committee of the Board, in its sole discretion, upon consultation with the Executive; (c) (1) Upon execution of this Agreement, the Company shall grant to Executive two options, each of which shall cover an aggregate of 35,000 shares of the Company's common stock, subject to the terms and conditions set forth in paragraph (c)(3) below. (2) In addition, upon execution of this Agreement the Company shall grant to Executive an additional option (the "Additional Option") covering 75,000 shares of the Company's Common Stock, subject to the terms and conditions set forth in this paragraph (c)(2) and in paragraph (c)(3) below: If for the Company's fiscal year ending in ----- 1996, the Company's EBITDA (as determined above) shall exceed $103,600,000, then on March 27, 1997 (if the Employment Term has not yet ended), subject to the terms and conditions set forth in paragraph (c)(3) below, the Additional Option shall become vested and exercisable with respect to shares of the Company's common stock in the number of shares determined based upon the amount of the Company's EBITDA, as follows: (a) if the Company's EBITDA exceeds $103,600,000, but not $108,000,000, 25,000 shares of Company common stock; (b) if the Company's EBITDA exceeds $108,000,000 but not $112,000,000, 50,000 shares of Company common stock; or (c) if the Company's EBITDA exceeds $112,000,000, 75,000 shares of Company commons stock. If the Company's EBITDA shall not exceed $103,600,000 for such fiscal year, the Additional Option shall not become vested and exercisable. (3) All options to be granted pursuant to this Agreement shall have a per share exercise price equal to the fair market value of a share of the Company's common stock on the date of grant and shall be subject to the general terms and conditions established by the Company's Compensation Committee and as set forth in the form of stock option agreement in use under the Company's 1993 Stock Option Plan (as amended and restated through March 27, 1996) (the "Stock Option Plan"), provided any portion of the Additional Option granted pursuant to - - -------- paragraph (c)(2) above that becomes vested on account of the Company's performance pursuant to paragraph (c)(2)(a), (b) or (c) above and one of ----- the options granted pursuant to subparagraph (c)(1) above shall become exercisable with respect to one-third of the shares covered thereby on each of March 27, 1998, March 27, 1999 and March 27, 2000, if the Employment Term has not yet ended on such dates. (d) Upon execution of this Agreement, the Company shall grant to Executive 35,000 restricted shares of the Company's common stock but subject to any notification requirement imposed by the National Association of Securities Dealers. Such shares shall be non-transferrable and subject to the restriction that they shall be forfeited to the Company if Executive's employment by the Company is terminated by the Company for cause as defined herein or voluntarily by Executive, other than on account of Good Reason or Executive's death or Disability, prior to March 27, 1999. 4. Benefits. During the Employment Term, Executive shall -------- be entitled to participate in any employee benefit plans (including, but not limited to, any life insurance, disability, medical, dental, hospitalization, savings, retirement and other benefit plans of the Company) then in effect for executive officers of the Company and to receive any other fringe benefits that the Company then provides to executive officers of the Company to the extent Executive meets the eligibility requirements for any such plan or benefit; provided, -------- however, that Executive shall be provided life insurance protection - - ------- provided to Executive in an amount not be less than $500,000. 5. Reimbursements for Expenses. Executive is authorized --------------------------- to incur reasonable expenses in the performance of his duties hereunder, including without limitation, country club dues (up to $8,500 per year), expenses for travel and similar items related to such duties. The Company also shall pay or reimburse Executive up to $5,000 per year for financial consulting services. The Company shall reimburse Executive or pay for all such expenses upon presentation by Executive from time to time of an itemized account of such expenditures. The Company also shall establish a nonqualified, unfunded program whereby Executive can defer compensation under the terms of the Company's "401(k) plan" in excess of the limits imposed on such deferrals by the Internal Revenue Code. The Company shall pay or reimburse Executive for the reasonable attorneys' fees and related expenses incurred by Executive in connection with the negotiation of this Agreement. 6. Vacations. During the Employment Term, Executive shall --------- be entitled to paid vacations of no less than six weeks per year. 7. Termination. Executive's employment hereunder may be ----------- terminated under the following circumstances: (a) Death. Executive's employment hereunder shall ----- terminate automatically upon Executive's death. (b) Disability. The Company or Executive may ---------- terminate Executive's employment after having established Executive's Disability. For purposes of this Agreement, "Disability" shall be established if Executive shall be unable to perform fully his duties hereunder because of illness, physical or mental disability or other incapacity, as confirmed by medical evidence satisfactory to the Compensation Committee, that is expected to prevent him from returning to the full performance of his duties hereunder for six months or longer. (c) Cause. The Company may terminate Executive's ----- employment for "Cause." Cause shall mean a finding adopted in good faith by the Board that Executive (i) willfully failed to substantially perform his services or duties for the Company (other than a failure resulting from Executive's Disability) and such failure continues for 30 days after the Board has given written notice to Executive providing a reasonable description of the basis for the determination that Executive has failed to perform his services or duties, (ii) has been convicted of (or plead nolo contendere to) a felony or to a misdemeanor involving ---- ---------- moral turpitude or the use of a controlled substance, (iii) has breached this Agreement in any material respect if such breach is not cured or remedied within 30 days after the Board has given written notice to Executive providing a reasonable description of the breach, or (iv) engaged in embezzlement or misappropriation of the assets of the Company or any of its subsidiaries or (v) engaged in conduct constituting willful malfeasance in connection with his employment which is materially injurious to the Company and its subsidiaries taken as a whole. Notwithstanding anything contained in this Agreement to the contrary, no failure to perform by Executive after Notice of Termination (as hereinafter defined) is given by Executive shall constitute Cause for purposes of this Agreement. No act, or failure to act, on Executive's part, shall be considered "willful" for purposes of (i) or (v) above unless he has acted to failed to act with an absence of good faith and without a reasonable belief that his action or failure to act was in the best interests of the Company. Any action of the Board to terminate Executive for cause under clause (i), (iii), (iv) or (v) of the preceding sentence shall not be made until after Executive and his legal advisors have been provided an opportunity to meet with the Board, contest the basis for such termination and to demonstrate that Executive's continued employment is in the best interests of the Company. (d) (1) Good Reason. Executive may terminate his ----------- employment for "Good Reason." As used in this Section 7(d), the term "Company" shall also refer to its successor entity or any entity which has acquired control of the Company as a result of a Change in Control. For purposes of this Agreement, Good Reason shall mean the occurrence of any of the events or conditions described in Subsections (i) through (vi) hereof: (i) Executive no longer serving as Chairman of the Board, President and Chief Executive Officer of the Company, or the assignment to Executive of any duties or responsibilities which are inconsistent with the status, title, position or responsibilities of Chairman of the Board, President and Chief Executive Officer of the Company (which assignment is not rescinded after the Company receives written notice from Executive providing a reasonable description of such inconsistency); provided, however, that a cessation of the Company's status as a reporting Company under Section 12(g) of the Securities Exchange Act of 1934 shall not by itself result in a violation of this clause; (ii) the Company's requiring Executive to be based at any place outside a 30-mile radius from the principal location from which Executive served as an employee of the Company immediately prior to the Change in Control, except for reasonably required travel on the Company's business which is not materially greater than such travel requirements prior to the Change in Control; (iii) the failure by the Company to provide Executive with compensation and benefits substantially comparable, in the aggregate, to those provided for under the employee benefit plans, programs and practices in effect immediately prior to the Change in Control; (iv) any material breach by the Company of any provision of this Agreement which has not been cured or corrected by the Company within two weeks after Executive has given the Company written notice of such breach; or (v) the failure of the Company to obtain an agreement, satisfactory to Executive, from any successor or assign of the Company to assume and agree to perform this Agreement, as contemplated in Section 12 hereof. (2) Executive's right to terminate his employment pursuant to this Section 7(d) shall not be affected by his Disability if as of the occurrence of an event constituting Good Reason, his Employment has not terminated pursuant to paragraph 7(b) hereof. (e) For purposes of this Agreement, a "Change in Control" shall mean any of the following events: (1) any Person (an "Acquiring Person") becomes the "beneficial owner" (as such term is defined in Rule 13d-3 promulgated under the Exchange Act, a "Beneficial Owner"), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, other than beneficial ownership by the Company, any employee benefit plan of the Company or any person or entity organized, appointed or established pursuant to the terms of any such benefit plan; (2) the Company's stockholders approve an agreement to merge or consolidate the Company with another corporation, or an agreement providing for the sale of substantially all of the assets of the Company to one or more corporations, in any case other than with or to a corporation 50% or more of which is controlled by or is under common control with, the Company; or (3) during any two-year period, individuals who at the date on which the period commences constitute a majority of the Board cease to constitute a majority thereof for any reason; provided, however, that a director who was not a director at the beginning of such period shall be deemed to have satisfied the two-year requirement if such director was elected by, or on the recommendation of, at least a majority of the directors who were directors at the beginning of such period (either actually or by prior operation of this provision), other than any director who is so approved in connection with any actual or threatened contest for election to positions on the Board. (f) Notice of Termination. Any purported termination of Executive's employment hereunder by the Company for Cause or by Executive for Good Reason or by reason of Executive's Disability shall be communicated by a written Notice of Termination to the other. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon as a basis for termination. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (g) Termination Date. "Termination Date" shall mean in the case of Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination; provided, however, that if Executive terminates his employment for Good Reason, the date specified in the Notice of Termination shall not be more than 30 days from the date the Notice of Termination is given to the Company and if the Company terminates Executive's employment other than for Cause, the date specified in the Notice of Termination shall be no less than 30 days from the date the Notice of Termination is given to Executive. 8. Compensation Upon Termination. Upon termination of ----------------------------- Executive's employment during the Employment Term, Executive shall be entitled to the following benefits: (a) If Executive's employment is terminated by the Company for Cause or by Executive (other than for Good Reason or Executive's Disability), the Company shall pay to Executive all amounts earned or accrued hereunder through the Termination Date but not paid as of the Termination Date, including (i) Base Salary, (ii) reimbursement (in accordance with the terms of this Agreement) for any and all monies advanced or expenses incurred in connection with Executive's employment for reasonable and necessary expenses incurred by Executive on behalf of the Company for the period ending on the Termination Date, (iii) accrued but unpaid vacation pay, (iv) any earned or awarded and vested, but unpaid bonus for any fiscal year of the Company ending prior to the year in which such termination occurs and (v) any previous compensation which Executive has previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"). Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other applicable programs and practices then in effect, including but not limited to the plan described in Section 3(d) hereof, and all unexercisable stock options and unvested restricted stock shall be forfeited. (b) Subject to the last sentence of Section 8(c), if Executive's employment is terminated by the Company for any reason other than for Cause, death or Disability, or by Executive for Good Reason the Company shall pay to Executive all Accrued Compensation plus (ii) 200% of Executive's Base Salary and the amount of the bonus which would have been payable to Executive pursuant to Section 3(b) hereof in respect of the year of the Employment Term in which the Termination Date occurs and calculated as if Executive were employed by the Company as of the end of such year (but, to the extent the bonus is contingent on the achievement of performance targets, based on whether such targets were actually achieved as of the Termination Date) multiplied by a fraction, the numerator of which shall be the number of days in such year which have elapsed prior to the Termination Date and the denominator of which shall be the number of days in such year. In addition, Executive shall be entitled to coverage for 24 calendar months following the month on which the Termination Date occurs under the life insurance, medical, dental and hospitalization benefits which Executive would have been entitled to receive if he had continued his employment with the Company for such period, on the terms and conditions applicable to other executive officers of the Company as in effect from time to time during such period. Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans and other programs and practices then in effect, including but not limited to the plan described in Section 3(d) hereof. All outstanding stock options and restricted stock granted or issued pursuant to this Agreement shall become exercisable, vested and nonforfeitable. (c) If Executive's employment by the Company is terminated by the Company following a Change in Control other than for Cause, death or Disability, or by Executive for Good Reason, then Executive shall be entitled to the amounts described in paragraph (b) above and except that in applying clause (ii) thereof, it shall be assumed that the bonus to which the Executive shall be entitled shall be equal to 50% of Base Salary irrespective of the Company's performance or the date on which the termination occurs. (d) If Executive's employment by the Company is terminated by reason of Executive's death, Executive's estate or designated beneficiaries shall receive: (i) all of Executive's Accrued Compensation; and (ii) and any death benefits provided under the employee benefits plans specified in Section 4 hereof; and (e) If Executive's employment by the Company is terminated by the Company or Executive by reason of Executive's Disability, Executive shall be entitled to receive or continue to receive: (i) his Base Salary for the first six months of such Disability (including any period of such Disability prior to termination of Executive's employment), and (ii) $7,500 per month thereafter until the first to occur of his 65th birthday and his death. Any amounts payable pursuant to clause (ii) of the preceding sentence shall be offset by any amounts payable to Executive pursuant to any plan or program described in paragraph 4 hereof. (f) The amounts (other than any life insurance and medical, dental and hospitalization coverage) provided for in this Section 8 shall be paid within five (5) business days after Executive's Termination Date. The continuation of any life insurance, medical, dental or hospitalization benefits pursuant to Section 8(b) or 8(c) shall be in satisfaction of the Company's obligations under Section 4980B of the Internal Revenue Code of 1986, or any similar state law requiring continuation of such insurance or benefits, with respect to the period of time during which such insurance or benefits are continued hereunder. (g) The Company shall use its best efforts to ensure that shares of the Company's common stock obtained by Executive from the Company by reason of the exercise of stock options shall be covered by an effective registration statement on Form S-8 (or similar or successor form) with the intention that Executive may sell such shares in compliance with the Securities Act of 1933 (whether or not he is employed by the Company at the time of the sale). 9. Nondisclosure of Confidential Information; ------------------------------------------ Non-Competition. (a) Executive shall not, without the prior written - - --------------- consent of the Company, divulge, disclose or make accessible to any other person, firm, partnership, corporation or other entity any Confidential Information pertaining to the business of the Company, except (i) while employed by the Company, in the business of and for the benefit of the Company, or (ii) when required to do so by a court of competent jurisdiction, by any governmental agency having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Executive to divulge, disclose or make accessible such information. When Executive shall cease to be employed by the Company, the Executive shall surrender to the Company all Confidential Information obtained by him or entrusted to him during the course of his employment hereunder (together with all copies thereof) which pertain specifically to any of the businesses covered by the covenants in this paragraph or which were paid for by the Company or any of its subsidiary; provided, however, that the Executive may retain -------- ------- copies of such documents as necessary for the Executive's personal records for federal income tax purposes. For purposes of this Section 9(a), "Confidential Information" shall mean non-public information concerning the financial data of the Company or any subsidiary, strategic business plans, product development, bidding information (or other proprietary product data), customer lists, marketing plans and other proprietary and confidential information of the Company or any of its subsidiaries, in each case which is not otherwise available to the public. (b) During the Employment Term and for a period of two years thereafter, except with the prior written consent of the Board, the Executive: (1) shall not engage in any activities whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (1) the businesses conducted at the date hereof by the Company or any of its subsidiaries or affiliates over which he shall have exercised, directly or indirectly, any supervisory, management, fiscal or operating control during the Employment Term (the "Managed Companies"), or (2) any business in which the Managed Companies are substantially engaged at any time during the Employment Period; (2) shall not solicit, in competition with the Company, any person who is a customer of the businesses conducted by the Managed Companies at the date hereof or of any business in which the Managed Companies are substantially engaged at any time during the Employment Period; and (3) shall not induce or attempt to persuade any employee of the Managed Companies to terminate his employment relationship in order to enter into competitive employment. (c) For purposes of Section 9(b) hereof, a business shall be deemed to be in competition with the Company if it is significantly involved in the sale of any product or the rendering of any service significantly sold or rendered by the Company or its subsidiaries. Nothing in this Section 9 shall be construed so as to preclude Executive from investing in any publicly held company, provided Executive's beneficial ownership of any class of such company's securities does not exceed 5% of the outstanding securities of such class. (d) The following provisions shall apply to the covenants of the Executive contained in Sections 9.01 and 9.02 (1) the covenants contained in paragraphs (A) and (B) of Section 9.01 shall apply within all territories in which any of the Managed Companies are actively engaged in the conduct of business during the Employment Term, including, without limitation, the territories in which customers are then being solicited; (2) without limiting the right of the Company to pursue all other legal and equitable remedies available for violation by the Executive of the covenants contained in Sections 9(a) and 9(b), it is expressly agreed by the Executive and the Company that such other remedies cannot fully compensate the Company for any such violation and that the Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; (3) each party intends and agrees that if in any action before any court or agency legally empowered to enforce the covenants contained in Sections 9(a) and 9(b) any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and (4) the covenants contained in Sections 9(a) and 9(b) shall survive the conclusion of Executive's Employment by the Company. 10. Conditional Adjustments in Compensation. (a) Anything --------------------------------------- in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise ("Total Compensation")), would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax") and if it is determined that the amount of Total Compensation remaining after payment of the Excise Tax is less than the maximum amount of Total Compensation that could be paid without becoming subject to such Excise Tax, the Total Compensation shall be reduced to such maximum amount. (b) All determinations required to be made under this Section 10, and the assumptions to be utilized in arriving at such determination, shall be made by the Company's public accounting firm (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of a request therefor by either Executive or the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting a Change in Control, Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive. 11. Withholding. Anything to the contrary herein ----------- notwithstanding, all payments required to be made by the Company hereunder to Executive, or his estate or beneficiaries, shall be subject to the withholding of such amounts as the Company may reasonably determine it should withhold pursuant to any applicable tax law or regulation. 12. Beneficiaries; References. Executive shall be ------------------------- entitled but shall not be required to select (and change, to the extent permitted under any applicable law) a beneficiary of beneficiaries to receive any compensation or benefit payable hereunder following Executive's death, and may change such election, in either case by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of his incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. 13. Successors and Assigns. ---------------------- (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns, and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. The term "the Company" as used herein shall include such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring all or substantially all of the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal personal representative. 14. Notice. For the purposes of this Agreement, notices ------ and all other communications provided for in this Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail return receipt requested, postage prepaid, addressed to the respective address last given by each party to the other, provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company. All notices and communications shall be deemed to have been received on the date of delivery thereof or on the third business day after the mailing thereof, except that notice of change of address shall be effective only upon receipt. 15. Non-Exclusivity of Rights. Nothing in this Agreement ------------------------- shall limit or reduce such rights as Executive may have under any other agreements with the Company or any of its subsidiaries concerning any subject matter other than that which is addressed herein; provided, however, that the payments and benefits provided under Section 8 shall be in lieu of any other termination benefits (including severance, notice and pay and salary continuation) to which Executive may otherwise be entitled, and executive hereby waives any and all rights to such other termination benefits; provided further, however, that nothing contained in this Agreement shall be construed to affect or diminish Executive's direct or indirect rights under the Amended and Restated Management Services Agreement dated December 31, 1993 between the Company and D.P. Kelly & Associates, L.P. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of the Company or any of its subsidiaries shall be payable in accordance with such plan or program, except as explicitly modified by this Agreement. 16. Miscellaneous. No provision of this Agreement may be ------------- modified, waived or discharged unless such waiver, modification, or discharge is agreed to in writing and signed by Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 17. Governing Law. This Agreement shall be governed by, ------------- and construed and enforced in accordance with, the laws of the State of Illinois, without giving effect to the conflict of law principles thereof. 18. Severability. The provisions of this Agreement shall ------------ be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 19. Entire Agreement. This Agreement constitutes the ---------------- entire agreement between the parties hereto and supersedes all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and Executive has executed this Agreement as of the day and year first above written. ENVIRODYNE INDUSTRIES, INC. By:________________________________ Title: ___________________________________ F. Edward Gustafson EX-10.21 3 ENVIRODYNE INDUSTRIES, INC. CORPORATE OFFICE SEVERANCE PAY POLICY Envirodyne Industries, Inc. (the "Company") hereby adopts the Envirodyne Industries, Inc. Severance Pay Policy (this "Policy") for its eligible employees at its Corporate Office effective as of May 15, 1996 and thereafter until otherwise amended or terminated by the Company; provided, however, that in the event a Change of Control (as -------- ------- hereinafter defined) or the elimination or consolidation of all or part of this office occurs during the term of this Policy, the term of this Policy shall be deemed to be extended to and including the anniversary date twenty-four (24) months following the effective date of such Change of Control or office consolidation or elimination. With respect to "Employees" as defined in Section A, this Policy shall replace and supersede any and all other policies, plans or programs of the Company regarding severance benefits. A. Covered Employees ----------------- All permanent, full-time salaried executive and administrative personnel employed by the Company at its Corporate Office (Employees) are covered by this Policy. B. Eligibility ----------- An Employee shall be eligible for the severance pay set forth in this Policy in the event of any actions/decisions deemed to eliminate or consolidate all or part of this office including, but not limited to, a Change of Control or office consolidation or elimination and: (1) any involuntary separation of employment from the Company for any reason other than death, disability or willful misconduct on the part of the Employee; (2) any voluntary separation of employment from the Company following a reduction in the Employee's base compensation and/or incentive bonus opportunity from that in effect on the day immediately before the effective date of the Change of Control or office consolidation or elimination; or (3) any voluntary separation of employment from the Company following a reduction in the Employee's principal responsibilities from those in effect on the day immediately before the effective date of the Change of Control or office consolidation or elimination. C. Amount of Severance Pay ----------------------- An Employee eligible for severance pay under Section B shall receive the following: (1) Cash Payment (a) Employees in Level I-P and Level I of the Approved -------------------------------------------------- Company Management Incentive Plan --------------------------------- An amount equivalent to eighteen (18) months' salary (at the highest annual rate in effect during the three- year period prior to termination), plus a target bonus under the Management Incentive Plan (MIP) in effect at the time of termination. (b) Other Approved Company Management Plan Participants --------------------------------------------------- An amount equivalent to nine (9) months' salary (at the highest annual rate in effect during the three-year period prior to termination), plus a target bonus under the Management Incentive Plan (MIP) in effect at the time of termination. (c) All Other Employees ------------------- An amount equivalent to four (4) months salary (at the highest annual rate in effect during the three year period prior to termination), plus " notice pay" equivalent to one (1) month's pay. (d) Form of Payment --------------- Employees shall elect to receive their cash severance payment in a single lump sum or in semi-monthly installment payments, consistent with paragraphs (a), (b) and (c) above and the Company's established payroll procedures for the duration of the severance period. All cash severance payments will be net of all applicable federal and state withholding taxes. An Employee receiving installment payments may at any time elect to suspend such future payments and receive any remaining installments in a lump sum. (2) Group Insurance --------------- Medical, life and dental insurance benefits, if any, in effect at the time of termination shall be extended to the earlier of when the Employee is covered by another employer's plan or: (a) for any Employee electing cash severance payment in a single lump sum, six (6) months after termination. (b) for any Employee electing cash severance payment in installment payments, the end of the month in which the severance installment payments expire. (c) All other insurance coverage (LTD; AD/D; travel/ accident) will cease effectiveness as of the conclusion of the severed employee's last day of active employment. (3) Envirodyne Retirement Savings Plan ---------------------------------- Participation in the Envirodyne Retirement Income Plan will cease as of the employee's last day of active employment. Company contributions to the Plan on behalf of such employee will also cease of the employee's last day of active employment. The act of severance as defined in this Policy will, however, cause an acceleration of the vesting provision of the Plan such that the terminated employee will be one hundred percent (100%) vested in the company's contributions on his/her behalf as of the last day of the employee's active employment with the Company. (4) Vacation -------- Employees shall receive cash payment for earned but not taken vacation in addition to severance pay. Payments for earned but not taken vacation shall be made at the time of termination. (5) Outplacement ------------ At the discretion of the Company, outplacement services may be provided for Employees in the manner determined by the Company. No payment shall be made to an Employee in lieu of outplacement services. D. Severance Policy Integration ---------------------------- Notwithstanding any provision of this Policy to the contrary, the severance pay under this Policy shall be reduced by the severance benefits then payable to an Employee under any other agreement, understanding, plan, policy, program or arrangement of the Company or a subsidiary of the Company. E. Other Company Payments ---------------------- In addition to any severance benefits payable to an Employee under this Policy, such Employee shall be entitled to receive all benefits payable under any other plan or agreement of the Company unrelated to severance benefits. F. Change of Control Definition ---------------------------- A "Change of Control" for purposes of this Policy shall ----------------- mean the occurrence of either of the following events: (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) is or becomes a "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the Common Stock of the Company or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new or replacement directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. G. General Release --------------- Notwithstanding Section B or any other provision of this Policy to the contrary, in order to receive any severance pay under this Policy, an Employee must sign a statement, in such form as determined by the Company, which releases the Company and its subsidiaries, shareholders, directors, officers, employees, successors and assigns from any existing and future claims except as such claims of any nature relate directly to the payment of any benefits due under this Policy or any other severance benefit. H. No Alienation of Severance Benefits ----------------------------------- No interest of an Employee or his spouse or any other beneficiary under this Policy, or any right to receive any payments or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, an Employee or his spouse or other beneficiary, including claims for alimony, support, separate maintenance, and claims of bankruptcy proceedings. I. Administration -------------- The President of the Company and the Vice President, Human Resources of Envirodyne Industries, Inc. be responsible for interpreting and assuring the effective administration of this Policy. All exceptions to or interpretations of this Policy must be approved in advance. J. Duration of Policy ------------------ This Policy shall become effective as of May 15, 1996, and shall remain in effect until this Policy is otherwise amended or terminated by the Company; provided, however, -------- ------- that in the event a Change of Control or the elimination or consolidation of all or part of this office occurs during the term of this Policy, the term of this Policy shall be deemed to be extended to and including the anniversary date twenty-four (24) months following the effective date of such Change of Control or office consolidation or elimination. IN WITNESS WHEREOF, Envirodyne Industries, Inc. has caused this instrument to be executed by its duly authorized officer on May 15, 1996. ENVIRODYNE INDUSTRIES, INC. By: __________________________ F. Edward Gustafson Chief Executive Officer Envirodyne Industries, Inc. EX-11.1 4 EXHIBIT 11.1 ENVIRODYNE INDUSTRIES, INC. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
December December 29, 1995 30, 1994 January to to 1 to December December December 26, 1996 28, 1995 29, 1994 -------- -------- -------- (in thousands except for number of shares and per share amounts) Average shares outstanding 14,325,595 13,516,771 13,500,703 Assuming exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options ---------- ---------- ---------- Weighted average shares outstanding as adjusted 14,325,595 13,516,771 13,500,703 ========== ========== ========== (Loss) before extraordinary loss $(13,682) $(17,323) $(3,612) ======== ======== ======= Net Income (Loss) $(13,682) $(21,519) $(3,612) ======== ======== ======= Per share amounts assuming full dilution: (Loss) before extraordinary loss $(.96) $(1.28) $(.27) ===== ====== ===== Net Income (Loss) $(.96) $(1.59) $(.27) ===== ====== ===== Note: This calculation is submitted in accordance with Regulation S-K Item 601(b)11 although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
EX-21.1 5 EXHIBIT 21.1 ------------ SUBSIDIARIES OF THE REGISTRANT ------------------------------ The Company has the following subsidiaries, each of which is wholly owned by the Company or by a wholly-owned subsidiary of the Company. Indented names are subsidiaries of the company under which they are indented. Clear Shield National, Inc. (California) Carnival Brands, Inc. (Illinois) Envirosonics, Inc. (California) Sandusky Plastics, Inc. (Delaware) Envirodyne Subsidiary, Inc. (Delaware) Sandusky Plastics of Delaware, Inc. (Delaware) Viskase Corporation (Pennsylvania) Viskase Holding Corporation (Delaware) Viskase Argentina S.A. (Argentina) Viskase Australia Limited (Delaware) Viskase Brasil Embalagens Ltda. (Brazil) Viskase de Mexico, S.A. de C.V. (Mexico) Viskase Europe Limited (United Kingdom) Viskase S.A. (France) Viskase Canada Inc. (Ontario) Viskase GMBH (Germany) Viskase Holdings Limited (United Kingdom) Filmco International Limited (United Kingdom) Viskase Limited (United Kingdom) Viskase (U.K.) Limited (United Kingdom) Envirodyne S.A.R.L. (France) Viskase S.p.A. (Italy) Viskase ZAO (Russia) Viskase de Nuevo Laredo, S.A. de C.V. (Mexico) Viskase Sales Corporation (Delaware) Viskase Puerto Rico Corporation (Delaware) WSC Corp. (Delaware) EX-23.1 6 EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Envirodyne Industries, Inc. and subsidiaries on Form S-8 (File Nos. 333-10689 and 333-12829) of our report dated March 20, 1997 on our audits of the consolidated financial statements and financial statement schedules of Envirodyne Industries, Inc. and Subsidiaries as of December 26, 1996 and December 28, 1995, and for the periods December 29, 1995 to December 26, 1996, December 30, 1994 to December 28, 1995 and January 1 to December 29, 1994, which report is included in the annual report on Form 10-K. COOPERS & LYBRAND L.L.P. Chicago, Illinois March 20, 1997 EX-27 7
5 YEAR DEC-26-1996 DEC-26-1996 41,794,000 0 81,225,000 (2,051,000) 95,012,000 238,121,000 578,704,000 116,896,000 873,747,000 130,415,000 521,179,000 145,000 0 0 96,195,000 873,747,000 651,356,000 651,356,000 488,244,000 488,244,000 0 659,000 58,565,000 (20,382,000) (6,700,000) (13,682,000) 0 0 0 (13,682,000) (0.96) (0.96)
EX-10.9 8 ENVIRODYNE INDUSTRIES, INC. CORPORATE OFFICE MANAGEMENT INCENTIVE PLAN Fiscal Year 1996 I. Purpose ------- The Envirodyne Industries, Inc. Management Incentive Plan (MIP) has been established for Fiscal Year 1996 for those covered employees defined under Section III below. The purpose of this Management Incentive Plan is to provide additional compensation to participants for their contribution to the achievement of the objectives of the Company including: - Assisting in attracting and retaining highly qualified key employees. - Encouraging and stimulating superior performance by such personnel. II. Definitions ----------- A. Base Salary equals the salary earnings for the portion ----------- of the Fiscal Year during which the participant was an active employee in the particular level of management for which the computation is being made. Salary earnings do not include Plan awards, long-term incentive awards, imputed income from such programs as executive life insurance or non-recurring earnings such as moving expenses and is based on salary earnings before reductions for such items as contributions under Section 401-(K) of the Internal Revenue Code of 1986 as amended. B. Company means Envirodyne Industries, Inc., its ------- successors and assigns. C. Fiscal Year means the Company's Fiscal Year beginning ----------- January 1 and ending the last day of December. D. Plan means the Envirodyne Industries, Inc. Management ---- Incentive Plan as from time to time amended. E. Chairman of the Board and Chief Executive Officer means ------------------------------------------------- the Chairman of the Board and Chief Executive Officer of Envirodyne Industries, Inc. F. Financial Targets are the financial goal(s) appropriate ----------------- to the company for the Fiscal Year. These goals are identified in Exhibit B and are specifically identified by participant in Exhibit C. G. Discretionary Goals refer to the personal goals and ------------------- objectives set by each participant and his/her supervisor at the beginning of each Fiscal Year against which performance is measured. III. EMPLOYEES COVERED BY THIS PLAN ------------------------------ The Plan is applicable to those management employees and other key personnel in the management levels specified in the attached Exhibit C. IV. FINANCIAL AWARD --------------- A participant in the Plan shall be entitled to a Financial Award computed in accordance with the following formula: Base Financial Bonus Financial Salary x Performance x Percent = Performance Incentive Allocated Award Earned To Financial Targets Where: - "Base Salary" is as defined in Section II A. - "Financial Performance Incentive Earned" is determined by the relationship of actual achievement to targeted goals and can range from target to maximum, with full attainment of the financial goals equating to the target for each measure as set forth in the business plan. The target/maximum range for each participant is a function of management level slotting (See Exhibit C). The relationship of actual achievement to the performance range will be determined by using straight-line interpolation for achievement between the target and the maximum of the payout range as applicable (see Exhibit B). Actual performance below target will result in no award being paid on that particular financial measure. - "Bonus Percent Allocated To Financial Targets" shall range from 0% to 100%. If a participant was in more than one management level during a Fiscal Year, a separate computation shall be made for each level applicable to the participant during such Fiscal Year; the sum of the separate computations shall be the participant's Financial Performance Award. V. Personal Performance Award -------------------------- Goals for each participant are to be developed jointly by the participant and his/her supervisor at the beginning of a Fiscal Year. It is anticipated that both quantifiable and non- quantifiable goals will be developed in the process. Each goal should be weighted from 0% to 100%, with the sum of the weights equal to 100%. A participant in the Plan shall be entitled to a Personal Performance Award computed in accordance with the following formula: Base Personal Bonus Personal Salary x Performance x Percent = Performance Incentive Allocated Award Earned To Personal Objectives Where: - "Base Salary" is as defined in Section II A. - "Percent of Personal Objectives Achieved" ranges from 0% to 100% and is determined by the agreed upon performance of the individual against pre-established individual goals. - "Percent of Bonus Allocated to Personal Objectives" shall range from 0% to 100%. It is intended that the participant and his/her supervisor will agree on meaningful individual goals. The following is a partial list of the type of goals or objectives that may be developed: - Achievement of income goals - Development of subordinates - Successful development of new accounts/products - Improvement in product merchandising programs - Attainment of self-development objectives - Control or reduction of operating expenses At the end of a Fiscal Year, each participant will review and evaluate his/her accomplishment of personal goals and objectives. The participant and his/her supervisor will then review the preliminary rating. Thereafter, the supervisor will assign a Personal Performance %, from 0% to 100%, reflecting the participant's achievement of his/her goals during such Fiscal Year. The Personal Performance % recommendation of the supervisor shall be reviewed by the President of the Company, who shall recommend an appropriate Personal Performance % to the Chairman of the Board and Chief Executive Officer who shall approve the final Personal Performance % for each participant. VI. Performance Measures, Targets and Payout Ranges ----------------------------------------------- The financial performance measures, targets and payout ranges used for incentive purposes shall be established by the Company based on the annual business plan. Those measures, targets and payout ranges, as appropriate, shall be approved by the Chairman of the Board and Chief Executive Officer. The performance measures, targets and payout ranges are defined in Exhibit B. VII. Participant Bonus Composition ----------------------------- The composition of each participant's bonus shall be determined by the President of the Company or his designee(s). The composition may have a Discretionary portion and a Financial portion. The composition of the bonuses are established in Exhibit C. VIII. Computation and Disbursement of Funds ------------------------------------- As soon as possible after the close of the Fiscal Year, the President of the Company will recommend a final personal goal achievement percentage and incentive award payment to the Chairman of the Board and Chief Executive Officer. Once approved, payment of the awards shall be made within sixty (60) days after the end of the Fiscal Year. If the participant dies before receiving his/her award, the amount due will be paid to the designated beneficiaries on file with the Company and, in the absence of such designation, to the participant's estate. All payment awards shall be reduced by amounts required to be withheld for taxes at the time payments are made. IX. Changes to Target ----------------- The President of the Company may recommend to the Chairman of the Board and Chief Executive Officer, at any time prior to the final determination of awards, changes to the performance measures, targets, and payout ranges used for incentive purposes. If, in the judgment of the Chairman of the Board and Chief Executive Officer, such change(s) is/are desirable in the interests of equitable treatment of the participants and the Company as a result of extraordinary or non-recurring events, changes in applicable accounting rules or principles, changes in the Company's methods of accounting, changes in applicable law, changes due to consolidation, acquisitions, or reorganization, the Chairman of the Board and Chief Executive Officer shall authorize and approve such change(s) for immediate incorporation into the Plan. Further, should actual performance on any one or all of the financial measure(s) be less than or greater than target by twenty-five percent (25%) or more, the award actually earned under that measure(s) will be at the sole discretion of the Chairman of the Board and Chief Executive Officer subject to approval by the Compensation Committee of the Board. X. Partial Awards -------------- A participant shall be entitled to payment of a partial Financial Award and a partial Personal Objectives Award, computed in accordance with Sections IV and V, and based on Base Salary in a Fiscal Year, if prior to the end of such Fiscal Year, a participant: - Dies, - Retires (is eligible to immediately receive retirement benefits under a Company sponsored retirement plan), - Becomes permanently disabled, - Transfers to a position with a salary grade not eligible for participation in the Plan, - Enters military service, - Takes an approved leave of absence, - Is appointed or elected to public office, - Is terminated due to position elimination, provided that the participant was an active employee for a minimum of 30 consecutive calendar days during such Fiscal Year. Such partial awards shall be paid when payments of non-deferred awards for such Fiscal Year are made. Participants hired during the course of a Fiscal Year and who are employed through the end of such Fiscal Year shall be eligible for an award based on their Base Salary during such Fiscal Year, provided that such employees begin active service prior to February 1 of such Fiscal Year. XI. Forfeiture of Bonus ------------------- Except as provided in Section X, no participant who ceases to be an employee of the Company prior to the end of a Fiscal Year shall be entitled to any amounts under this Plan for such Fiscal Year unless the Chairman of the Board and Chief Executive Officer, in consultation with the Vice President, Human Resources, decides otherwise. Participants who cease to be an employee of the Company between the end of a Fiscal Year and the payment date of awards for such Fiscal Year shall be entitled to awards earned during such Fiscal Year. XII. Administration -------------- This Plan shall be administered by the Vice President, Human Resources of Envirodyne Industries, Inc., subject to the control and supervision of the Chairman of the Board and Chief Executive Officer and the Compensation Committee of the Board of Directors of Envirodyne Industries. Any changes to the context of the Plan, the performance ranges, Plan adjustments and actual payouts will be reviewed with and approved by the Compensation Committee of the Board of Directors. In the event of a claim or dispute brought forth by a participant, the decision of the Chairman of the Board and Chief Executive Officer as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final and conclusive. XIII. No Employment Contract; Future Plans ------------------------------------ Participation in this Plan shall not confer upon any participant any right to continue in the employ of the Company nor interfere in any way with the right of the Company to terminate any participant's employment at any time. The company is under no obligation to continue the Plan in future Fiscal Years. XIV. Amendment or Termination ------------------------ The Company may at any time, or from time to time, (a) amend, alter or modify the provisions of this Plan, (b) terminate this Plan, or (c) terminate the participation of an employee or group of employees in this Plan; provided, however, that in the event of the termination of this Plan or a termination of participation, the Company shall provide the partial awards to the affected participant(s) for the portion of the Fiscal Year during which such employee(s) were participants in this Plan, in a manner in which the Company, in its sole judgment, determines to be equitable to such participants and the Company. XV. General Provisions ------------------ (a) No right under the Plan shall be assignable, either voluntarily or involuntarily by way of encumbrance, pledge, attachment, level or charge of any nature (except as may be required by state or federal law). (b) Nothing in the Plan shall require the Company to segregate or set aside any funds or other property for the purpose of paying any portion of an award. No participant, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the close of the Fiscal Year, or in any property of the Company or its subsidiaries. _____________________ ____________________________ Final Approval Date Chairman of the Board and Chief Executive Officer ____________________________ Vice President Human Resources -----END PRIVACY-ENHANCED MESSAGE-----