-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, attAhs9Opi4K5zOesRHRGlutlRRdjJZSKMKHP4JBzpNBfvOejxz6FkpcEEx4vM6h n4Iw8nhPyMjTbAH5DsR2Cg== 0000033073-95-000007.txt : 19950517 0000033073-95-000007.hdr.sgml : 19950516 ACCESSION NUMBER: 0000033073-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950330 FILED AS OF DATE: 19950512 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENVIRODYNE INDUSTRIES INC CENTRAL INDEX KEY: 0000033073 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 952677354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05485 FILM NUMBER: 95537665 BUSINESS ADDRESS: STREET 1: 701 HARGER RD STE 121 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085718800 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF ------ THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the quarterly period ended March 30, 1995 ----------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- ------------ Commission file number 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: (708) 571-8800 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 ----- ----- 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 May 12, 1995, there were 13,515,000 shares outstanding of the registrant's Common Stock, $.01 par value. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS --------------------- The financial information included in this quarterly report has been prepared in conformity with the accounting principles and practices reflected in the financial statements included in the annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 29, 1994 (1994 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1994 Form 10-K. The accompanying financial information, which is unaudited, reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 30, December 29, 1995 1994 -------- ----------- (unaudited) (in thousands) ASSETS Current assets: Cash and equivalents $ 7,209 $ 7,289 Receivables, net 89,007 86,868 Inventories 124,470 110,483 Other current assets 30,311 19,466 -------- -------- Total current assets 250,997 224,106 Property, plant and equipment, including those under capital lease 518,958 506,099 Less accumulated depreciation and amortization 46,166 35,761 -------- -------- Property, plant and equipment, net 472,792 470,338 Deferred financing costs 9,130 9,143 Other assets 45,842 47,181 Excess reorganization value 143,252 145,868 -------- -------- $922,013 $896,636 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 28,221 $ 25,798 Accounts payable 34,680 34,335 Accrued liabilities 73,805 72,246 -------- -------- Total current liabilities 136,706 132,379 Long-term debt including obligation under capital lease 510,944 489,358 Accrued employee benefits 56,927 56,217 Deferred and noncurrent income taxes 83,426 83,333 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,515,000 shares issued and outstanding 135 135 Paid in capital 134,865 134,865 Accumulated (deficit) (7,507) (3,612) Cumulative foreign currency translation adjustments 6,517 3,961 -------- -------- Total stockholders' equity 134,010 135,349 -------- -------- $922,013 $896,636 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended ---------------------------------- March 30, March 31, 1995 1994 --------- ---------- (in thousands, except for number of shares and per share amounts) NET SALES $155,824 $142,593 COSTS AND EXPENSES Cost of sales 113,689 102,119 Selling, general and administrative 29,536 26,918 Amortization of intangibles and excess reorganization value 3,910 3,846 ------- ------- OPERATING INCOME 8,689 9,710 Interest income 64 61 Interest expense 13,434 12,059 Other income, net 591 281 Minority interest in loss of subsidiary 50 ------- ------- (LOSS) BEFORE INCOME TAXES (4,090) (1,957) Income tax provision (benefit) (195) 550 ------- ------- NET (LOSS) $ (3,895) $ (2,507) ======== ======== WEIGHTED AVERAGE COMMON SHARES 13,515,000 13,500,000 PER SHARE AMOUNTS: NET (LOSS) $(.29) $(.19) ===== ===== The accompanying notes are an integral part of the consolidated financial statements. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended ---------------------------- March 30, March 31, 1995 1994 --------- -------- (in thousands) Cash flows from operating activities: Net (loss) $(3,895) $(2,507) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital lease 9,986 9,000 Amortization of intangibles and excess reorganization value 3,910 3,846 Amortization of deferred financing fees and discount 549 362 Decrease in deferred and noncurrent income taxes (907) (936) Foreign currency transaction gain (1,586) (837) Changes in operating assets and liabilities: Increase in accounts receivable (438) (7,798) Increase in inventories (12,192) (7,719) Increase in other current assets (10,615) (9,529) Increase in accounts payable and accrued liabilities 254 1,954 Other 398 949 -------- -------- Total adjustments (10,641) (10,708) -------- -------- Net cash used in operating activities (14,536) (13,215) Cash flows from investing activities: Capital expenditures (7,631) (7,354) Proceeds from sale of property, plant and equipment 20 Purchase of minority interest in subsidiary (4,200) -------- -------- Net cash (used in) investing activities (7,631) (11,534) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 42,249 25,836 Deferred financing costs (464) (10) Repayment of revolving loan, long-term borrowings and capital lease obligations (19,973) (5,058) -------- -------- Net cash provided by financing activities 21,812 20,768 Effect of currency exchange rate changes on cash 275 175 -------- -------- Net decrease in cash and equivalents (80) (3,806) Cash and equivalents at beginning of period 7,289 7,743 ------- -------- Cash, restricted cash and equivalents at end of period $ 7,209 $ 3,937 ======= ======== - -------------------------------------------------------------------- Supplemental cash flow information: Interest paid $16,330 $16,420 Income taxes paid $1,045 $ 479 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 On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S. 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 U.S. 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. The Plan of Reorganization provided for the initial issuance of approximately 13,500,000 shares of Envirodyne common stock, warrants to purchase an additional 1,500,000 shares (subject to adjustment) and $219,262,000 principal amount of 10-1/4% Senior Notes Due 2001 (10-1/4% Notes). Holders of allowed general unsecured claims of Envirodyne (as opposed to subsidiaries of Envirodyne) became entitled to receive 32.28 shares of common stock for each $500 amount of their prepetition claims, or a total of 8,070 shares of common stock, representing .06% of the common stock initially issued pursuant to the Plan of Reorganization. These claims totaled approximately $125,000. If the allowed amount of general unsecured claims of Envirodyne exceeds $125,000, for example upon the resolution of disputed claims, additional shares of common stock will have to be issued to the holders of allowed general unsecured claims of Envirodyne in order to provide equitable allocation of value among Envirodyne's unsecured creditors under the Plan of Reorganization. Such additional shares of common stock would be distributed with respect to allowed general unsecured claims of Envirodyne as follows: (i) approximately 2.58 additional shares per $500 in claims in the event allowed general unsecured claims of Envirodyne are between $125,000 and $25,000,000; (ii) approximately 5.61 additional shares per $500 in claims in the event allowed general unsecured claims of Envirodyne are between $25,000,000 and $50,000,000; (iii) approximately 9.22 additional shares per $500 in claims in the event allowed general unsecured claims of Envirodyne are between $50,000,000 and $75,000,000; and (iv) approximately 13.58 additional shares per $500 in claims in the event allowed general unsecured claims of Envirodyne are between $75,000,000 and $100,000,000. Refer to Note 5 for a discussion of disputed claims which, if determined adversely to Envirodyne, would result in the issuance of common stock. The Company accounted for the reorganization using the principles of fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Accordingly, all assets and liabilities were restated to reflect their reorganization value. A reorganization value of the Company's equity of $135,000,000 was based on the consideration of many factors and various valuation methods, including discounted cash flows, comparable multiples of earnings and other applicable measurements and valuation techniques believed by management and its financial advisors to be representative of the Company's business and industry. The excess of the reorganization value over the fair value of net assets and liabilities has been reported as excess reorganization value and is being amortized over a fifteen-year period. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of Envirodyne and its subsidiaries. 3. INVENTORIES Inventories consisted of: March 30, December 29, 1995 1994 --------- ----------- (in thousands) Raw materials $ 24,077 $ 20,358 Work in process 41,732 37,613 Finished products 58,661 52,512 -------- -------- $124,470 $110,483 ======== ======== Approximately 54% of the inventories at March 30, 1995 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $4.4 million at March 30, 1995. 4. DEBT OBLIGATIONS As described in Note 1, Chapter 11 Reorganization Proceedings, Envirodyne and certain of its domestic Subsidiaries emerged from Chapter 11 on December 31, 1993. The $219,262,000 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 12-month period commencing on January 1 of the following years: Year Percentage ---- ---------- 1995 105% 1996 104% 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. In connection with the consummation of the Plan of Reorganization, Envirodyne and certain of its subsidiaries (Borrowers) entered into a Credit Agreement dated December 31, 1993 (Credit Agreement) with the lenders party thereto (Lenders) and with Bank of America Illinois (formerly Continental Bank N.A.), Citibank International PLC and Citicorp North America, Inc., as agents for the Lenders. The Credit Agreement provides for a $195,000,000 facility, consisting of a $100,000,000 domestic term loan facility, a $65,000,000 domestic revolving credit facility (which includes a $27,000,000 domestic letter of credit facility) and a $30,000,000 amortizing multicurrency revolving credit facility (which includes a $3,000,000 multicurrency letter of credit facility). The commitment under the amortizing multicurrency revolver was $27,300,000 at March 30, 1995. The initial borrowings under the Credit Agreement were used (i) to pay indebtedness under the Postpetition Credit Agreement dated as of February 5, 1993 among the Debtors, the lenders party thereto (DIP Lenders) and Continental Bank N.A., as agent for the DIP Lenders, (ii) to pay indebtedness under certain foreign credit facilities, (iii) to pay the claims of subsidiary trade creditors under the Plan of Reorganization and (iv) to pay certain fees and expenses relating to the Plan of Reorganization and the Credit Agreement. Obligations under the Credit Agreement are collateralized by substantially all of the assets of Envirodyne and its domestic subsidiaries and by the pledge of the capital stock of substantially all of Envirodyne's subsidiaries. Availability of funds under the Credit Agreement is subject to a borrowing base measured by certain assets of Envirodyne and its subsidiaries. The available borrowing capacity under the Credit Agreement was approximately $11 million at March 30, 1995. Borrowings under the domestic term loan facility and the domestic revolving credit facility bear interest, at the Company's election, at a rate per annum equal to (i) the Bank of America Illinois base rate plus 1.5% or (ii) the Eurodollar rate plus 2.75%, subject to step downs of up to 0.5% if the Company meets certain debt and interest coverage tests. The domestic term loan facility terminates on December 31, 1999 and is subject to quarterly repayments of principal as follows: Calendar Quarterly Total Repayment Year Repayment Amount for Calendar Year --------- ---------------- ----------------- 1995 $2,775,000 $11,100,000 1996 4,075,000 16,300,000 1997 4,450,000 17,800,000 1998 4,625,000 18,500,000 1999 6,300,000 25,200,000 The domestic revolving credit facility expires on December 31, 1999, with a commitment fee of 0.5% per annum on the unused portion of the commitment. The domestic letter of credit facility expires December 16, 1999, with fees on the outstanding amount of the domestic letters of credit of 0.25% per annum to the issuers and 2.5% per annum to the domestic Lenders, subject to step downs of up to 0.5% if the Company meets certain debt and interest coverage tests. The multicurrency revolving credit facility permits borrowings in U.S. Dollars, German Marks, French Francs or Pounds Sterling at an interest rate per annum equal to the applicable Eurocurrency rate plus 2.75%, subject to step downs of up to 0.5% if the Company meets certain debt and interest coverage tests. The multicurrency revolving credit facility expires on December 31, 1999 and the commitments thereunder are subject to mandatory quarterly reductions as follows: Calendar Quarterly Total Reduction Year Commitment Reduction for Calendar Year -------- -------------------- ----------------- 1995 $ 500,000 $2,000,000 1996 950,000 3,800,000 1997 1,075,000 4,300,000 1998 1,150,000 4,600,000 1999 775,000 3,100,000 There is a commitment fee of 0.5% per annum on the unused portion of the multicurrency revolving credit facility. The multicurrency letter of credit facility expires December 16, 1999, with fees on the outstanding amount of the multicurrency letters of credit of 0.25% per annum to the issuers and 2.5% per annum to the multicurrency Lenders, subject to step downs of up to 0.5% if the Company meets certain debt and interest coverage tests. Envirodyne's obligations under the Credit Agreement bear interest at rates that are expected to fluctuate over time. Envirodyne is required under the Credit Agreement to enter into interest rate protection agreements with respect to a significant portion of the amounts outstanding from time to time thereunder. Envirodyne has entered into $50 million of interest rate protection agreements that cap the Company's LIBOR interest component (excludes spread) at an average rate of 6.50% until January 1997. The fair value of interest rate cap agreements is estimated by obtaining quotes from banks. At March 30, 1995, the carrying amount and estimated fair value of interest rate cap agreements were $1,021,000 and $353,000, respectively. The Borrowers have made certain representations and have agreed to certain covenants that restrict the operations of the Borrowers and their subsidiaries' businesses. Among other things, the Borrowers may not, with limited exceptions, place liens on their properties or assets, incur additional indebtedness, make dividend or other distributions on capital stock, make investments (other than cash equivalent investments), merge or consolidate with any other person, dispose of assets outside the ordinary course of business or exceed stated levels of capital expenditures. The Credit Agreement also contains a number of financial covenants, including covenants relating to cash flow, interest and fixed charge coverage ratios, net worth and debt to cash flow levels. Unless cured within any applicable grace period, events of default include failure to pay principal, interest or other amounts due to the Lenders, a material breach of a representation or warranty, certain events related to employee benefit plans, certain events of bankruptcy or insolvency, defaults on other indebtedness having a principal amount in the aggregate in excess of $5,000,000, failure to discharge judgments in an amount in excess of $5,000,000, a change of control (as defined) and failure to comply with covenants, including the financial covenants described above. The Company and the Lenders entered into an amendment of the Credit Agreement as of January 24, 1995 easing certain financial covenants and permanently waiving the event of default arising from the ownership by the Malcolm I. Glazer Trust (Trust) of more than 30% of the Company's Common Stock, provided that the Trust's ownership does not later exceed 49% of the Company's outstanding Common Stock. The Company is currently in compliance with the terms of the Credit Agreement, including the financial covenants. Outstanding short-term and long-term debt consisted of: March December 30, 1995 29, 1994 --------- ---------- (in thousands) Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Bank Term Loan (9.3%) $11,100 $11,100 Current maturity of Viskase Capital Lease Obligation 6,012 5,450 Current maturity of Viskase Limited Term Loan (5.9%) 2,062 1,882 Other 9,047 7,366 ------- ------- Total short-term debt $28,221 $25,798 ======= ======= Long-term debt: Bank Credit Agreement: Term Loan due 1999 (9.3%) $77,800 $ 80,575 Revolving Loan due 1999 (8.9%) 62,112 32,524 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 141,182 147,194 Viskase Limited Term Loan (5.9%) 9,279 8,466 Other 1,309 1,337 ------- ------- Total long-term debt $510,944 $489,358 ======== ======== The fair value of the Company's debt obligation (excluding capital lease 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. At March 30, 1995, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligation) were $391,971 and $352,504, respectively. 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. 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 $4,000,000 currently if the Company achieves and maintains certain financial ratios. As of March 30, 1995, the Company had met the required financial ratios and the letter of credit has been reduced by $4,000,000. 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 following is a schedule of minimum future lease payments under the capital lease together with the present value of the net minimum lease payments as of March 30, 1995: Year ending December (000's) -------------- 1996 $ 19,227 1997 19,227 1998 21,363 1999 23,499 2000 23,499 Thereafter 117,495 -------- Net minimum lease payments 224,310 Less: Amount representing interest (77,116) -------- $147,194 ======== The 1995 rental payment of $19,227,000 was paid on February 28, 1995. Principal payments under the capital lease obligation for the years ended 1995 through 1999 range from approximately $5 million to $13 million. 5. CONTINGENCIES 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 are seeking substantial damages. The Company and the plaintiffs are currently participating in a mediation process to attempt to resolve the case. Envirodyne denies liability and in the absence of successful mediation or other settlement negotiations will continue to vigorously defend these claims. However, inasmuch as the Plan of Reorganization provides for the issuance of common stock with respect to prepetition Envirodyne general unsecured claims (refer to Note 1), an adverse finding of liability and damages could result in substantial dilution to the holders of the common stock. Litigation has been initiated with respect to events arising out of the bankruptcy cases 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 (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of the Plan of Reorganization. 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, County of DuPage, State of Illinois, ARTRA alleges negligence, breach of fiduciary duty, fraudulent misrepresentation and deceptive business practices in connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the total amount of $136,200,000 plus interest and punitive damages of $408,600,000. 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 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 the case pending before the Bankruptcy Court. Although the case is in a preliminary stage and the Company is not a party thereto, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the bankruptcy cases which, if adjudicated in a manner similar to that in the bankruptcy cases, would render it difficult for the plaintiff to establish liability. 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 ultimately successful in establishing their right to indemnification. In the Envirodyne bankruptcy case the United States Environmental Protection Agency (USEPA), the Economic Development Authority (EDA), and Navistar International Transportation Corp. (Navistar Transportation) filed proofs of claim with respect to unreimbursed environmental response costs at the location of the former SMD operations. The parties have agreed in principle, subject to the negotiation of a definitive settlement agreement, Bankruptcy Court approval and public comment pursuant to regulations applicable to EDA and USEPA, to settle the claims against Envirodyne through the payment of $5,000 to the USEPA and the issuance of 64,460 shares of common stock to Navistar Transportation. In the event that the settlement is not completed, Envirodyne believes that it has valid defenses to the claims and will continue its objections to the claims. To the extent that USEPA, EDA or Navistar Transportation were able to establish liability and damages as to their respective proofs of claim, such parties would receive Common Stock under the Plan of Reorganization in satisfaction of their claims. Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne by Emerald failed to exchange their certificates representing old Envirodyne common stock for the $40 per share cash merger consideration specified by the applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne is seeking to equitably subordinate the interests of the holders of untendered shares, in which event such holders would receive no distribution pursuant to the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary judgment to equitably subordinate the holders of untendered shares. Certain holders have appealed the summary judgment to the United States District Court for the Northern District of Illinois. If such holders were ultimately successful, Envirodyne believes that the maximum number of shares of common stock that it would be required to issue to such claimants is approximately 106,000. In August 1993, Clear Shield National, Inc. received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the disposable plastic cutlery industry. Clear Shield National, Inc. has cooperated fully with the investigation. 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. ITEM 2. 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: Three Months Ended ------------------------------ March 30, March 31, 1995 1994 ---------- --------- (in thousands) (unaudited) Net sales: Food packaging products $138,596 $126,864 Disposable foodservice supplies 17,228 15,875 Other and eliminations (146) -------- -------- $155,824 $142,593 ======== ======== Operating income: Food packaging products $ 8,990 $10,153 Disposable foodservice supplies 1,264 1,148 Other and eliminations (1,565) (1,591) ------- ------- $ 8,689 $ 9,710 ======= ======= under capital lease and amorti- zation of intangible expense: Food packaging products $12,768 $11,499 Disposable foodservice supplies 1,110 1,333 Other 18 14 ------- ------- $13,896 $12,846 ======= ======= Capital expenditures: Food packaging products $6,053 $ 6,638 Disposable foodservice supplies 1,578 709 Other 7 ------ ------- $7,631 $ 7,354 ====== ======= Results of Operations - --------------------- The Company's sales for the first three months of 1995 were $155.8 million, which represented an increase of 9.3% from the first three months of 1994. Net sales at Viskase increased due to the expansion of Latin American sales, selected sales price increases, strong worldwide film sales, combined with the favorable effects of foreign currency translation. Net sales at Clear Shield increased 8.5% from the prior year primarily due to selling price increases. Sandusky sales declined 21.2% due to the loss of the baby wipe business combined with some reduced dairy and deli container sales. Operating income for the first three months of 1995 was $8.7 million, which represented a decline of $1 million from the first quarter of 1994. The decline in operating income in 1995 is due to the continued increase in resin prices, price competition in some foreign markets coupled with additional selling, general and administrative expenses resulting from strategic expansions in foreign markets, including Europe, Latin America and Australia and the decline in Sandusky's sales. First quarter 1995 net interest expense totaled $13.4 million, which represented an increase of $1.4 million from the first quarter of 1994. The increase is primarily the result of both increased borrowings and higher interest rates on the term and revolving loan facilities, combined with additional amortization of deferred financing fees. The tax benefit in the 1995 first quarter resulted from the benefit of U.S. losses partially offset by the provision related to income from foreign subsidiaries. Due to the permanent differences in the U.S. resulting from non-deductible amortization and foreign losses for which no tax benefit is provided, a benefit of $.2 million was provided on a loss before income taxes of $4.1 million. The U.S. 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 - ------------------------------- Envirodyne and certain of its subsidiaries are parties to a $195,000,000 Credit Agreement (Credit Agreement) with a group of banks and financial institutions (Lenders). The Credit Agreement provides for a $100,000,000 term loan facility, a $65,000,000 domestic revolving credit facility and a $30,000,000 amortizing multicurrency revolving credit facility. Borrowings are subject to borrowing base availability. The Company expects to have sufficient funds available from cash flow from operations and borrowings to meet its liquidity needs. The availability of funds under the domestic and multicurrency revolving credit facilities are subject to a borrowing base limitation measured by certain assets of the Company. The available borrowing capacity under the Credit Agreement was approximately $11 million at March 30, 1995. The Company and the Lenders entered into an amendment of the Credit Agreement as of January 24, 1995 easing certain financial covenants and permanently waiving the event of default arising from the ownership by the Malcolm I. Glazer Trust (Trust) of more than 30% of the Company's Common Stock, provided that the Trust's ownership does not later exceed 49% of the Company's outstanding Common Stock. The Company is currently in compliance with the terms of the Credit Agreement, including the financial covenants. In the event that the Company is unable to maintain compliance with the covenants, it will be necessary to seek a waiver or amendment of such covenants from the respective lenders. There can be no assurance that the Company will be able to obtain such waivers or amendments. Capital expenditures for the first quarter of 1995 and 1994 totaled $7.6 million and $7.4 million, respectively. In 1995 and future years, capital expenditures are expected to be approximately $30 million annually. The Company has spent approximately $12 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, and the 1995 research and development and product introduction expenses are expected to be approximately $16 million. Among the projects included in the current research and development efforts is the application of certain patents and technology recently licensed by Viskase to manufacture cellulosic casings. The commercialization of these applications and the related fixed asset expenditures associated with such commercialization may require substantial financial commitments in future periods. The Company is contemplating the private placement of up to $160 million of series A and $50 million of series B senior secured notes. Up to $50 million of the proceeds of the private placement are expected to be used to finance the purchase, in the open market or in private transactions, of 10-1/4% Senior Notes, subject to price and market conditions, while the rest of the proceeds would be used to repay the Company's domestic term loan facility, reduce the amount of the Company's revolving credit obligations and pay the fees and expenses of the private placement. The Company may reduce the amount of the private placement by up to $50 million if the Company is unable to purchase the 10-1/4% Senior Notes at prices acceptable to the Company. No assurance can be given that the Company will consummate the contemplated private placement, what the terms and conditions of the private placement would be, or whether the proceeds of the private placement would be used as the Company currently expects. PART II. OTHER INFORMATION Item 1 - Legal Proceedings ----------------- For a description of pending litigation and other contingencies, see Part 1, Note 5, Contingencies. Item 2 - Changes in Securities --------------------- No reportable events occurred during the quarter ended March 30, 1995. Item 3 - Defaults Upon Senior Securities ------------------------------- None. Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Company held its Annual Meeting of Stockholders (the "Meeting") on May 10, 1995. The business conducted at the Meeting included (i) the election of directors, (ii) the ratification of the Company's 1993 Stock Option Plan and (iii) the ratification of the appointment of Coopers & Lybrand L.L.P. as the Company's independent accountants for the fiscal year ended December 28, 1995. The results were as follows: Election of Directors For Against Abstaining - --------------------- ----------- --------- ---------- Robert N. Dangremond 12,093,097 80,437 299,146 Avram A. Glazer 12,108,450 65,084 299,146 Malcolm I. Glazer 12,108,950 64,584 299,146 F. Edward Gustafson 12,136,930 36,604 299,146 Michael E. Heisley 12,113,889 59,645 299,146 Donald P. Kelly 12,094,297 79,237 299,146 Gregory R. Page 12,138,732 34,802 299,146 Mark D. Senkpiel 10,980,980 1,465,222 26,478 Ratification of 1993 Stock Option Plan For Against Abstaining - -------------------- ----------- ---------- ---------- 12,273,561 175,944 23,175 Ratification of Appointment of Coopers & Lybrand For Against Abstaining - --------------------------- ----------- ---------- ---------- 12,442,506 25,122 5,052 There were no broker non-votes on any of the matters presented. Item 5 - Other Information ----------------- None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits None. (b) Reports on Form 8-K On February 17, 1995 the Company filed a Form 8-K to file a copy of its Amended and Restated By-Laws. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENVIRODYNE INDUSTRIES, INC. --------------------------- Registrant By: /s/ ---------------------------- John S. Corcoran Executive Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer of the registrant) Date: May 12, 1995 EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0000033073 QTR-1 DEC-28-1995 DEC-30-1994 MAR-30-1995 7,209,000 0 91,453,000 (2,446,000) 124,470,000 250,997,000 518,958,000 46,166,000 922,013,000 136,706,000 510,944,000 135,000 0 0 127,358,000 922,013,000 155,284,000 155,284,000 113,689,000 113,689,000 0 311,000 13,434,000 (4,090,000) (195,000) (3,895,000) 0 0 0 (3,895,000) (0.29) (0.29)
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