-----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, AnVSRT7lme9Iyo+OYVvDL9TuShYqawzmdPaEmR4mnM4ZwHctT4G7WZWMz1oxTr6l /9KiEi/1xPATwC2wUpPvQg== 0000033073-96-000006.txt : 19960514 0000033073-96-000006.hdr.sgml : 19960514 ACCESSION NUMBER: 0000033073-96-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960328 FILED AS OF DATE: 19960513 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: 96561864 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 March 28, 1996 --------------------------------- 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 10, 1996, there were 14,479,721 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 March 28, 1996 (unaudited) and December 28, 1995 4 Unaudited consolidated statements of operations for the three months ended March 28, 1996 and March 30, 1995 5 Unaudited consolidated statements of cash flows for the three months ended March 28, 1996 and March 30, 1995 6 Notes to consolidated financial statements 7 VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at March 28, 1996 (unaudited) and December 28, 1995 20 Unaudited consolidated statements of operations for the three months ended March 28, 1996 and March 30, 1995 21 Unaudited consolidated statements of cash flows for the three months ended March 28, 1996 and March 30, 1995 22 Notes to consolidated financial statements 23 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 28, 1995 (1995 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1995 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. The condensed consolidated balance sheet as of December 28, 1995 was derived from the audited consolidated financial statements in the Company's annual report of Form 10-K. 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
March 28, December 28, 1996 1995 --------------- -------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 23,002 $ 30,325 Receivables, net 86,348 89,454 Inventories 105,239 99,474 Other current assets 32,073 21,646 -------- -------- Total current assets 246,662 240,899 Property, plant and equipment, including those under capital leases 549,638 545,491 Less accumulated depreciation and amortization 86,604 75,987 -------- -------- Property, plant and equipment, net 463,034 469,504 Deferred financing costs 7,448 8,090 Other assets 44,327 45,589 Excess reorganization value 132,889 135,485 -------- -------- $894,360 $899,567 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 12,014 $ 12,504 Accounts payable 41,429 39,117 Accrued liabilities 78,851 67,553 -------- -------- Total current liabilities 132,294 119,174 Long-term debt including obligations under capital leases 523,113 530,181 Accrued employee benefits 55,944 55,626 Deferred and noncurrent income taxes 73,156 77,490 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,479,721 shares issued and outstanding at March 28, 1996 and 13,579,460 shares at December 28, 1995 145 136 Paid in capital 134,855 134,864 Accumulated (deficit) (31,058) (25,131) Cumulative foreign currency translation adjustments 5,911 7,227 -------- -------- Total stockholders' equity 109,853 117,096 -------- -------- $894,360 $899,567 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended ---------------------------------------- March March 28, 1996 30, 1995 --------------- ----------- (in thousands, except for number of shares and per share amounts) NET SALES $159,736 $155,824 COSTS AND EXPENSES Cost of sales 119,709 114,955 Selling, general and administrative 26,642 28,270 Amortization of intangibles and excess reorganization value 4,091 3,910 ------- ------- OPERATING INCOME 9,294 8,689 Interest income 391 64 Interest expense 14,876 13,434 Other expense (income), net 3,036 (591) ------- ------- (LOSS) BEFORE INCOME TAXES (8,227) (4,090) Income tax provision (benefit) (2,300) (195) ------- ------- NET (LOSS) $ (5,927) $ (3,895) ======== ======== WEIGHTED AVERAGE COMMON SHARES 13,737,748 13,515,000 PER SHARE AMOUNTS: NET (LOSS) $(.43) $ (.29) ===== ======= The accompanying notes are an integral part of the consolidated financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended --------------------------------------- March 28, March 30, 1996 1995 ------------- ------------ (in thousands) Cash flows from operating activities: Net (loss) $ (5,927) $ (3,895) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital lease 10,974 9,986 Amortization of intangibles and excess reorganization value 4,091 3,910 Amortization of deferred financing fees and discount 579 549 Increase (decrease) in deferred and noncurrent income taxes (3,866) (907) Foreign currency transaction loss (gain) 47 (1,586) (Gain) on sales of property, plant and equipment (2) Changes in operating assets and liabilities: Accounts receivable 2,307 (438) Inventories (6,212) (12,192) Other current assets (10,558) (10,615) Accounts payable and accrued liabilities 14,243 254 Other 191 398 ------- -------- Total adjustments 11,794 (10,641) ------- -------- Net cash provided by operating activities 5,867 (14,536) Cash flows from investing activities: Capital expenditures (6,543) (7,631) Proceeds from sale of property, plant and equipment 49 ------- -------- Net cash (used in) investing activities (6,494) (7,631) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 42,249 Deferred financing costs (464) Repayment of revolving loan, long-term borrowings and capital lease obligation (7,202) (19,973) ------- -------- Net cash provided by financing activities (7,202) 21,812 Effect of currency exchange rate changes on cash 506 275 ------- -------- Net (decrease) in cash and equivalents (7,323) (80) Cash and equivalents at beginning of period 30,325 7,289 ------- -------- Cash and equivalents at end of period $23,002 $ 7,209 ======= ======== - ---------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $13,379 $16,330 Income taxes paid $ 453 $ 1,045 The accompanying notes are an integral part of the consolidated financial statements.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES (dollars in thousands) Inventories consisted of: March 28, December 28, 1996 1995 ---------- ----------- Raw materials $ 17,605 $ 17,150 Work in process 32,695 32,800 Finished products 54,939 49,524 -------- -------- $105,239 $ 99,474 ======== ======== Approximately 56% of the inventories at March 28, 1996 were valued at Last- In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $5 million at March 28, 1996. 2. DEBT OBLIGATIONS (dollars in thousands) On June 20, 1995, Envirodyne Industries, Inc. (Envirodyne or the Company) completed the sale of $160,000 aggregate principal amount of senior secured notes pursuant to an indenture dated June 20, 1995 (Indenture) consisting 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 refinance senior bank debt and pay transaction fees and expenses. Concurrently with the June 20, 1995 financing, Envirodyne entered into a $20,000 domestic revolving credit facility (Revolving Credit Facility) and a $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 March 28, 1996. The Company recognized an extraordinary loss of $6,778 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable income taxes of $2,582, was included in the Company's Statement of Operations for the quarter ended June 29, 1995. The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The interest rate on the floating rate tranche is approximately 11.4%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15. On June 15, 1999, $80,000 of 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, Envirodyne is required to make an offer to purchase Senior Secured Notes together with any borrowed money obligations outstanding under the Revolving Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price of 100% plus any accrued interest to the date of purchase. There was no Excess Cash Flow for fiscal 1995. 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 $153 of amortization of the interest rate cap premium during the three-month period ended March 28, 1996. 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 Three Months Ended March 30, 1995 ---------------------- Net sales $155,824 Cost of sales 114,955 Selling, general and administrative 28,270 Amortization of intangibles and excess reorganization cost 3,910 -------- Operating income 8,689 Interest income 64 Interest expense 14,981 Other expense (income), net (591) -------- (Loss) before income taxes (5,637) Income tax (benefit) (798) -------- Net (loss) $ (4,839) ======== Weighted average common shares 13,515,000 Net (loss) per share $(.36) ===== 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 ------ ---------- 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: March December 28, 1996 28, 1995 ---------- ---------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Viskase Capital Lease Obligation $ 6,633 $ 6,012 Current maturity of Viskase Limited Term Loan (4.7%) 1,977 2,033 Other 3,404 4,459 ------- ------- Total short-term debt $12,014 $12,504 ======= ======= Long-term debt: 12% Senior Secured Notes due 2000 $160,000 $160,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 134,549 141,182 Viskase Limited Term Loan (4.7%) 6,917 7,115 Other 2,385 2,622 -------- -------- Total long-term debt $523,113 $530,181 ======== ======== 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 March 28, 1996 the carrying amount and estimated fair value of debt obligations (excluding capital lease obligation) were $391,974 and $348,818, 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, continues 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 March 28, 1996 the Company had met the required financial ratios and the letter of credit has been reduced by $4 million. The letter can be further reduced in 1997 or eliminated after 1998 if the Company achieves and maintains certain financial ratios. Envirodyne and its other principal subsidiaries guaranteed the obligations of Viskase under the Lease. The 1996 rental payment of $19,227 was paid on February 28, 1996. Principal payments under the capital lease obligation for the years ended 1996 through 1999 range from approximately $6 million to $14 million. Aggregate maturities of remaining long-term debt for each of the next five fiscal years are: Total --------------- 1996 $ 9,019 1997 9,418 1998 12,313 1999 95,477 2000 95,669 3. 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 were seeking substantial damages. In March 1996, Envirodyne completed a settlement of the lawsuit under which Envirodyne was released and discharged from all claims in exchange for 900,000 shares of Envirodyne common stock without any admission or finding of liability or wrongdoing. Litigation 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 Envirodyne's plan of reorganization (Plan of Reorganization) in 1993. 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 breach of fiduciary duty, fraudulent and negligent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the total amount of $136.2 million plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. 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 Company is not a party to either case, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in the Envirodyne bankruptcy case, would render it difficult for the plaintiff to establish liability. 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. 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 claims of the holders of untendered shares, so that such holders would not receive a distribution under the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary judgment and equitably subordinated the claims of the holders of untendered shares to the claims of other general unsecured creditors. Certain of the affected holders appealed and both the U.S. District Court and the U.S. Seventh Circuit Court of Appeals affirmed the Bankruptcy Court decision. The time period for further appeal has not passed. Envirodyne believes that even in the event of further appeal, if any, and reversal of the prior decisions, 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 and an existing employee that they are targets of the investigation. Both individuals were invited to appear and testify before the grand jury but both declined. Clear Shield National is cooperating fully with the investigation. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in the following three civil complaints: Eisenberg Brothers, Inc., on behalf of itself and all others ------------------------------------------------------------ similarly situated, v. Amcel Corp., Clear Shield National, Inc., Dispoz-O - ------------------------------------------------------------------------- Plastics Corp. and Benchmark Holdings, Inc. t/a Winkler Products, Civil - ---------------------------------------------------------------- Action No. 96-728, United States District Court for the Eastern District of Pennsylvania; St. Cloud Restaurant Supply Company v. Amcel Corp., Clear --------------------------------------------------------- Shield National, Inc., Dispoz-O Plastics Corp. and Benchmark Holdings, Inc. - -------------------------------------------------------------------------- t/a Winkler Products, Case No. 96C 0777, United States District Court for - -------------------- the Northern District of Illinois, Eastern Division; and Servall Products, ---------------- Inc., on behalf of itself and all others similarly situated, v. Amcel - --------------------------------------------------------------------- Corporation, Clear Shield National, Inc., Dispoz-O Plastics Corporation - ----------------------------------------------------------------------- and Benchmark Holdings, Inc. t/a Winkler Products, Civil Action - ------------------------------------------------- No. 96-1116, United States District Court for the Eastern District of Pennsylvania. Each of the complaints alleges, among other things, that from October 1990 through April 1992 the defendants unlawfully conspired to fix the prices at which plastic cutlery would be sold. The Company has informed the plaintiffs that such claims as they relate to Clear Shield were discharged by the order of the Bankruptcy Court and Plan of Reorganization and that the plaintiffs are permanently enjoined from pursuing legal action to collect discharged claims. On February 27, 1996, the plaintiff in the St. Cloud case voluntarily --------- dismissed the action without prejudice and refiled its action in the U.S. District Court for the Eastern District of Pennsylvania but did not name Clear Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc. filed a motion in Clear Shield National's Bankruptcy proceeding in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division. Eisenberg Brothers Inc.'s motion contends that the Bankruptcy Court's order did not discharge the plaintiff's claim. 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. 4. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS On February 23, 1996, the United States Bankruptcy Court for the Northern District of Illinois, Eastern District entered an order approving a settlement agreement resolving all claims of the former union employees of Wisconsin Steel Company which shut down in March 1980. Under terms of the approved settlement of Frank Lumpkin, et al. v. Envirodyne Industries, Inc. --------------------------------------------------- (Lumpkin) and without any admission or finding of liability or wrongdoing, ------- Envirodyne was released and discharged from all claims in exchange for 900,000 shares of common stock. The distribution is in accordance with the terms of Envirodyne's Plan of Reorganization under which common stock was distributed to Envirodyne's general unsecured creditors in satisfaction of their allowed claims. The Company issued additional shares of common stock for the Lumpkin ------- settlement and to the holders of general unsecured claims of Envirodyne (as opposed to the subsidiaries of Envirodyne) under the terms of the Plan of Reorganization. The total number of shares outstanding after issuance of common stock for the Lumpkin settlement and for the additional distribution ------- to holders of general unsecured claims of Envirodyne is 14,479,721. Under the terms of the Plan of Reorganization, Envirodyne issued warrants to purchase 10% of the fully diluted common stock. The issuance of common stock pursuant to the Lumpkin settlement, together with other issuances of ------- common stock since the consummation of the Plan of Reorganization, caused an adjustment to the exercise price of the warrants and the number of shares of common stock for which a warrant is exercisable. The exercise price was adjusted from $17.25 to $16.08 per share and the number of common shares for which each warrant is exercisable was adjusted from 1.000 share to 1.073 shares. 5. 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 MARCH 28, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- -------- -------- ---------- -------- (in thousands) ASSETS Current assets: Cash and equivalents $ 16,489 $ (1,923) $ 8,436 $ 23,002 Receivables and advances, net 73,219 67,508 52,060 $ (106,439) 86,348 Inventories 68,570 38,124 (1,455) 105,239 Other current assets 510 22,090 9,473 32,073 -------- -------- -------- ---------- -------- Total current assets 90,218 156,245 108,093 (107,894) 246,662 Property, plant and equipment including those under capital lease 265 400,668 148,705 549,638 Less accumulated depreciation and amortization 176 63,569 22,859 86,604 -------- -------- -------- ---------- -------- Property, plant and equipment, net 89 337,099 125,846 463,034 Deferred financing costs 6,497 951 7,448 Other assets 42,672 1,655 44,327 Investment in subsidiaries 71,972 117,371 (189,343) Excess reorganization value 93,152 39,737 132,889 -------- -------- -------- ---------- -------- $168,776 $746,539 $276,282 $(297,237) $894,360 ======== ======== ======== ========== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 7,051 $ 4,963 $ 12,014 Accounts payable and advances $ 15 99,213 48,640 $ (106,439) 41,429 Accrued liabilities 19,868 36,273 22,710 78,851 -------- -------- -------- ---------- -------- Total current liabilities 19,883 142,537 76,313 (106,439) 132,294 Long-term debt including obligation under capital lease 379,262 136,462 7,389 523,113 Accrued employee benefits 51,649 4,295 55,944 Deferred and noncurrent income taxes 33,330 15,015 24,811 73,156 Intercompany loans (373,552) 340,000 33,504 48 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,479,721 shares issued and outstanding 145 3 32,738 (32,741) 145 Paid in capital 134,855 87,899 87,871 (175,770) 134,855 Accumulated earnings (deficit) (31,058) (32,889) 3,498 29,391 (31,058) Cumulative foreign currency translation adjustments 5,911 5,863 5,863 (11,726) 5,911 -------- -------- -------- ---------- -------- Total stockholders' equity 109,853 60,876 129,970 (190,846) 109,853 -------- -------- -------- ---------- -------- $168,776 $746,539 $276,282 $(297,237) $894,360 ======== ======== ======== ========== ======== (1) Elimination of intercompany receivables, payables and investment accounts.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- -------- -------- ---------- -------- (in thousands) ASSETS Current assets: Cash and equivalents $ 18,013 $ 486 $ 11,826 $ 30,325 Receivables and advances, net 52,462 70,458 57,082 $ (90,548) 89,454 Inventories 63,355 38,233 (2,114) 99,474 Other current assets 176 12,364 9,106 21,646 -------- -------- -------- ---------- -------- Total current assets 70,651 146,663 116,247 (92,662) 240,899 Property, plant and equipment including those under capital lease 261 394,813 150,417 545,491 Less accumulated depreciation and amortization 150 55,620 20,217 75,987 -------- -------- -------- ---------- -------- Property, plant and equipment, net 111 339,193 130,200 469,504 Deferred financing costs 7,048 1,042 8,090 Other assets 43,720 1,869 45,589 Investment in subsidiaries 77,766 117,578 (195,344) Excess reorganization value 94,968 40,517 135,485 -------- -------- -------- ---------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========== ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 6,407 $ 6,097 $ 12,504 Accounts payable and advances $ 80 78,848 50,737 $ (90,548) 39,117 Accrued liabilities 8,126 37,488 21,939 67,553 -------- -------- -------- ---------- -------- Total current liabilities 8,206 122,743 78,773 (90,548) 119,174 Long-term debt including obligation under capital lease 379,262 143,198 7,721 530,181 Accrued employee benefits 51,345 4,281 55,626 Deferred and noncurrent income taxes 34,088 17,507 25,895 77,490 Intercompany loans (383,076) 340,000 43,083 (7) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,579,460 shares issued and outstanding 136 3 32,738 (32,741) 136 Paid in capital 134,864 87,899 87,871 (175,770) 134,864 Accumulated earnings (deficit) (25,131) (27,752) 2,334 25,418 (25,131) Cumulative foreign currency translation adjustments 7,227 7,179 7,179 (14,358) 7,227 -------- -------- -------- ---------- -------- Total stockholders' equity 117,096 67,329 130,122 (197,451) 117,096 -------- -------- -------- ---------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========== ======== (1) Elimination of intercompany receivables, payables and investment accounts.
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 28, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- -------- -------- ---------- -------- (in thousands) NET SALES $102,481 $66,212 $ (8,957) $159,736 COSTS AND EXPENSES Cost of sales 78,867 50,458 (9,616) 119,709 Selling, general and administrative $1,546 14,921 10,175 26,642 Amortization of intangibles and excess reorganization value 3,228 863 4,091 -------- -------- -------- ---------- -------- OPERATING INCOME (LOSS) (1,546) 5,465 4,716 659 9,294 Interest income 216 175 391 Interest expense 10,940 3,343 593 14,876 Intercompany interest expense (income) (10,513) 9,379 1,134 Management fees (income) (1,591) 1,218 373 Other expense (income), net 2,210 173 653 3,036 Equity Loss (income) in subsidiary 4,478 (1,164) (3,314) -------- -------- -------- ---------- -------- INCOME (LOSS) BEFORE INCOME TAXES (6,854) (7,484) 2,138 3,973 (8,227) Income tax provision (benefit) (927) (2,347) 974 (2,300) -------- -------- -------- ---------- -------- NET INCOME (LOSS) $(5,927) $ (5,137) $ 1,164 $ 3,973 $(5,927) ======== ======== ======== ========== ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 28, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- -------- -------- ---------- -------- (in thousands) Net cash provided by (used in) operating activities $ (11,061) $ 9,527 $7,401 $ 5,867 Cash flows from investing activities: Capital expenditures (3) (5,919) (621) (6,543) Proceeds from sale of property, plant and equipment 35 14 49 -------- -------- -------- ---------- -------- Net cash (used in) investing activities (3) (5,884) (607) (6,494) Cash flows from financing activities: Repayment of revolving loan, long-term borrowings and capital lease obligations (6,052) (1,150) (7,202) Increase (decrease) in Envirodyne loan 9,540 (9,540) -------- -------- -------- ---------- -------- Net cash provided by (used in) financing activities 9,540 (6,052) (10,690) (7,202) Effect of currency exchange rate changes on cash 506 506 -------- -------- -------- ---------- -------- Net increase (decrease) in cash and equivalents (1,524) (2,409) (3,390) (7,323) Cash and equivalents at beginning of period 18,013 486 11,826 30,325 -------- -------- -------- ---------- -------- Cash and equivalents at end of period $16,489 $ (1,923) $ 8,436 $23,002 ======== ======== ======== ========== ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 30, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- -------- -------- ---------- -------- (in thousands) NET SALES $102,289 $ 62,520 $ (8,985) $155,824 COSTS AND EXPENSES Cost of sales 75,069 48,903 (9,017) 114,955 Selling, general and administrative $1,573 17,354 9,343 28,270 Amortization of intangibles and excess reorganization value 3,066 844 3,910 -------- -------- -------- ---------- -------- OPERATING INCOME (LOSS) (1,573) 6,800 3,430 32 8,689 Interest income 55 9 64 Interest expense 9,084 3,522 828 13,434 Intercompany interest expense (income) (9,352) 8,502 850 Management fees (income) (1,850) 1,558 292 Other expense (income), net (2,152) (43) 1,604 (591) Equity loss (income) in subsidiary 5,540 756 (6,296) -------- -------- -------- ---------- -------- INCOME (LOSS) BEFORE INCOME TAXES (2,843) (7,440) (135) 6,328 (4,090) Income tax provision 1,052 (1,868) 621 (195) -------- -------- -------- ---------- -------- NET INCOME (LOSS) $(3,895) $ (5,572) $ (756) $ 6,328 $ (3,895) ======== ======== ======== ========== ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 30, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- -------- -------- ---------- -------- (in thousands) Net cash provided by (used in) operating activities $(23,043) $12,237 $(3,730) $(14,536) Cash flows from investing activities: Capital expenditures (5,826) (1,805) (7,631) -------- -------- -------- ---------- -------- Net cash (used in) investing activities (5,826) (1,805) (7,631) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 13,900 28,349 42,249 Deferred financing costs (464) (464) Repayment of revolving loan, long-term borrowings and capital lease obligations (2,837) (5,450) (11,686) (19,973) Increase (decrease) in Envirodyne loan 14,705 (14,705) -------- -------- -------- ---------- -------- Net cash provided by (used in) financing activities 25,304 (5,450) 1,958 21,812 Effect of currency exchange rate changes on cash 275 275 -------- -------- -------- ---------- -------- Net increase (decrease) in cash and equivalents 2,261 961 (3,302) (80) Cash and equivalents at beginning of period 555 1,853 4,881 7,289 -------- -------- -------- ---------- -------- Cash and equivalents at end of period $ 2,816 $ 2,814 $1,579 $7,209 ======== ======== ======== ========== ========
VISKASE HOLDING CORPORATION AND SUBSIDIARIES 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 28, 1995 (1995 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1995 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. The condensed consolidated balance sheet as of December 28, 1995 was derived from the audited Viskase Holding Corporation's consolidated financial statements included in Envirodyne Industries, Inc.'s annual report of Form 10-K. 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. VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 28, December 28, 1996 1995 ------------- ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 8,436 $ 11,826 Receivables, net 49,351 53,022 Receivables, affiliates 51,328 51,829 Inventories 38,124 38,233 Other current assets 9,473 9,106 -------- -------- Total current assets 156,712 164,016 Property, plant and equipment 148,705 150,417 Less accumulated depreciation 22,859 20,217 -------- -------- Property, plant and equipment, net 125,846 130,200 Deferred financing costs 951 1,042 Other assets 1,655 1,869 Excess reorganization value 39,737 40,517 -------- -------- $324,901 $337,644 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 4,963 $ 6,097 Accounts payable 15,819 13,720 Accounts payable and advances, affiliates 50,044 54,152 Accrued liabilities 22,711 21,942 -------- -------- Total current liabilities 93,537 95,911 Long-term debt 7,389 7,721 Accrued employee benefits 4,295 4,281 Deferred and noncurrent income taxes 24,811 25,895 Intercompany loans 71,514 81,094 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital 103,463 103,463 Retained earnings 14,029 12,100 Cumulative foreign currency translation adjustments 5,863 7,179 -------- -------- Total stockholders' equity 123,355 122,742 -------- -------- $324,901 $337,644 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended ---------------------------------- March 28, March 30, 1996 1995 ------------ ------------ (in thousands, except for number of shares and per share amounts) NET SALES $66,212 $62,520 COSTS AND EXPENSES Cost of sales 50,458 48,903 Selling, general and administrative 8,912 8,846 Amortization of intangibles and excess reorganization value 863 844 ------- -------- OPERATING INCOME 5,979 3,927 Interest income 175 39 Interest expense 593 858 Intercompany interest expense 1,134 838 Management fees 373 292 Other expense, net 653 1,299 ------- -------- INCOME BEFORE INCOME TAXES 3,401 679 Income tax provision 1,472 848 ------- -------- NET INCOME (LOSS) $ 1,929 $ (169) ======= ======== WEIGHTED AVERAGE COMMON SHARES 100 100 PER SHARE AMOUNTS: NET INCOME (LOSS) $19,290 $(1,690) ======= ======= The accompanying notes are an integral part of the consolidated financial statements. VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended ----------------------------------- March 28, March 30, 1996 1995 ------- -------- (in thousands) Cash flows from operating activities: Net income $ 1,929 $ (169) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,982 2,808 Amortization of intangibles and excess reorganization value 863 844 Amortization of deferred financing fees and discount 57 54 Increase (decrease) in deferred and noncurrent income taxes (536) (91) (Gain) on sales of property, plant and equipment (14) Changes in operating assets and liabilities: Accounts receivable 2,872 (88) Accounts receivable, affiliates 97 (2,325) Inventories (338) (6,652) Other current assets 591 1,276 Accounts payable and accrued liabilities 2,865 (1,321) Accounts payable and advances, affiliates (3,964) 1,225 Other (3) (689) ------- -------- Total adjustments 5,472 (4,959) ------- -------- Net cash provided by (used in) operating activities 7,401 (5,128) Cash flows from investing activities: Capital expenditures (621) (1,805) Proceeds from sale of property, plant and equipment 14 ------- -------- Net cash (used in) investing activities (607) (1,805) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 28,349 Repayment of revolving loan and long-term borrowings (1,150) (11,686) Increase (decrease) in Envirodyne loan (9,540) (14,627) ------- -------- Net cash provided by (used in) financing activities (10,690) 2,036 Effect of currency exchange rate changes on cash 506 275 ------- -------- Net (decrease) in cash and equivalents (3,390) (4,622) Cash and equivalents at beginning of period 11,826 6,201 ------- -------- Cash and equivalents at end of period $ 8,436 $ 1,579 ======= ======== - --------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $138 $ 250 Income taxes paid $250 $ 685 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: March 28, December 28, 1996 1995 ----------- ------------ Raw materials $ 4,653 $ 5,299 Work in process 13,045 13,342 Finished products 20,426 19,592 ------- ------- $38,124 $38,233 ======= ======= 2. CONTINGENCIES (dollars in thousands) Viskase Holding Corporation 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 condi- tion and results of operations should be read in conjunction with the following table: Three Months Ended ----------------------------------- March 28, March 30, 1996 1995 --------- --------- (in thousands) Net sales: Food packaging products $142,220 $138,596 Disposable foodservice supplies 17,678 17,228 Other and eliminations (162) -------- -------- $159,736 $155,824 ======== ======== Operating income: Food packaging products $9,252 $ 8,990 Disposable foodservice supplies 1,595 1,264 Other and eliminations (1,553) (1,565) ------- ------- $9,294 $ 8,689 ======= ======= Depreciation and amortization under capital lease and amortization of intangible expense: Food packaging products $13,837 $12,768 Disposable foodservice supplies 1,202 1,110 Other 26 18 ------- ------- $15,065 $13,896 ======= ======= Capital expenditures: Food packaging products $ 5,509 $ 6,053 Disposable foodservice supplies 1,031 1,578 Other 3 ------- ------- $ 6,543 $ 7,631 ======= ======= Results of Operations - --------------------- The Company's net sales for the first three months of 1996 were $159.7 million, which represented an increase of 2.5% over the first three months of 1995. Net sales at Viskase increased by 1.7% over the prior year due to expansion of Latin American and Asian Pacific sales. First quarter net sales at Sandusky increased 14.3%. Increased capacity provided by investments in injection molding equipment, begun in the prior year, allowed for Sandusky's sales increase. First quarter net sales at Clear Shield increased 2.6% from the prior year primarily due to selling price increases. Operating income for the first three months of 1996 was $9.3 million representing an increase of 7.0% over the first three months of 1995. The operating income increase resulted primarily from lower selling, general and administrative expenses, principally research and development. Declines in gross margins had some offsetting effect. The decline in gross margin resulted from continued price competition in both domestic and foreign markets, particularly within the casing product lines. The British beef industry has been affected by the heightened media exposure of bovine spongiform encephalopathy (BSE), or mad cow disease. While certain of our film product lines in Europe are sold to customers in affected industries, management believes that Viskase's results will not be significantly impacted. Net interest expense for the three month period totaled $14.5 million representing an increase of $1.1 million from the first three months of 1995. The increase is the result of borrowings at higher interest rates. Other income (expense) totaled $(3.0) million and $.6 million for the first three months of 1996 and 1995, respectively. The 1996 expense included a $(2.0) million charge for the termination of the management agreement with D.P. Kelly & Associates, L.P. The remaining expense in 1996 and income in 1995 consisted 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. The tax benefit for the first three 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 $2.3 million was provided on a loss before income taxes of $8.2 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 - ------------------------------- Cash and equivalents decreased by $7.3 million during the three months ended March 28, 1996. Cash flows used by investing activities of $6.5 million and for financing activities of $7.2 million exceed cash flows provided by operating activities of $5.9 million. Cash flows used in investing activity consist principally of capital expenditures for property, plant and equipment. Cash flows used for financing activities were principally attributable to the principal repayment under the GECC Lease and reduction of foreign borrowing. Cash flows used in operating activities were principally attributable to the Company's loss from operations offset by the effect of depreciation and amortization. On June 20, 1995, Envirodyne Industries, Inc. (Envirodyne or the Company) completed the sale of $160 million aggregate principal amount of senior secured notes pursuant to an indenture dated June 20, 1995 (Indenture) consisting 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 refinance senior bank debt and pay transaction fees and expenses. Concurrently with the June 20, 1995 financing, Envirodyne entered into a $20 million domestic revolving credit facility (Revolving Credit Facility) and a $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 March 28, 1996. The Company anticipates that its operating cash flow will be sufficient to meet its operating expenses and to service its interest payments on the Senior Secured Notes, the 10.25% 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 three months of 1996 and 1995 totaled $6.5 million and $7.6 million, respectively. Capital expenditures for 1996 are expected to be approximately $34 million and $31 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 $153 of amortization of interest rate cap premium during the three-month period ended March 28, 1996. The Company has not received any payments under the interest rate protection agreements. The Company has spent approximately $11 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 1996 research and development and product introduction expenses are expected to be approximately $10 million. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. PART II. OTHER INFORMATION Item 1 - Legal Proceedings ----------------- For a description of pending litigation and other contingencies, see Part 1, Note 3, Contingencies. Item 2 - Changes in Securities --------------------- No reportable events occurred during the quarter ended March 28, 1996. 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 None (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/ ------------------------------- Gordon S. Donovan Vice President and Treasurer (Duly authorized officer and principal financial officer of the registrant) Date: May 13, 1996 EX-27 2
5 3-MOS DEC-26-1996 MAR-28-1996 23,002,000 0 89,224,000 (2,876,000) 105,239,000 246,662,000 549,638,000 86,604,000 894,360,000 132,294,000 523,113,000 145,000 0 0 103,797,000 894,360,000 159,736,000 159,736,000 119,709,000 119,709,000 0 153,000 14,876,000 (8,227,000) (2,300,000) (5,927,000) 0 0 0 (5,927,000) (0.43) (0.43)
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