-----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, V4aJrY/si1QkGrnQ9mQ6oEhd+Sh5XiKFdnOOuV/nQCYUfWxWxyLP+qF6rVe1jJqj 8Hrq9vga11aeDY8ocYBdtg== 0000033073-96-000008.txt : 19960813 0000033073-96-000008.hdr.sgml : 19960813 ACCESSION NUMBER: 0000033073-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960627 FILED AS OF DATE: 19960812 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: 96608473 BUSINESS ADDRESS: STREET 1: 701 HARGER ROAD STE 190 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085718800 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 10-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 June 27, 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 August 9, 1996, there were 14,479,721 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of 30 Pages INDEX TO FINANCIAL STATEMENTS ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS PAGE Consolidated balance sheets at June 27, 1996 (unaudited) and December 28, 1995 4 Unaudited consolidated statements of operations for the three months ended June 27, 1996 and June 29, 1995 and for the six months ended June 27, 1996 and June 29, 1995 5 Unaudited consolidated statements of cash flows for the six months ended June 27, 1996 and June 29, 1995 6 Notes to consolidated financial statements 7 VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at June 27, 1996 (unaudited) and December 28, 1995 21 Unaudited consolidated statements of operations for the three months ended June 27, 1996 and June 29, 1995 and for the six months ended June 27, 1996 and June 29, 1995 22 Unaudited consolidated statements of cash flows for the six months ended June 27, 1996 and June 29, 1995 23 Notes to consolidated financial statements 24 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
June 27, December 28, 1996 1995 ---------------- --------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 19,774 $ 30,325 Receivables, net 87,585 89,454 Inventories 104,853 99,474 Other current assets 27,043 21,646 -------- -------- Total current assets 239,255 240,899 Property, plant and equipment, including those under capital leases 558,097 545,491 Less accumulated depreciation and amortization 97,099 75,987 -------- -------- Property, plant and equipment, net 460,998 469,504 Deferred financing costs 6,850 8,090 Other assets 42,468 45,589 Excess reorganization value 130,293 135,485 -------- -------- $879,864 $899,567 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 11,675 $ 12,504 Accounts payable 42,983 39,117 Accrued liabilities 70,992 67,553 -------- -------- Total current liabilities 125,650 119,174 Long-term debt including obligations under capital leases 522,699 530,181 Accrued employee benefits 56,251 55,626 Deferred and noncurrent income taxes 70,085 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 June 27, 1996 and 13,579,460 shares at December 28, 1995 145 136 Paid in capital 134,855 134,864 Accumulated (deficit) (35,223) (25,131) Cumulative foreign currency translation adjustments 5,402 7,227 -------- -------- Total stockholders' equity 105,179 117,096 -------- -------- $879,864 $899,567 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Six Months Six Months Ended June Ended June Ended June Ended June 27, 1996 29, 1995 27, 1996 29, 1995 ------------- ------------ ------------ ------------ (in thousands, except for number of shares and per share amounts) NET SALES $165,747 $165,184 $325,483 $321,008 COSTS AND EXPENSES Cost of sales 124,053 123,404 243,762 238,359 Selling, general and administrative 28,304 27,786 54,946 56,056 Amortization of intangibles and excess reorganization value 4,115 3,905 8,206 7,815 -------- -------- -------- -------- OPERATING INCOME 9,275 10,089 18,569 18,778 Interest income 381 19 772 83 Interest expense 14,496 13,796 29,372 27,230 Other expense (income), net 225 (548) 3,261 (1,139) -------- -------- -------- -------- (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (5,065) (3,140) (13,292) (7,230) Income tax provision (benefit) (900) 177 (3,200) (18) -------- -------- -------- -------- (LOSS) BEFORE EXTRAORDINARY ITEM (4,165) (3,317) (10,092) (7,212) Extraordinary loss, net of tax 4,196 4,196 -------- -------- -------- -------- NET (LOSS) $ (4,165) $ (7,513) $(10,092) $(11,408) ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES 14,479,721 13,515,000 14,093,895 13,515,000 PER SHARE AMOUNTS: (LOSS) BEFORE EXTRAORDINARY ITEM $(.29) $(.25) $(.72) $(.53) ===== ===== ===== ===== NET (LOSS) $(.29) $(.56) $(.72) $(.84) ===== ===== ===== ===== The accompanying notes are an integral part of the consolidated financial statements. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended -------------------------- June 27, June 29, 1996 1995 ------------ ----------- (in thousands) Cash flows from operating activities: (Loss) before extraordinary item $(10,092) $(7,212) Extraordinary (loss) on debt extinguishment (4,196) -------- ------- Net (loss) (10,092) (11,408) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital leases 21,861 20,132 Amortization of intangibles and excess reorganization value 8,206 7,815 Amortization of deferred financing fees and discount 1,156 1,031 Increase (decrease) in deferred and noncurrent income taxes (5,794) (3,705) Loss on debt extinguishment 6,778 Foreign currency transaction loss (gain) 5 (2,079) (Gain) on sales of property, plant and equipment (159) (11) Changes in operating assets and liabilities: Accounts receivable 670 (6,130) Inventories (6,095) (12,851) Other current assets (5,613) (7,360) Accounts payable and accrued liabilities 8,316 (3,834) Other (98) (25) -------- ------- Total adjustments 22,455 (239) -------- ------- Net cash provided by (used in) operating activities 12,363 (11,647) Cash flows from investing activities: Capital expenditures (16,568) (13,597) Proceeds from sale of property, plant and equipment 275 29 -------- ------- Net cash (used in) investing activities (16,293) (13,568) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 1,130 206,053 Deferred financing costs (7,667) Repayment of revolving loan, long-term borrowings and capital lease obligations (8,859) (173,494) -------- ------- Net cash (used in) provided by financing activities (7,729) 24,892 Effect of currency exchange rate changes on cash 1,108 (675) -------- ------- Net (decrease) in cash and equivalents (10,551) (998) Cash and equivalents at beginning of period 30,325 7,289 -------- ------- Cash and equivalents at end of period $ 19,774 $ 6,291 ======== ======= - --------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $34,501 $33,373 Income taxes paid $ 690 $ 3,996 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: June 27, December 28, 1996 1995 ----------- ------------ Raw materials $ 17,768 $ 17,150 Work in process 31,567 32,800 Finished products 55,518 49,524 -------- -------- $104,853 $ 99,474 ======== ======== Approximately 56% of the inventories at June 27, 1996 were valued at Last- In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $5.6 million at June 27, 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 June 27, 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 11.6%. 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 $306 of amortization of the interest rate cap premium during the six-month period ended June 27, 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 Six Months Ended June 29, 1995 --------------------- Net sales $321,008 Cost of sales 238,359 Selling, general and administrative 56,056 Amortization of intangibles and excess reorganization cost 7,815 -------- Operating income 18,778 Interest income 83 Interest expense 30,066 Other expense (income), net (1,139) -------- (Loss) before income taxes (10,066) Income tax (benefit) (1,124) -------- Net (loss) $ (8,942) ======== Weighted average common shares 13,515,000 Net (loss) per share $(.66) ===== 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: June December 27, 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 (3.9%) 1,919 2,033 Other 3,123 4,459 ------- ------- Total short-term debt $11,675 $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 (3.9%) 5,758 7,115 Other 3,130 2,622 -------- -------- Total long-term debt $522,699 $530,181 ======== ======== The fair value of the Company's debt obligation (excluding capital lease obligations) is estimated based upon the quoted market prices for the same or similar issues or upon the current rates offered to the Company for the debt of the same remaining maturities. At June 27, 1996 the carrying amount and estimated fair value of debt obligations (excluding capital lease obligations) were $390,218 and $366,218, respectively. 3. CONTINGENCIES (dollars in thousands) Although Envirodyne is not a direct party, litigation is pending from events arising out of Envirodyne's 1993 bankruptcy case and the 1989 acquisition of Envirodyne by Emerald Acquisition Corporation (Emerald) with respect to which 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 Rifkin - ------------------------------------------------------------------------ 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 by the defendants in connection with the negotiation and consummation of Envirodyne's plan of reorganization (Plan of Reorganization) in 1993. A motion for summary judgment was granted in favor of all defendants, which decision has been appealed to the District Court. 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. All claims against Mr. Kelly and D.P. Kelly & Associates, L.P. have been dismissed by the Circuit Court and some of those decisions have been appealed to the Illinois Appellate Court. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkin 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. Those holders have petitioned the Supreme Court of the United States for Writ of Certiorari which is pending. Envirodyne believes that, even in the event prior decisions are reversed, the maximum number of shares of common stock that it would be required to issue to such claimants is approximately 106,000. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in three civil actions filed in the 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. The plaintiffs have filed motions for summary judgment in Clear Shield National's Bankruptcy proceeding in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division. Their motions contend that the Bankruptcy Court's order did not discharge the plaintiffs' claims. Clear Shield National has filed a cross motion for summary judgment. The claims pending in the Eastern District of Pennsylvania have been stayed pending the decision in the Bankruptcy Court on the cross motions for summary judgment. 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. 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 JUNE 27, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 11,421 $ (210) $ 8,563 $ 19,774 Receivables and advances, net 75,105 70,913 50,360 $(108,793) 87,585 Inventories 68,424 38,000 (1,571) 104,853 Other current assets 302 17,854 8,887 27,043 -------- -------- -------- --------- -------- Total current assets 86,828 156,981 105,810 (110,364) 239,255 Property, plant and equipment including those under capital leases 133 409,568 148,396 558,097 Less accumulated depreciation and amortization 76 71,536 25,487 97,099 -------- -------- -------- --------- -------- Property, plant and equipment, net 57 338,032 122,909 460,998 Deferred financing costs 5,998 852 6,850 Other assets 40,957 1,511 42,468 Investment in subsidiaries 67,323 117,811 (185,134) Excess reorganization value 91,336 38,957 130,293 -------- -------- -------- --------- -------- $160,206 $745,117 $270,039 $(295,498) $879,864 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital leases $ 7,181 $ 4,494 $ 11,675 Accounts payable and advances $ 15 103,169 48,592 $(108,793) 42,983 Accrued liabilities 7,709 36,185 27,098 70,992 -------- -------- -------- --------- -------- Total current liabilities 7,724 146,535 80,184 (108,793) 125,650 Long-term debt including obligation under capital leases 379,262 137,334 6,103 522,699 Accrued employee benefits 51,954 4,297 56,251 Deferred and noncurrent income taxes 33,189 12,951 23,945 70,085 Intercompany loans (365,148) 340,000 25,149 (1) 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) (35,223) (36,913) 4,398 32,515 (35,223) Cumulative foreign currency translation adjustments 5,402 5,354 5,354 (10,708) 5,402 -------- -------- -------- --------- -------- Total stockholders' equity 105,179 56,343 130,361 (186,704) 105,179 -------- -------- -------- --------- -------- $160,206 $745,117 $270,039 $(295,498) $879,864 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 28, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 18,013 $ 486 $ 11,826 $ 30,325 Receivables and advances, net 52,462 70,458 57,082 $ (90,548) 89,454 Inventories 63,355 38,233 (2,114) 99,474 Other current assets 176 12,364 9,106 21,646 -------- -------- -------- --------- -------- Total current assets 70,651 146,663 116,247 (92,662) 240,899 Property, plant and equipment including those under capital leases 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 leases $ 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 leases 379,262 143,198 7,721 530,181 Accrued employee benefits 51,345 4,281 55,626 Deferred and noncurrent income taxes 34,088 17,507 25,895 77,490 Intercompany loans (383,076) 340,000 43,083 (7) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,579,460 shares issued and outstanding 136 3 32,738 (32,741) 136 Paid in capital 134,864 87,899 87,871 (175,770) 134,864 Accumulated earnings (deficit) (25,131) (27,752) 2,334 25,418 (25,131) Cumulative foreign currency translation adjustments 7,227 7,179 7,179 (14,358) 7,227 -------- -------- -------- --------- -------- Total stockholders' equity 117,096 67,329 130,122 (197,451) 117,096 -------- -------- -------- --------- -------- $155,576 $742,122 $289,875 $(288,006) $899,567 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 27, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $210,412 $133,210 $(18,139) $325,483 COSTS AND EXPENSES Cost of sales 160,915 101,529 (18,682) 243,762 Selling, general and administrative $ 2,813 30,966 21,167 54,946 Amortization of intangibles and excess reorganization value 6,457 1,749 8,206 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (2,813) 12,074 8,765 543 18,569 Interest income 403 369 772 Interest expense 21,771 6,506 1,095 29,372 Intercompany interest expense (income) (20,659) 18,701 1,958 Management fees (income) (3,189) 2,437 752 Other expense (income), net 2,083 (21) 1,199 3,261 Equity loss (income) in subsidiary 8,618 (2,064) (6,554) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (11,034) (13,485) 4,130 7,097 (13,292) Income tax provision (benefit) (942) (4,324) 2,066 (3,200) -------- -------- -------- --------- -------- NET INCOME (LOSS) $(10,092) $ (9,161) $ 2,064 $ 7,097 $(10,092) ======== ======== ======== ========= ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 27, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $107,931 $ 66,998 $(9,182) $165,747 COSTS AND EXPENSES Cost of sales 82,048 51,071 (9,066) 124,053 Selling, general and administrative $ 1,267 16,045 10,992 28,304 Amortization of intangibles and excess reorganization value 3,229 886 4,115 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (1,267) 6,609 4,049 (116) 9,275 Interest income 187 194 381 Interest expense 10,831 3,163 502 14,496 Intercompany interest expense (income) (10,146) 9,322 824 Management fees (income) (1,598) 1,219 379 Other expense (income), net (127) (194) 546 225 Equity loss (income) in subsidiary 4,140 (900) (3,240) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (4,180) (6,001) 1,992 3,124 (5,065) Income tax provision (benefit) (15) (1,977) 1,092 (900) -------- -------- -------- --------- -------- NET INCOME (LOSS) $(4,165) $(4,024) $ 900 $ 3,124 $ (4,165) ======== ======== ======== ========= ======== /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR SIX MONTHS ENDED JUNE 27, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $(24,670) $ 19,190 $ 17,843 $ 12,363 Cash flows from investing activities: Capital expenditures (3) (14,836) (1,729) (16,568) Proceeds from sales of property, plant and equipment 136 40 99 275 -------- -------- -------- --------- -------- Net cash provided by (used in) investing activities 133 (14,796) (1,630) (16,293) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 1,130 1,130 Repayment of revolving loan, long-term borrowings and capital lease obligations (6,220) (2,639) (8,859) Increase (decrease) in Envirodyne loan 17,945 (17,945) -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities 17,945 (5,090) (20,584) (7,729) Effect of currency exchange rate changes on cash 1,108 1,108 -------- -------- -------- --------- -------- Net increase (decrease) in cash and equivalents (6,592) (696) (3,263) (10,551) Cash and equivalents at beginning of period 18,013 486 11,826 30,325 -------- -------- -------- --------- -------- Cash and equivalents at end of period $ 11,421 $ (210) $8,563 $19,774 ======== ======== ======== ========= ======== /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $211,180 $129,214 $(19,386) $321,008 COSTS AND EXPENSES Cost of sales 154,687 102,946 (19,274) 238,359 Selling, general and administrative $ 3,125 33,391 19,540 56,056 Amortization of intangibles and excess reorganization value 6,133 1,682 7,815 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (3,125) 16,969 5,046 (112) 18,778 Interest income 4 38 41 83 Interest expense 18,232 7,033 1,965 27,230 Intercompany interest expense (income) (18,441) 17,000 1,441 Management fees (income) (3,700) 3,219 481 Other expense (income), net (2,714) 9 1,566 (1,139) Equity Loss (income) in subsidiary 10,072 2,369 (12,441) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (6,570) (12,623) (366) 12,329 (7,230) Income tax provision (benefit) 1,332 (2,663) 1,313 (18) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (7,902) (9,960) (1,679) 12,329 (7,212) Extraordinary loss, net of tax 3,506 690 4,196 -------- -------- -------- --------- -------- NET INCOME (LOSS) $(11,408) $ (9,960) $ (2,369) $ 12,329 $(11,408) ======== ======== ======== ========= ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $108,891 $66,694 $(10,401) $165,184 COSTS AND EXPENSES Cost of sales 79,618 54,043 (10,257) 123,404 Selling, general and administrative $ 1,552 16,037 10,197 27,786 Amortization of intangibles and excess reorganization value 3,067 838 3,905 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (1,552) 10,169 1,616 (144) 10,089 Interest income 4 13 2 19 Interest expense 9,148 3,541 1,107 13,796 Intercompany interest expense (income) (9,089) 8,498 591 Management fees (income) (1,850) 1,661 189 Other expense (income), net (562) 52 (38) (548) Equity loss (income) in subsidiary 4,532 1,613 (6,145) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (3,727) (5,183) (231) 6,001 (3,140) Income tax provision (benefit) 280 (795) 692 177 -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (4,007) (4,388) (923) 6,001 (3,317) Extraordinary loss, net of tax 3,506 690 4,196 -------- -------- -------- --------- -------- NET INCOME (LOSS) $(7,513) $(4,388) $(1,613) $6,001 $(7,513) ======== ======== ======== ========= ======== /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR SIX MONTHS ENDED JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $ 867 $(11,421) $ (1,093) $(11,647) Cash flows from investing activities: Capital expenditures (33) (10,289) (3,275) (13,597) Proceeds from sale of property, plant and equipment 29 29 -------- -------- -------- --------- -------- Net cash (used in) investing activities (33) (10,289) (3,246) (13,568) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 164,000 42,053 206,053 Deferred financing costs (7,667) (7,667) Repayment of revolving loan, long-term borrowings and capital lease obligations (119,275) (5,578) (48,641) (173,494) Increase (decrease) in Envirodyne loan (35,385) 24,886 10,499 -------- -------- -------- --------- -------- Net cash provided by financing activities 1,673 19,308 3,911 24,892 Effect of currency exchange rate changes on cash (675) (675) -------- -------- -------- --------- -------- Net increase (decrease) in cash and equivalents 2,507 (2,402) (1,103) (998) Cash and equivalents at beginning of period 555 1,853 4,881 7,289 -------- -------- -------- --------- -------- Cash and equivalents at end of period $ 3,062 $ (549) $ 3,778 $ 6,291 ======== ======== ======== ========= ========
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
June 27, December 28, 1996 1995 ------------- ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 8,563 $ 11,826 Receivables, net 46,467 53,022 Receivables, affiliates 52,715 51,829 Inventories 38,000 38,233 Other current assets 8,887 9,106 -------- -------- Total current assets 154,632 164,016 Property, plant and equipment 148,396 150,417 Less accumulated depreciation 25,487 20,217 -------- -------- Property, plant and equipment, net 122,909 130,200 Deferred financing costs 852 1,042 Other assets 1,511 1,869 Excess reorganization value 38,957 40,517 -------- -------- $318,861 $337,644 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 4,494 $ 6,097 Accounts payable 16,481 13,720 Accounts payable and advances, affiliates 48,623 54,152 Accrued liabilities 27,099 21,942 -------- -------- Total current liabilities 96,697 95,911 Long-term debt 6,103 7,721 Accrued employee benefits 4,297 4,281 Deferred and noncurrent income taxes 23,945 25,895 Intercompany loans 63,159 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 15,843 12,100 Cumulative foreign currency translation adjustments 5,354 7,179 -------- -------- Total stockholders' equity 124,660 122,742 -------- -------- $318,861 $337,644 ======== ======== The accompanying notes are an integral part of the consolidated financial statements. /TABLE VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Six Months Six Months Ended June Ended June Ended June Ended June 27, 1996 29, 1995 27, 1996 29, 1995 ------------- ------------- ----------- -------------- (in thousands, except for number of shares and per share amounts) NET SALES $66,998 $66,694 $133,210 $129,214 COSTS AND EXPENSES Cost of sales 51,071 54,043 101,529 102,946 Selling, general and administrative 9,482 8,423 18,394 17,269 Amortization of intangibles and excess reorganization value 886 838 1,749 1,682 ------- ------- -------- -------- OPERATING INCOME 5,559 3,390 11,538 7,317 Interest income 194 2 369 41 Interest expense 502 1,107 1,095 1,965 Intercompany interest expense 824 591 1,958 1,429 Management fees 379 189 752 481 Other expense (income), net 546 (38) 1,199 1,261 ------- ------- -------- -------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 3,502 1,543 6,903 2,222 Income tax provision (benefit) 1,688 1,409 3,160 2,257 ------- ------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,814 134 3,743 (35) Extraordinary loss, net of tax 690 690 ------- ------- -------- -------- NET INCOME (LOSS) $ 1,814 $ (556) $ 3,743 $ (725) ======= ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES 100 100 100 100 PER SHARE AMOUNTS: INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $18,140 $1,340 $37,430 $(350) ======= ====== ======= ===== NET INCOME (LOSS) $18,140 $(5,560) $37,430 $(7,250) ======= ======= ======= ======= The accompanying notes are an integral part of the consolidated financial statements. /TABLE VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended -------------------------------- June 27, June 29, 1996 1995 ---------- ----------- (in thousands) Cash flows from operating activities: Income (loss) before extraordinary item $ 3,743 $ (35) Extraordinary loss on debt extinguishment 690 -------- ------- Net income (loss) 3,743 (725) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 5,879 5,761 Amortization of intangibles and excess reorganization value 1,749 1,682 Amortization of deferred financing fees and discount 113 94 Increase (decrease) in deferred and noncurrent income taxes (507) (89) Loss on debt extinguishment 1,030 (Gain) on sales of property, plant and equipment (55) (11) Changes in operating assets and liabilities: Accounts receivable 5,258 (3,138) Accounts receivable, affiliates (2,692) (2,002) Inventories (785) (8,241) Other current assets (102) (700) Accounts payable and accrued liabilities 8,996 (605) Accounts payable and advances, affiliates (3,751) 4,531 Other (3) -------- ------- Total adjustments 14,100 (1,688) -------- ------- Net cash provided by (used in) operating activities 17,843 (2,413) Cash flows from investing activities: Capital expenditures (1,729) (3,275) Proceeds from sale of property, plant and equipment 99 29 -------- ------- Net cash (used in) investing activities (1,630) (3,246) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 42,053 Repayment of revolving loan and long-term borrowings (2,639) (48,641) Increase (decrease) in Envirodyne loan (17,945) 10,499 -------- ------- Net cash provided by (used in) financing activities (20,584) 3,911 Effect of currency exchange rate changes on cash 1,108 (675) -------- ------- Net (decrease) in cash and equivalents (3,263) (2,423) Cash and equivalents at beginning of period 11,826 6,201 -------- ------- Cash and equivalents at end of period $ 8,563 $ 3,778 ======== ======== - ---------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 398 $ 987 Income taxes paid $ 389 $3,536 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: June 27, December 28, 1996 1995 ---------- ------------ Raw materials $ 4,457 $ 5,299 Work in process 12,850 13,342 Finished products 20,693 19,592 ------- ------- $38,000 $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 condition and results of operations should be read in conjunction with the following table:
Three Months Ended --------------------------------- June 27, June 29, 1996 1995 ---------- ---------- (in thousands) Net sales: Food packaging products $144,615 $144,261 Disposable foodservice supplies 21,132 20,923 -------- -------- $165,747 $165,184 ======== ======== Operating income: Food packaging products $ 8,341 $ 9,958 Disposable foodservice supplies 2,198 1,683 Other and eliminations (1,264) (1,552) ------ ------- $9,275 $10,089 ====== ======= Depreciation and amortization under capital lease and amortization of intangible expense: Food packaging products $13,764 $12,897 Disposable foodservice supplies 1,226 1,133 Other 12 21 ------- ------- $15,002 $14,051 ======= ======= Capital expenditures: Food packaging products $9,156 $5,278 Disposable foodservice supplies 869 655 Other 33 ------- ------ $10,025 $5,966 ======= ====== /TABLE Results of Operations - --------------------- The Company's net sales for the first six months and second quarter of 1996 were $325.5 million and $165.7 million, respectively, which represented slight increases of 1.4% and 0.3%, respectively, over comparable periods of 1995. Second quarter net sales at Viskase increased by 0.3% over the prior year. The benefits of a stronger presence in the Latin American and Asian Pacific markets were offset by lower pricing due to competitive pressures in both the domestic and European markets. Second quarter net sales at Sandusky were flat compared to the prior year. Sales to dairy customers were lower than expected following a general softness in dairy product sales in the U.S. Second quarter net sales at Clear Shield increased 1.0% from the prior year primarily due to volume increases from new business. These increases more than offset volume loss from softness in the quick serve restaurant market segment. Operating income for the first six months and second quarter of 1996 was $18.6 million and $9.3 million, respectively, representing decreases of 1.1% and 8.1%, respectively, from the comparable periods of 1995. The decrease in operating income resulted primarily from declines in gross margins caused by continued price competition in the U.S. and Europe, particularly within the casing product lines. Lower selling, general and administrative expenses, principally research and development, had some offsetting effects. Additionally, lower volumes at Sandusky negatively impacted gross margins. The British beef industry continues to be affected by concerns over 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 six month period totaled $28.6 million representing an increase of $1.5 million from the first six months of 1995. The increase is the result of borrowings at higher interest rates, which more than offset the effect of lower borrowing levels. Other income (expense) totaled $(3.3) million and $1.1 million for the first six 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 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 $3.2 million was provided on a loss before income taxes of $13.3 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 $10.6 million during the six months ended June 27, 1996. Cash flows used by investing activities of $16.3 million and for financing activities of $7.7 million exceed cash flows provided by operating activities of $12.4 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 General Electric Capital Corporation 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 June 27, 1996. There are no significant restrictions on the Company's ability to transfer funds among its operations under the terms of its principal debt agreements. 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 six months of 1996 and 1995 totaled $16.6 million and $13.6 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 $306 of amortization of interest rate cap premium during the three-month period ended June 27, 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 June 27, 1996. Item 3 - Defaults Upon Senior Securities ------------------------------- None. Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Company held its Annual Meeting of Stockholders (the "Meeting") on May 15, 1996. The business conducted at the Meeting included (i) the election of directors, (ii) the ratification of an amendment to the Company's 1993 Stock Option Plan, (iii) the ratification of the Company's Non-Employee Directors' Compensation Plan, and (iv) the ratification of the appointment of Coopers & Lybrand L.L.P. as the Company's independent accountants for the fiscal year ended December 26, 1996. The results were as follows:
Election of Directors For Against - --------------------- ---------- --------- Robert N. Dangremond 11,045,347 1,807,256 Avram A. Glazer 11,071,192 1,781,411 Malcolm I. Glazer 11,072,403 1,780,200 F. Edward Gustafson 12,770,959 81,644 Michael E. Heisley 12,689,748 162,855 Gregory R. Page 11,051,853 1,800,750 Mark D. Senkpiel 11,045,853 1,806,750
Ratification of Amendment to 1993 Stock Option Plan For Against Abstaining - ---------------------------- ---------- ------- ---------- 10,876,840 224,558 24,508
Ratification of Non-Employee Directors' Compensation Plan For Against Abstaining - ---------------------------- ---------- ------- ---------- 10,896,598 437,021 19,949
Ratification of Appointment of Coopers & Lybrand For Against Abstaining - --------------------------- ---------- ------- ---------- 12,831,823 11,789 8,991
Item 5 - Other Information ----------------- None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits None. (b) Reports on Form 8-K On June 27, 1996, the Company filed a Form 8-K to disclose that the Board of Directors of the Company had adopted a stockholder rights plan featuring the issuance of common stock purchase rights to the Company's common stockholders of record as of June 26, 1996. 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: August 12, 1996 EX-27 2
5 6-MOS DEC-26-1996 JUN-27-1996 19,774 0 90,358 (2,773) 104,853 239,255 558,097 97,099 879,864 125,650 522,699 145 0 0 99,632 879,864 325,483 325,483 243,762 243,762 0 865 29,372 (13,292) (3,200) (10,092) 0 0 0 (10,092) (0.72) (0.72)
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