-----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, A2cxMP3de7FGasUoRRimDl6WjHRU2vslGUvi6nmr8EUEB8B+fxIitD8Ox7EK7/A8 1xxWKWAW4kCfaDbqoZVMTQ== 0000033073-95-000013.txt : 19951119 0000033073-95-000013.hdr.sgml : 19951119 ACCESSION NUMBER: 0000033073-95-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950928 FILED AS OF DATE: 19951113 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: 95590924 BUSINESS ADDRESS: STREET 1: 701 HARGER ROAD STE 1190 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 For the quarterly period ended September 28, 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 November 10, 1995, there were 13,515,000 shares outstanding of the registrant's Common Stock, $.01 par value. INDEX TO FINANCIAL STATEMENTS ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at September 28, 1995 (unaudited) and December 29, 1994 4 Unaudited consolidated statements of operations for the three months ended September 28, 1995 and September 29, 1994 and for the nine months ended September 28, 1995 and September 29, 1994 5 Unaudited consolidated statements of cash flows for the nine months ended September 28, 1995 and September 29, 1994 6 Notes to consolidated financial statements 7 VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at September 28, 1995 (unaudited) and December 29, 1994 24 Unaudited consolidated statements of operations for the three months ended September 28, 1995 and September 29, 1994 and for the nine months ended September 28, 1995 and September 29, 1994 25 Unaudited consolidated statements of cash flows for the nine months ended September 28, 1995 and September 29, 1994 26 Notes to consolidated financial statements 27 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/A filed with the Securities and Exchange Commission for the year ended December 29, 1994 (1994 Form 10-K/A). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1994 Form 10-K/A. 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. The condensed consolidated balance sheet as of December 29, 1994 was derived from the audited consolidated financial statements in the Company's annual report of Form 10-K/A. Reported interim results of operations are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 28, December 29, 1995 1994 ------------- ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 19,364 $ 7,289 Receivables, net 98,077 86,868 Inventories 115,260 110,483 Other current assets 22,627 19,466 -------- -------- Total current assets 255,328 224,106 Property, plant and equipment, including those under capital lease 533,192 506,099 Less accumulated depreciation and amortization 65,786 35,761 -------- -------- Property, plant and equipment, net 467,406 470,338 Deferred financing costs 8,505 9,143 Other assets 43,452 47,181 Excess reorganization value 137,997 145,868 -------- -------- $912,688 $896,636 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 12,644 $ 25,798 Accounts payable 42,480 34,335 Accrued liabilities 74,690 72,246 -------- -------- Total current liabilities 129,814 132,379 Long-term debt including obligation under capital lease 529,729 489,358 Accrued employee benefits 56,061 56,217 Deferred and noncurrent income taxes 76,013 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) (19,495) (3,612) Cumulative foreign currency translation adjustments 5,566 3,961 -------- -------- Total stockholders' equity 121,071 135,349 -------- -------- $912,688 $896,636 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months Ended September Ended September Ended September Ended September 28, 1995 29, 1994 28, 1995 29, 1994 --------------- --------------- --------------- --------------- (in thousands, except for number of shares and per share amounts) NET SALES $166,688 $151,883 $ 487,696 $445,264 Patent infringement settlement income 9,457 COSTS AND EXPENSES Cost of sales 124,669 112,250 360,441 322,452 Selling, general and administrative 29,459 26,030 88,102 82,530 Amortization of intangibles and excess reorganization value 3,907 3,848 11,722 11,535 -------- -------- --------- -------- OPERATING INCOME 8,653 9,755 27,431 38,204 Interest income 43 60 126 192 Interest expense 14,866 12,275 42,096 36,649 Other expense (income), net 1,305 (1,299) 166 (2,983) Minority interest in loss of subsidiary 50 -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (7,475) (1,161) (14,705) 4,780 Income tax provision (benefit) (3,000) 2,100 (3,018) 7,100 -------- -------- --------- -------- (LOSS) BEFORE EXTRAORDINARY ITEM (4,475) (3,261) (11,687) (2,320) Extraordinary loss, net of tax 4,196 -------- -------- --------- -------- NET (LOSS) $ (4,475) $ (3,261) $(15,883) $(2,320) ======== ======== ======== ======= WEIGHTED AVERAGE COMMON SHARES 13,515,000 13,500,000 13,515,000 13,500,000 PER SHARE AMOUNTS: (LOSS) BEFORE EXTRAORDINARY ITEM $(.33) $ (.24) $(.86) $(.17) ===== ======= ====== ===== NET (LOSS) $(.33) $ (.24) $(1.18) $(.17) ===== ======= ====== ===== The accompanying notes are an integral part of the consolidated financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended ------------------------------------------ September 28, September 29, 1995 1994 ------------- ------------ (in thousands) Cash flows from operating activities: (Loss) before extraordinary item $(11,687) $(2,320) Extraordinary (loss) on debt extinguishment (4,196) -------- ------- Net (loss) (15,883) (2,320) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital lease 29,756 27,000 Amortization of intangibles and excess reorganization value 11,722 11,535 Amortization of deferred financing fees and discount 1,604 1,106 Increase (decrease) in deferred and noncurrent income taxes (7,773) 2,344 Loss on debt extinguishment 6,778 Foreign currency transaction (gain) (935) (3,843) (Gain) on sales of property, plant and equipment (3) (33) Changes in operating assets and liabilities: Accounts receivable (10,369) (10,303) Inventories (3,632) (9,624) Other current assets (2,959) (3,294) Accounts payable and accrued liabilities 9,555 9,559 Other (582) (1,725) -------- ------- Total adjustments 33,162 22,722 -------- ------- Net cash provided by operating activities 17,279 20,402 Cash flows from investing activities: Capital expenditures (24,208) (24,945) Proceeds from sale of property, plant and equipment 47 89 Purchase of minority interest in subsidiary (4,200) -------- ------- Net cash (used in) investing activities (24,161) (29,056) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 206,053 16,275 Deferred financing costs (7,701) (245) Repayment of revolving loan, long-term borrowings and capital lease obligation (179,419) (10,774) -------- ------- Net cash provided by financing activities 18,933 5,256 Effect of currency exchange rate changes on cash 24 756 -------- ------- Net increase (decrease) in cash and equivalents 12,075 (2,642) Cash and equivalents at beginning of period 7,289 7,743 -------- ------- Cash and equivalents at end of period $ 19,364 $ 5,101 ======== ======= - ------------------------------------------------------------ Supplemental cash flow information: Interest paid $33,974 $29,453 Income taxes paid $ 4,537 $ 3,715 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 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 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 five hundred dollars 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. If the allowed amount of general unsecured claims of Envirodyne exceeds $125, 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 five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $125 and $25,000; (ii) approximately 5.61 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $75,000 and $100,000. 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 was based on the consideration of many factors and various valuation methods, including discounted cash flows and comparable multiples of earnings valuation techniques believed by management and its financial advisors to be representative of the Company's business and industry. Factors considered by the Company included the following: . Forecasted operating and cash flow results which gave effect to the estimated impact of debt restructuring and other operational reorganization. . Discounted residual value at the end of the forecasted period based on the capitalized cash flows for the last year of that period. . Competition and general economic considerations . Projected sales growth . Potential profitability . Seasonality and working capital requirements 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. The Company continues to evaluate the recoverability of excess reorganization value based on the operating performance and expected undiscounted future cash flows of the operating business units. 2. INVENTORIES, (dollars in thousands) Inventories consisted of: September 28, December 29, 1995 1994 ----------- ----------- Raw materials $ 20,365 $ 20,358 Work in process 38,376 37,613 Finished products 56,519 52,512 -------- -------- $115,260 $110,483 ======== ======== Approximately 54% of the inventories at September 28, 1995 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $3.4 million at September 28, 1995. 3. DEBT OBLIGATIONS, (dollars in thousands) 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 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 September 28, 1995. 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 initial interest rate on the floating rate tranche was approximately 11.7%. 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, commencing December 15, 1995. 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. 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. Envirodyne has entered into interest rate agreements that cap $50 million of interest rate exposure at an average LIBOR rate of 6.50% until January 1997. These interest rate cap agreements were entered into under terms of the senior bank financing that was repaid on June 20, 1995. Interest expense includes $459 of amortization of the interest rate cap premium during the nine-month period ended September 28, 1995. Envirodyne has not received any payments under the interest rate protection agreements. 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. Had the refinancing taken place at the beginning of 1995, the pro forma Envirodyne consolidated statement of operations would have been: (in thousands, except for number of shares and per share amounts) Pro forma Nine Months Ended September 28, 1995 ----------------------- Net sales $487,696 Cost of sales 360,441 Selling, general and administrative 88,102 Amortization of intangibles and excess reorganization cost 11,722 -------- Operating income 27,431 Interest income 126 Interest expense 44,960 Other expense (income), net 166 -------- (Loss) before income taxes (17,569) Income tax (benefit) (4,135) -------- Net (loss) $(13,434) ======== Weighted average common shares 13,515,000 Net (loss) per share $(.99) ===== The pro forma information reflects the change in interest expense and related tax effect due to the issuance of $160 million principal amount of Senior Secured Notes and the refinancing of the Company's bank debt. 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 --------------------- --------------- 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. Outstanding short-term and long-term debt consisted of: September December 28, 1995 29, 1994 ---------- ---------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Bank Term Loan $11,100 Current maturity of Viskase Capital Lease Obligation $ 6,012 5,450 Current maturity of Viskase Limited Term Loan (5.2%) 1,955 1,882 Other 4,677 7,366 ------- ------- Total short-term debt $12,644 $25,798 ======= ======= Long-term debt: Bank Credit Agreement: Term Loan due 1999 $ 80,575 Revolving Loan due 1999 32,524 12% Senior Secured Notes due 2000 $160,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 141,182 147,194 Viskase Limited Term Loan (5.2%) 7,867 8,466 Other 1,418 1,337 -------- -------- Total long-term debt $529,729 $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 upon the current rates offered to the Company for the debt of the same remaining maturities. At September 28, 1995, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligation) were $394,970 and $345,725, 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 million currently if the Company achieves and maintains certain financial ratios. As of September 28, 1995, 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 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 September 28, 1995: Year ending December 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 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. Aggregate maturities of remaining long-term debt, after reflecting the June 20, 1995 refinancing, for each of the next five fiscal years are: Total -------------- 1995 (last six months only) $ 3,181 1996 8,258 1997 8,880 1998 11,920 1999 95,082 4. 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 S.A. 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 unaudited interim financial statements of Viskase Holding Corporation are being filed within this quarterly report. 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 SEPTEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------- ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 11,528 $ (1,556) $ 9,392 $ 19,364 Receivables and advances, net 57,625 75,785 58,433 $ (93,766) 98,077 Inventories 70,382 46,835 (1,957) 115,260 Other current assets 854 14,748 7,025 22,627 -------- -------- -------- --------- -------- Total current assets 70,007 159,359 121,685 (95,723) 255,328 Property, plant and equipment including those under capital lease 261 386,023 146,908 533,192 Less accumulated depreciation and amortization 132 48,204 17,450 65,786 -------- -------- -------- --------- -------- Property, plant and equipment, net 129 337,819 129,458 467,406 Deferred financing costs 8,471 34 8,505 Other assets 42,020 1,432 43,452 Investment in subsidiaries 79,714 115,688 (195,402) Excess reorganization value 96,280 41,717 137,997 -------- -------- -------- --------- -------- $158,321 $751,166 $294,326 $(291,125) $912,688 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 6,175 $ 6,469 $ 12,644 Accounts payable and advances $ 49 86,045 50,152 $ (93,766) 42,480 Accrued liabilities 19,055 32,354 23,281 74,690 -------- -------- -------- --------- -------- Total current liabilities 19,104 124,574 79,902 (93,766) 129,814 Long-term debt including obligation under capital lease 379,262 141,761 8,706 529,729 Accrued employee benefits 51,932 4,129 56,061 Deferred and noncurrent income taxes 27,433 25,472 23,108 76,013 Intercompany loans (388,549) 340,000 48,607 (58) 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 3 32,738 (32,741) 135 Paid in capital 134,865 83,666 89,524 (173,190) 134,865 Accumulated earnings (deficit) (19,495) (21,760) 2,094 19,666 (19,495) Cumulative foreign currency translation adjustments 5,566 5,518 5,518 (11,036) 5,566 Total stockholders' equity 121,071 67,427 129,874 (197,301) 121,071 -------- -------- -------- --------- -------- $158,321 $751,166 $294,326 $(291,125) $912,688 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 29, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------- ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 555 $ 1,853 $ 4,881 $ 7,289 Receivables and advances, net 33,508 63,949 49,378 $ (59,967) 86,868 Inventories 68,719 43,725 (1,961) 110,483 Other current assets 181 12,999 6,286 19,466 -------- -------- -------- --------- -------- Total current assets 34,244 147,520 104,270 (61,928) 224,106 Property, plant and equipment including those under capital lease 189 367,880 138,030 506,099 Less accumulated depreciation and amortization 55 26,739 8,967 35,761 -------- -------- -------- --------- -------- Property, plant and equipment, net 134 341,141 129,063 470,338 Deferred financing costs 8,062 1,081 9,143 Other assets 45,757 1,424 47,181 Investment in subsidiaries 91,576 116,360 (207,936) Excess reorganization value 102,230 43,638 145,868 -------- -------- -------- --------- -------- $134,016 $753,008 $279,476 $(269,864) $896,636 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 11,100 $ 7,720 $6,978 $ 25,798 Accounts payable and advances 726 53,193 40,383 $ (59,967) 34,335 Accrued liabilities 10,254 36,634 25,358 72,246 -------- -------- -------- --------- -------- Total current liabilities 22,080 97,547 72,719 (59,967) 132,379 Long-term debt including obligation under capital lease 327,437 147,898 14,023 489,358 Accrued employee benefits 52,248 3,969 56,217 Deferred and noncurrent income taxes 29,006 31,927 22,400 83,333 Intercompany loans (379,856) 340,000 39,856 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 4 32,608 (32,612) 135 Paid in capital 134,865 87,805 87,440 (175,245) 134,865 Accumulated earnings (deficit) (3,612) (8,333) 2,549 5,784 (3,612) Cumulative foreign currency translation adjustments 3,961 3,912 3,912 (7,824) 3,961 -------- -------- -------- --------- -------- Total stockholders' equity 135,349 83,388 126,509 (209,897) 135,349 -------- -------- -------- --------- -------- $134,016 $753,008 $279,476 $(269,864) $896,636 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------- (in thousands) NET SALES $317,424 $196,627 $(26,355) $487,696 COSTS AND EXPENSES Cost of sales 236,071 150,729 (26,359) 360,441 Selling, general and administrative $4,734 49,977 33,391 88,102 Amortization of intangibles and excess reorganization value 9,199 2,523 11,722 -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (4,734) 22,177 9,984 4 27,431 Interest income 34 42 50 126 Interest expense 29,159 10,412 2,525 42,096 Intercompany interest expense (income) (28,417) 25,500 2,917 Management fees (income) (5,550) 4,820 730 Other expense (income), net (1,607) 129 1,644 166 Equity Loss (income) in subsidiary 13,423 455 (13,878) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (11,708) (19,097) 2,218 13,882 (14,705) Income tax provision (benefit) 669 (5,670) 1,983 (3,018) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (12,377) (13,427) 235 13,882 (11,687) Extraordinary loss, net of tax 3,506 690 4,196 -------- -------- -------- -------- -------- NET INCOME (LOSS) $(15,883) $ (13,427) $ (455) $ 13,882 $(15,883) ======== ========= ====== ========= ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------- (in thousands) NET SALES $106,244 $67,413 $ (6,969) $166,688 COSTS AND EXPENSES Cost of sales 81,384 50,370 (7,085) 124,669 Selling, general and administrative $ 1,609 16,586 11,264 29,459 Amortization of intangibles and excess reorganization value 3,066 841 3,907 -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (1,609) 5,208 4,938 116 8,653 Interest income 30 4 9 43 Interest expense 10,927 3,379 560 14,866 Intercompany interest expense (income) (9,976) 8,500 1,476 Management fees (income) (1,850) 1,601 249 Other expense (income), net 1,107 120 78 1,305 Equity loss (income) in subsidiary 3,351 (1,914) (1,437) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (5,138) (6,474) 2,584 1,553 (7,475) Income tax provision (benefit) (663) (3,007) 670 (3,000) -------- -------- -------- -------- -------- NET INCOME (LOSS) $(4,475) $ (3,467) $ 1,914 $1,553 $(4,475) ======= ======== ======= ====== =======
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR NINE MONTHS ENDED SEPTEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $ (13,300) $ 23,209 $7,370 $ 17,279 Cash flows from investing activities: Capital expenditures (34) (18,936) (5,238) (24,208) Proceeds from sale of property, plant and equipment 47 47 --------- -------- ------ -------- -------- Net cash (used in) investing activities (34) (18,936) (5,191) (24,161) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 164,000 42,053 206,053 Deferred financing costs (7,667) (34) (7,701) Repayment of revolving loan, long-term borrowings and capital lease obligations (123,275) (7,682) (48,462) (179,419) Increase (decrease) in Envirodyne loan (8,751) 8,751 --------- -------- ------ -------- -------- Net cash provided by (used in) financing activities 24,307 (7,682) 2,308 18,933 Effect of currency exchange rate changes on cash 24 24 --------- -------- ------ -------- -------- Net increase (decrease) in cash and equivalents 10,973 (3,409) 4,511 12,075 Cash and equivalents at beginning of period 555 1,853 4,881 7,289 --------- -------- ------ -------- -------- Cash and equivalents at end of period $ 11,528 $ (1,556) $9,392 $19,364 ========= ======== ====== ======== ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 29, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------- (in thousands) NET SALES $308,997 $158,400 $(22,133) $445,264 Patent infringement settlement income 9,457 9,457 COSTS AND EXPENSES Cost of sales 222,677 121,313 (21,538) 322,452 Selling, general and administrative $4,777 55,000 22,753 82,530 Amortization of intangibles and excess reorganization value 9,197 2,338 11,535 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (4,777) 31,580 11,996 (595) 38,204 Interest income 13 20 159 192 Interest expense 23,591 10,490 2,568 36,649 Intercompany interest expense (income) (25,612) 22,701 2,911 Management fees (income) (5,550) 4,838 712 Other expense (income), net (3,825) (58) 900 (2,983) Equity loss (income) in subsidiary 6,319 (1,612) (4,707) Minority interest in loss of subsidiary 50 50 -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES 313 (4,759) 5,064 4,162 4,780 Income tax provision 2,633 1,015 3,452 7,100 -------- -------- -------- --------- -------- NET INCOME (LOSS) $(2,320) $ (5,774) $1,612 $ 4,162 $ (2,320) ======== ======== ======== ========= ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 29, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------- (in thousands) NET SALES $102,843 $56,515 $(7,475) $151,883 COSTS AND EXPENSES Cost of sales 75,590 43,883 (7,223) 112,250 Selling, general and administrative $1,595 16,545 7,890 26,030 Amortization of intangibles and excess reorganization value 3,068 780 3,848 -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (1,595) 7,640 3,962 (252) 9,755 Interest income 10 50 60 Interest expense 7,963 3,478 834 12,275 Intercompany interest expense (income) (9,444) 8,533 911 Management fees (income) (1,850) 1,613 237 Other expense (income), net (1,185) (34) (80) (1,299) Equity loss (income) in subsidiary 5,004 (1,657) (3,347) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (2,073) (4,293) 2,110 3,095 (1,161) Income tax provision 1,188 459 453 2,100 -------- -------- -------- -------- -------- NET INCOME (LOSS) $(3,261) $ (4,752) $ 1,657 $ 3,095 $ (3,261) ======== ======== ======= ======= ========
PAGE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR NINE MONTHS ENDED SEPTEMBER 29, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $(10,450) $24,247 $ 6,605 $20,402 Cash flows from investing activities: Capital expenditures (20) (15,858) (9,067) (24,945) Proceeds from sales of property, plant and equipment 76 13 89 Purchase of minority interest in subsidiary (4,200) (4,200) -------- -------- -------- -------- -------- Net cash (used in) investing activities (20) (19,982) (9,054) (29,056) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 6,450 9,825 16,275 Deferred financing costs (192) (53) (245) Repayment of revolving loan, long-term borrowings and capital lease obligations (5,119) (5,655) (10,774) Increase (decrease) in Envirodyne loan 1,064 (1,064) -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities 7,322 (5,119) 3,053 5,256 -------- -------- -------- -------- -------- Effect of currency exchange rate changes on cash 756 756 -------- -------- -------- -------- -------- Net increase (decrease) in cash and equivalents (3,148) (854) 1,360 (2,642) Cash and equivalents at beginning of period 930 1,922 4,891 7,743 -------- -------- -------- -------- -------- Cash and equivalents at end of period $ (2,218) $ 1,068 $ 6,251 $ 5,101 ======== ======== ======= ======== ========
5. CONTINGENCIES, (dollars in thousands) 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 believes it has sufficient defenses to all of plaintiffs' claims. In the absence of successful mediation or other settlement negotiations, the Company will continue to vigorously defend these claims. While Envirodyne cannot predict with certainty the outcome of these claims, when ultimately concluded or adjudicated, these claims will not, in the opinion of management, have a material adverse effect on the results of operations or the financial condition of the Company. 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. If additional shares of common stock have to be issued to the former SMD employees, as holders of allowed Envirodyne general unsecured claims under the Plan of Reorganization, such additional shares of common stock would be distributed as follows: (i) approximately 2.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $125 and $25,000; (ii) approximately 5.61 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred dollars in the event allowed general unsecured claims of Envirodyne are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $75,000 and $100,000 (refer to Note 1). 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. These claims were dismissed by the Bankruptcy Court and ARTRA has filed an appeal to the U.S. District Court for the Northern District of Illinois, Eastern Division, which appeal is pending. In ARTRA Group Incorporated v. Salomon Brothers Holding Company ------------------------------------------------------------ Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., 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 against Salomon Brothers Holding Company Inc, Salomon Brothers Inc, Mr. Bobrinskoy and Mr. Zimmerman breach of fiduciary duties of due care and loyalty, fraudulent misrepresentation, negligent misrepresentation, breach of contract and promissory estoppel, and seeks damages, jointly and severally from such defendants in the total amount of $136.2 million plus interest and punitive damages of $408.6 million. Against D.P. Kelly & Associates, L.P., ARTRA alleges breach of contract and promissory estoppel and seeks damages from D.P.Kelly & Associates, L.P. in the total amount of $136.2 million. All allegations relate to conduct of the parties during the 1989 acquisition of Envirodyne by Emerald. D.P. Kelly & Associates, L.P. and Messrs. 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. 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 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 Envirodyne bankruptcy cases which, if resolved in a manner similar to that in the Envirodyne 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 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. Envirodyne, Navistar Transportation, EDA and USEPA have negotiated a definitive settlement agreement, subject to final approval by the Bankruptcy Court and public comment pursuant to regulations applicable to EDA and USEPA, to settle the claims against Envirodyne through the payment of five thousand dollars 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 sought 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. The United States District Court for the Northern District of Illinois has affirmed the Bankruptcy Court's summary judgment. If such holders were nonetheless ultimately successful in a further appeal of this matter, 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. Clear Shield National, Inc. and some of its employees have received subpoenas from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the disposable plastic cutlery industry. The U.S. Department of Justice has advised a former officer of Clear Shield National that he is a target of the investigation and requested his appearance before the grand jury. Clear Shield National, Inc. is cooperating 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. VISKASE HOLDING CORPORATION AND SUBSIDIARIES The information included in these quarterly financial statements has been prepared in conformity with the accounting principles and practices reflected in the financial statements of Viskase Holding Corporation and Subsidiaries that are being filed within this quarterly report. These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto of Viskase Holding Corporation and Subsidiaries. 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 periods presented. The condensed consolidated balance sheet as of December 29, 1994 was derived from the audited consolidated financial statements of Viskase Holding Corporation and Subsidiaries that are being filed within this quarterly report. Reported quarterly results of operations are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 28, December 29, 1995 1994 --------------- ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 9,392 $ 6,201 Receivables, net 55,335 46,834 Receivables, affiliates 50,139 48,138 Inventories 46,835 43,725 Other current assets 7,025 6,515 --------- -------- Total current assets 168,726 151,413 Property, plant and equipment 146,908 138,030 Less accumulated depreciation 17,450 8,967 --------- -------- Property, plant and equipment, net 129,458 129,063 Deferred financing costs 34 1,081 Other assets 1,432 1,424 Excess reorganization value 41,717 43,638 -------- -------- $341,367 $326,619 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 6,469 $ 6,978 Accounts payable 15,881 15,479 Accounts payable and advances, affiliates 52,239 43,233 Accrued liabilities 23,284 25,358 ------- -------- Total current liabilities 97,873 91,048 Long-term debt 8,706 14,023 Accrued employee benefits 4,129 3,969 Deferred and noncurrent income taxes 23,108 22,400 Intercompany loans 86,617 77,866 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital 105,106 103,463 Retained earnings 10,310 9,938 Cumulative foreign currency translation adjustments 5,518 3,912 -------- -------- Total stockholders' equity 120,934 117,313 -------- -------- $341,367 $326,619 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months Ended September Ended September Ended September Ended September 28, 1995 29, 1994 28, 1995 29, 1994 ------------- -------------- ------------- --------------- (in thousands, except for number of shares and per share amounts) NET SALES $67,413 $56,515 $ 196,627 $158,400 Patent infringement settlement income 9,457 COSTS AND EXPENSES Cost of sales 50,370 43,883 150,729 121,313 Selling, general and administrative 11,140 6,939 30,996 20,257 Amortization of intangibles and excess reorganization value 841 780 2,523 2,338 -------- -------- -------- -------- OPERATING INCOME 5,062 4,913 12,379 23,949 Interest income 9 50 50 159 Interest expense 560 834 2,525 2,568 Intercompany interest expense 1,476 911 2,905 2,891 Management fees 249 237 730 712 Other (income) expense, net 78 (80) 1,339 900 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 2,708 3,061 4,930 17,037 Income tax provision 1,611 897 3,868 8,187 -------- -------- -------- -------- INCOME BEFORE EXTRAORDINARY ITEM 1,097 2,164 1,062 8,850 Extraordinary loss, net of tax 690 -------- -------- -------- -------- NET INCOME $ 1,097 $ 2,164 $ 372 $ 8,850 ======= ======== ====== ======= WEIGHTED AVERAGE COMMON SHARES 100 100 100 100 PER SHARE AMOUNTS: INCOME BEFORE EXTRAORDINARY ITEM $10,970 $21,640 $10,620 $88,500 ======= ======= ======= ======= NET INCOME $10,970 $21,640 $3,720 $88,500 ======= ======= ====== ======= The accompanying notes are an integral part of the consolidated financial statements.
VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended ---------------------------------- September 28, September 29, 1995 1994 ------------ ------------- (in thousands) Cash flows from operating activities: Income before extraordinary item $1,062 $ 8,850 Extraordinary (loss) on debt extinguishment (690) ------ ------- Net income 372 8,850 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 8,164 7,802 Amortization of intangibles and excess reorganization value 2,523 2,338 Amortization of deferred financing fees and discount 94 155 Increase (decrease) in deferred and noncurrent income taxes (210) 155 Loss on debt extinguishment 1,030 (Gain) on sales of property, plant and equipment (3) (31) Changes in operating assets and liabilities: Accounts receivable (7,661) (6,305) Accounts receivable, affiliates (2,918) (20,051) Inventories (1,965) (7,154) Other current assets (309) (779) Accounts payable and accrued liabilities (2,859) 5,352 Accounts payable and advances, affiliates 10,052 21,097 Other (260) (600) ------ ------- Total adjustments 5,678 1,979 ------ ------- Net cash provided by operating activities 6,050 10,829 Cash flows from investing activities: Capital expenditures (5,238) (9,067) Proceeds from sale of property, plant and equipment 47 13 Purchase of minority interest in subsidiary (4,200) ------ ------- Net cash (used in) investing activities (5,191) (13,254) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 42,053 9,825 Deferred financing costs (34) (53) Repayment of revolving loan and long-term borrowings (48,462) (5,655) Increase (decrease) in Envirodyne loan 8,751 (1,070) ------ ------- Net cash provided by financing activities 2,308 3,047 Effect of currency exchange rate changes on cash 24 756 ------ ------- Net increase in cash and equivalents 3,191 1,378 Cash and equivalents at beginning of period 6,201 6,170 ------ ------- Cash and equivalents at end of period $9,392 $ 7,548 ====== ======= - --------------------------------------------------- Supplemental cash flow information: Interest paid $1,517 $1,265 Income taxes paid $3,999 $2,273 The accompanying notes are an integral part of the consolidated financial statements.
VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES, (dollars in thousands) Inventories consisted of: September 28, December 29, 1995 1994 ------------ ----------- Raw materials $ 6,362 $ 5,778 Work in process 15,692 13,975 Finished products 24,781 23,972 ------- ------- $46,835 $43,725 ======= ======= 2. CONTINGENCIES, (dollars in thousands) 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 (dollars in thousands) ------------------------------------------------- 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 --------------------------- September 28, September 29, 1995 1994 ------------- ------------ (in thousands) Net sales: Food packaging products $146,874 $133,930 Disposable foodservice supplies 19,814 17,953 -------- -------- $166,688 $151,883 ======== ======== Operating income: Food packaging products $9,596 $10,257 Disposable foodservice supplies 666 986 Other and eliminations (1,609) (1,488) ------ ------- $8,653 $ 9,755 ====== ======= Depreciation and amortization under capital lease and amortization of intangible expense: Food packaging products $12,355 $11,658 Disposable foodservice supplies 1,157 1,178 Other 19 16 ------- ------- $13,531 $12,852 ======= ======= Capital expenditures: Food packaging products $ 9,530 $ 7,226 Disposable foodservice supplies 1,080 1,747 Other 1 5 ------- ------- $10,611 $ 8,978 ======= ======= Results of Operations - --------------------- The Company's net sales for the first nine months and third quarter of 1995 were $487.7 million and $166.7 million, respectively, which represented an increase of 9.5% and 9.7% over the comparable periods of 1994, respectively. Third quarter net sales at Viskase increased by 12.0% over the prior year due to the expansion of European and Latin American sales, selected price increases, increased worldwide film sales, combined with the favorable effects of foreign currency translation. Third quarter net sales at Sandusky declined 17.1% due to a 16.4% 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. The Company has purchased injection molding equipment that will increase capacity. This effort is expected to substantially contribute to improving the Company's competitiveness in this market. Third quarter net sales at Clear Shield increased 10.4% from the prior year primarily due to selling price increases. Operating income for the first nine months and third quarter of 1995 was $27.4 million and $8.7 million, respectively, representing decreases of $10.8 million and $1.1 million, respectively, from the comparable periods of 1994. The operating income decline for the first nine months from the prior year is the result of 1994 benefitting from a net $8.7 million settlement of a patent infringement suit. In addition, for the first nine months of 1995 the Company continued to experience resin price increases, price competition in domestic and 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, partially offset by the consolidation of manufacturing operations at its Sandusky, Ohio facility. External factors affecting casing sales in both the domestic and foreign markets include a general softness in hot dog sales in the U.S. and a weakening of processed meat sales in Europe. In addition, Viscofan, S.A., a Spanish small diameter casing producer entered the U.S. market in November 1994. Although the Company has yet to experience any significant volume loss to Viscofan, management believes that Viskase will experience further pricing pressures as a result of Viscofan's entrance into the domestic market. Net interest expense for the nine months period totaled $42.0 million representing an increase of $5.5 million from the first nine months of 1994. The increase is primarily the result of both increased borrowing and higher interest rates on the term and revolving loan facilities and the 12% Senior Secured Notes. Other income (expense) of $(.2) million and $3.0 million in the first nine months of 1995 and 1994, respectively, consists principally of foreign currency transaction gains and losses. 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. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was issued in March 1995 and established financial accounting and reporting standards for the impairment of long-lived assets and certain identifiable intangibles to be disposed of. The Company is not required to adopt this statement until the first quarter of fiscal year 1996, although earlier adoption is permitted. The adoption of this statement is not expected to have a significant impact on the Company's income from continuing operations nor cash flows. The tax benefit for the first six months 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 $3 million was provided on a loss before income taxes and extraordinary items of $14.7 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. The extraordinary loss represents the write-off of unamortized financing fees related to the Company's senior secured bank facility that was refinanced by the private placement. The extraordinary loss of $4.2 million is net of a tax benefit of $2.6 million. (Refer to Part I, Item I, Note 3 of Notes to Consolidated Financial Statements.) Liquidity and Capital Resources - ------------------------------- Cash and equivalents increased by $12,075 thousand during the nine months ended September 28, 1995. Cash flows provided by operating activities of $17,279 thousand and financing activities of $18,933 thousand exceed cash flows used in investing activities of $24,161 thousand. Cash flows used in investing activity consist principally of capital expenditures for property, plant and equipment. Cash flows used in operating activities were principally attributable to the Company's loss from operations, the extraordinary loss due to the write-off of deferred financing fees and an increase in operating assets and liabilities offset by the effect of depreciation and amortization. Cash flows provided by financing activities were principally attributable to the June 20, 1995 placement of $160 million of 12% senior secured notes net of the repayment of the senior secured bank credit facility and the payment of the transaction fees and expenses with the $160 million of proceeds. On June 20, 1995, Envirodyne completed the sale of $160 million 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) $151.5 million of 12% Senior Secured Notes due 2000 and (ii) $8.5 million 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 $86.1 million domestic term loan, (ii) repay the $68.3 million 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 million domestic revolving credit facility (Revolving Credit Facility) and a new $28 million 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 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), to borrowing base limitations measured by accounts receivable and inventory of the Company and to reserves which 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 September 28, 1995. 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 the first nine months of 1995 and 1994 totaled $24.2 million and $29.1 million, respectively. Capital expenditures for 1995 are expected to be approximately $32 million and are expected to range from $25 million to $30 million in future years. The Company has entered into interest rate agreements that cap $50 million of interest rate exposures at an average LIBOR rate of 6.50% until January 1997. These interest rate cap agreements were entered into under terms of the senior bank financing that was repaid on June 20, 1995. Interest expense includes $459 of amortization of interest rate cap premium during the six-month period ended September 28, 1995. The Company has not received any payments under the interest rate protection agreements. 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 $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 $13 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 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. 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 September 28, 1995. Item 3 - Defaults Upon Senior Securities ------------------------------- None. Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5 - Other Information ------------------ None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits Exhibit No. Description of Exhibits - ---------- -------------------------------------------------- 4.3 Indenture dated as of June 20, 1995 (the Indenture) between Envirodyne Industries, Inc. and Shawmut Bank Connecticut, National Association, as Trustee. * 4.4 Forms of the Senior Secured 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 Senior Secured Notes. * 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. * 10.10 Note Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and each of the purchasers identified therein. * 10.11 Letter Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and certain purchasers of the Senior Secured Notes. * 10.12 Revolving Credit Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and The Prudential Insurance Company of America. * 10.13 Credit Agreement, dated as of June 20, 1995, among Envirodyne Industries, Inc., the lenders identified therein and BT Commercial Corporation, as Agent. * 10.14 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. * 10.15 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 herein by reference to Exhibits with the same number to the Company's Registration Statement on Form S-4 (Registration No. 33-61161), filed with the Securities and Exchange Commission on July 20, 1995. (b) Reports on Form 8-K None. 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: November 13, 1995 EX-27 2
5 9-MOS DEC-28-1995 SEP-28-1995 19,364,000 0 100,463,000 (2,386,000) 115,260,000 255,328,000 533,192,000 65,786,000 912,688,000 129,814,000 529,729,000 135,000 0 0 115,370,000 912,688,000 487,696,000 487,696,000 360,441,000 360,441,000 0 343,000 42,096,000 (14,705,000) (3,018,000) (11,687,000) 0 (4,196,000) 0 (15,883,000) (1.18) (1.18)
-----END PRIVACY-ENHANCED MESSAGE-----