-----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, D/b2bc/KlBhFOwg8ezutGhhLNE4Wh+Yvfm81aiFi5FPC7zwNPdgDvcG8dfO+BlVx dYzIiG2b+Lx+iWlwr5ewYg== 0000033073-97-000009.txt : 19970513 0000033073-97-000009.hdr.sgml : 19970513 ACCESSION NUMBER: 0000033073-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970327 FILED AS OF DATE: 19970512 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: 97601174 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 March 27, 1997 --------------- 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: (630) 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 9, 1997, there were 14,564,233 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of Pages INDEX TO FINANCIAL STATEMENTS ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at March 27, 1997 (unaudited) and December 26, 1996 4 Unaudited consolidated statements of operations for the three months ended March 27, 1997 and March 28, 1996 5 Unaudited consolidated statements of cash flows for the three months ended March 27, 1997 and March 28, 1996 6 Notes to consolidated financial statements 7 VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at March 27, 1997 (unaudited) and December 26, 1996 17 Unaudited consolidated statements of operations for the three months ended March 27, 1997 and March 28, 1996 18 Unaudited consolidated statements of cash flows for the three months ended March 27, 1997 and March 28, 1996 19 Notes to consolidated financial statements 20 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 26, 1996 (1996 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1996 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 26, 1996 was derived from the audited consolidated financial statements in the Company's annual report on 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 27, December 26, 1997 1996 ------------ ----------- (in thousands) ASSETS Current assets: Cash and equivalents $ 28,800 $ 41,794 Receivables, net 75,465 79,174 Inventories 97,910 95,012 Other current assets 32,560 22,141 -------- -------- Total current assets 234,735 238,121 Property, plant and equipment, including those under capital leases 565,749 578,704 Less accumulated depreciation and amortization 120,035 116,896 -------- -------- Property, plant and equipment, net 445,714 461,808 Deferred financing costs 5,537 5,902 Other assets 41,446 42,809 Excess reorganization value 122,490 125,107 -------- -------- $849,922 $873,747 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 13,293 $ 11,291 Accounts payable 35,065 37,015 Accrued liabilities 84,280 82,109 -------- -------- Total current liabilities 132,638 130,415 Long-term debt including obligations under capital leases 510,995 521,179 Accrued employee benefits 53,038 53,697 Deferred and noncurrent income taxes 57,779 64,811 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,552,233 shares issued and outstanding at March 27, 1997 and 14,545,107 shares at December 26, 1996 146 145 Paid in capital 135,148 135,100 Accumulated (deficit) (41,366) (38,813) Cumulative foreign currency translation adjustments 1,626 7,305 Unearned restricted stock issued for future service (82) (92) -------- -------- Total stockholders' equity 95,472 103,645 -------- -------- $849,922 $873,747 ======== ======== 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 27, 1997 28, 1996 ---------- --------- (in thousands, except for number of shares and per share amounts) NET SALES $154,539 $159,736 COSTS AND EXPENSES Cost of sales 115,998 119,709 Selling, general and administrative 27,075 26,642 Amortization of intangibles and excess reorganization value 4,052 4,091 -------- -------- OPERATING INCOME 7,414 9,294 Interest income 504 391 Interest expense 14,259 14,876 Other expense (income), net (388) 3,036 -------- -------- (LOSS) BEFORE INCOME TAXES (5,953) (8,227) Income tax (benefit) (3,400) (2,300) -------- -------- NET (LOSS) $ (2,553) $ (5,927) ======== ======== WEIGHTED AVERAGE COMMON SHARES 14,547,378 13,737,748 NET (LOSS) PER SHARE $(.18) $(.43) ===== ===== 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 27, March 28, 1997 1996 ---------- --------- (in thousands) Cash flows from operating activities: Net (loss) $ (2,553) $ (5,927) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital lease 11,228 10,974 Amortization of intangibles and excess reorganization value 4,052 4,091 Amortization of deferred financing fees and discount 379 579 (Decrease) in deferred and noncurrent income taxes (5,270) (3,866) Foreign currency transaction loss (gain) 1,357 47 (Gain) on disposition of assets (1,075) (2) Changes in operating assets and liabilities: Accounts receivable 1,665 2,307 Inventories (7,091) (6,212) Other current assets (10,811) (10,558) Accounts payable and accrued liabilities 3,097 14,243 Other (1,949) 191 ------- ------- Total adjustments (4,418) 11,794 ------- ------- Net cash provided by (used in) operating activities (6,971) 5,867 Cash flows from investing activities: Capital expenditures (10,399) (6,543) Proceeds from disposition of assets 11,827 49 ------- ------- Net cash provided by (used in) investing activities 1,428 (6,494) Cash flows from financing activities: Issuance of common stock 59 Deferred financing costs (72) Repayment of revolving loan, long-term borrowings and capital lease obligation (6,785) (7,202) ------- ------- Net cash (used in) financing activities (6,798) (7,202) Effect of currency exchange rate changes on cash (653) 506 ------- ------- Net (decrease) in cash and equivalents (12,994) (7,323) Cash and equivalents at beginning of period 41,794 30,325 ------- ------- Cash and equivalents at end of period $28,800 $23,002 ======= ======= - ----------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $12,684 $13,379 Income taxes paid $ 319 $ 453 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 December 27, 1997 26, 1996 ---------- ---------- Raw materials $ 16,636 $ 14,960 Work in process 29,524 29,057 Finished products 51,750 50,995 -------- -------- $ 97,910 $ 95,012 ======== ======== Approximately 59% of the inventories at March 27, 1997 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $5 million at March 27, 1997. 2. DEBT OBLIGATIONS (dollars in thousands) Outstanding short-term and long-term debt consisted of: March December 27, 1997 26, 1996 ---------- ---------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Viskase Capital Lease Obligation $ 9,675 $ 6,633 Current maturity of Viskase Limited Term Loan (3.9%) 1,731 1,876 Other 1,887 2,782 ------- ------- Total short-term debt $13,293 $11,291 ======= ======= 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 124,873 134,549 Viskase Limited Term Loan (3.9%) 4,330 4,690 Other 2,530 2,678 -------- -------- Total long-term debt $510,995 $521,179 ======== ======== 3. CONTINGENCIES In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC was infringing on various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. On November 8, 1996, after a three week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. On December 5, 1996, ANC posted a supersedeas bond in the amount of $108 million and the Court entered an order staying Viskase's enforcement of the judgment. The Court also entered an order permanently enjoining ANC from making or selling infringing products after December 23, 1996. The judgment is not final and the parties are presently engaged in the post-judgment motion phase of the case. ANC has filed motions to reduce the damage award by at least $75 million or alternatively, grant ANC a new trial. Viskase is seeking a determination that the case be deemed "exceptional" and that the award be increased by approximately $46 million which includes compensatory damages for ANC's infringement during the period of October 1, 1996 through December 23, 1996 and additional damages for prejudgment interest, attorneys' fees and related expenses. Due to ANC's willful infringement of the patents, Viskase has asked the court to treble the compensatory award. These motions are all pending before the Court and rulings are expected in the second quarter 1997. Meanwhile post-judgment interest is accruing on the $102.4 million award from November 8, 1996 at an annual rate of 5.49%. The Company expects ANC to vigorously contest the award and to appeal any final judgment. The award and any pending claims for additional damages have not been recorded in the Company's financial statements. Litigation is pending with respect to events arising out of the Envirodyne bankruptcy case and the 1989 acquisition of Envirodyne by Emerald Acquisition Corporation (Emerald) with respect to which, although Envirodyne is not presently a party to such litigation, certain defendants have asserted indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers Holding Company ------------------------------------------------------------ Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., - ------------------------------------------------------- Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, - ------------------------------------------------------- William Rifkind and Michael Zimmerman, Case No. 93 A 1616, - ------------------------------------- United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of the Plan of Reorganization (ARTRA I). In ARTRA Group Incorporated v. Salomon ------- ----------------------------------- Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly - -------------------------------------------------------------- & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and - -------------------------------------------------------------- Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the - ----------------- Eighteenth Judicial Circuit, DuPage County, Illinois, ARTRA alleges breach of fiduciary duty, fraudulent and negligent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald (ARTRA II). The -------- plaintiff seeks damages in the total amount of $136.2 million plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. Upon a motion of the defendants, the Bankruptcy Court dismissed ARTRA's claims in ARTRA I. ARTRA ------- appealed to the U.S. District Court and on October 31, 1996, the U.S. District Court affirmed the Bankruptcy Court's decision. ARTRA has appealed to the U.S. Court of Appeals for the Seventh Circuit. All briefs have been filed and the parties are awaiting oral argument. Envirodyne is continuing its evaluation of the merits of the indemnification claims against Envirodyne and the underlying claims in the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event it is ultimately determined that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the payment of legal fees in ARTRA I. Although ------- the Company is not a party to either case, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the Envirodyne bankruptcy case which, if adjudicated in a manner similar to that in the Envirodyne bank- ruptcy case, would render it difficult for the plaintiff to establish liability or prove damages. Accordingly, the Company believes that the indemnification claims would not have a material adverse effect upon the business or financial position of the Company, even if the claimants were successful in establishing their right to indemnification. Since early 1993, the Antitrust Division of the United States Department of Justice has been investigating the disposable plastic cutlery industry. This investigation has resulted in the indictment and conviction of certain companies and individuals in the industry. Some indictments and criminal trials are pending. Although the United States Department of Justice has advised a former officer and an existing employee of Clear Shield National that they are targets of the investigation, neither person has been indicted. Clear Shield National is cooperating fully with the investigation. In February 1996 Clear Shield National and three other plastic cutlery manufacturers were named as defendants in the following three civil complaints: Eisenberg Brothers, Inc., on behalf of -------------------------------------- itself and all others similarly situated, v. Amcel Corp., Clear - --------------------------------------------------------------- Shield National, Inc., Dispoz-O Plastics Corp. and Benchmark - ------------------------------------------------------------ Holdings, Inc. t/a Winkler Products, Civil Action No. 96-728, - ----------------------------------- United States District Court for the Eastern District of Pennsylvania; St. Cloud Restaurant Supply Company v. Amcel -------------------------------------------- Corp., Clear Shield National, Inc., Dispoz-O Plastics Corp. and - --------------------------------------------------------------- Benchmark Holdings, Inc. t/a Winkler Products, Case No. 96C - --------------------------------------------- 0777, United States District Court for the Northern District of Illinois, Eastern Division; and Servall Products, Inc., on -------------------------- behalf of itself and all others similarly situated, v. Amcel - ------------------------------------------------------------ Corporation, Clear Shield National, Inc., Dispoz-O Plastics - ----------------------------------------------------------- Corporation and Benchmark Holdings, Inc. t/a Winkler Products, - ------------------------------------------------------------- Civil Action No. 96-1116, United States District Court for the Eastern District of Pennsylvania. Each of the complaints alleges, among other things, that from October 1990 through April 1992 the defendants unlawfully conspired to fix the prices at which plastic cutlery would be sold. The Company has informed the plaintiffs that such claims as they relate to Clear Shield were discharged by the order of the Bankruptcy Court and Plan of Reorganization and that the plaintiffs are permanently enjoined from pursuing legal action to collect discharged claims. On February 27, 1996, the plaintiff in the St. Cloud case --------- voluntarily dismissed the action without prejudice and refiled its action in the United States District Court for the Eastern District of Pennsylvania but did not name Clear Shield National as a defendant. On March 14, 1996, Eisenberg Brothers Inc., St. Cloud and Servall filed a motion in Clear Shield National's Bankruptcy proceeding in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division contending that the Bankruptcy Court's order did not discharge the plaintiff's claim. On March 19, 1997, the Bankruptcy Court denied their motion and granted the Company's cross motion for summary judgement. Eisenberg Brothers, Inc. has appealed the Bankruptcy Court's decision to the U.S. District Court. In March 1997 Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase Corporation is cooperating fully with the investigation. 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. ACCOUNTING STANDARDS The Company will implement the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the previous standards for computing earnings per share, replacing the presentation of primary earnings per share with a presentation of basic earnings per share. It also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures, which applies to the Company. Management believes that adoption of SFAS No. 128 will not have a material effect on the Company's earnings per share amounts. The Company will implement the provisions of Statement of Financial Accounting Standards No. 129, "Disclosure of Information About Capital Structure" (SFAS No. 129), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 129 requires that companies include additional detail in disclosures about capital structure related to rights and privileges associated with outstanding security issues. Management believes that adoption of SFAS No. 129 will not have a material effect on the Company. 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 27, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 13,070 $ (14) $ 15,744 $28,800 Receivables and advances, net 77,813 53,179 44,840 $ (100,367) 75,465 Inventories 64,590 34,679 (1,359) 97,910 Other current assets 434 22,696 9,430 32,560 -------- -------- -------- --------- -------- Total current assets 91,317 140,451 104,693 (101,726) 234,735 Property, plant and equipment including those under capital lease 143 428,928 136,678 565,749 Less accumulated depreciation and amortization 102 95,089 24,844 120,035 -------- -------- -------- --------- -------- Property, plant and equipment, net 41 333,839 111,834 445,714 Deferred financing costs 4,791 746 5,537 Other assets 39,492 1,954 41,446 Investment in subsidiaries 57,363 119,449 (176,812) Excess reorganization value 85,939 36,551 122,490 -------- -------- -------- --------- -------- $153,512 $719,170 $255,778 $(278,538) $849,922 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 10,223 $3,070 $ 13,293 Accounts payable and advances $ 35 102,340 33,057 $ (100,367) 35,065 Accrued liabilities 16,468 37,611 30,201 84,280 -------- -------- -------- --------- -------- Total current liabilities 16,503 150,174 66,328 (100,367) 132,638 Long-term debt including obligation under capital lease 379,262 127,250 4,483 510,995 Accrued employee benefits 48,842 4,196 53,038 Deferred and noncurrent income taxes 28,228 6,739 22,812 57,779 Intercompany loans (365,953) 340,000 25,953 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,552,233 shares issued and outstanding 146 3 32,738 (32,741) 146 Paid in capital 135,148 87,899 87,871 (175,770) 135,148 Accumulated earnings (deficit) (41,366) (43,310) 9,824 33,486 (41,366) Cumulative foreign currency translation adjustments 1,626 1,573 1,573 (3,146) 1,626 Unearned restricted stock issued for future services (82) (82) -------- -------- -------- --------- -------- Total stockholders' equity 95,472 46,165 132,006 (178,171) 95,472 -------- -------- -------- --------- -------- $153,512 $719,170 $255,778 $(278,538) $849,922 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 26, 1996
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 25,785 $ (162) $ 16,171 $41,794 Receivables and advances, net 61,960 70,258 46,032 $ (99,076) 79,174 Inventories 59,730 36,509 (1,227) 95,012 Other current assets 187 11,730 10,224 22,141 -------- -------- -------- --------- -------- Total current assets 87,932 141,556 108,936 (100,303) 238,121 Property, plant and equipment including those under capital lease 133 420,396 158,175 578,704 Less accumulated depreciation and amortization 95 86,715 30,086 116,896 -------- -------- -------- --------- -------- Property, plant and equipment, net 38 333,681 128,089 461,808 Deferred financing costs 5,144 758 5,902 Other assets 40,784 2,025 42,809 Investment in subsidiaries 64,433 123,236 (187,669) Excess reorganization value 87,702 37,405 125,107 -------- -------- -------- --------- -------- $157,547 $726,959 $277,213 $(287,972) $873,747 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 7,182 $4,109 $ 11,291 Accounts payable and advances $ 35 85,156 50,900 $ (99,076) 37,015 Accrued liabilities 6,197 44,235 31,677 82,109 -------- -------- -------- --------- -------- Total current liabilities 6,232 136,573 86,686 (99,076) 130,415 Long-term debt including obligation under capital lease 379,262 137,063 4,854 521,179 Accrued employee benefits 49,366 4,331 53,697 Deferred and noncurrent income taxes 29,088 10,824 24,899 64,811 Intercompany loans (360,680) 340,000 20,681 (1) Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,545,107 shares issued and outstanding 145 3 32,738 (32,741) 145 Paid in capital 135,100 87,899 87,871 (175,770) 135,100 Accumulated earnings (deficit) (38,813) (42,050) 7,872 34,178 (38,813) Cumulative foreign currency translation adjustments 7,305 7,281 7,281 (14,562) 7,305 Unearned restricted stock issued for future services (92) (92) -------- -------- -------- --------- -------- Total stockholders' equity 103,645 53,133 135,762 (188,895) 103,645 -------- -------- -------- --------- -------- $157,547 $726,959 $277,213 $(287,972) $873,747 ======== ======== ======== ========= ======== (1) Elimination of intercompany receivables, payables and investment accounts. /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 27, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $101,378 $64,227 $(11,066) $154,539 COSTS AND EXPENSES Cost of sales 78,568 48,383 (10,953) 115,998 Selling, general and administrative $1,097 14,553 11,425 27,075 Amortization of intangibles and excess reorganization value 3,267 785 4,052 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (1,097) 4,990 3,634 (113) 7,414 Interest income 383 121 504 Interest expense 11,027 2,846 386 14,259 Intercompany interest expense (income) (10,106) 9,351 755 Management fees (income) (1,170) 876 294 Other expense (income), net 1,481 (927) (942) (388) Equity loss (income) in subsidiary 1,373 (1,952) 579 -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (3,319) (5,204) 3,262 (692) (5,953) Income tax provision (benefit) (766) (3,944) 1,310 (3,400) -------- -------- -------- --------- -------- NET INCOME (LOSS) $(2,553) $(1,260) $1,952 $ (692) $ (2,553) ======== ======== ======== ========= ========
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 27, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $(7,705) $14,377 $(13,643) $(6,971) Cash flows from investing activities: Capital expenditures (10) (8,562) (1,827) (10,399) Proceeds from disposition of assets 1,105 10,722 11,827 -------- -------- -------- --------- -------- Net cash provided by (used in) investing activities (10) (7,457) 8,895 1,428 Cash flows from financing activities: Issuance of common stock 59 59 Deferred financing costs (26) (46) (72) Repayment of revolving loan, long-term borrowings and capital lease obligations (6,772) (13) (6,785) Increase (decrease) in Envirodyne loan (5,033) 5,033 -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities (5,000) (6,772) 4,974 (6,798) Effect of currency exchange rate changes on cash (653) (653) -------- -------- -------- --------- -------- Net increase (decrease) in cash and equivalents (12,715) 148 (427) (12,994) Cash and equivalents at beginning of period 25,785 (162) 16,171 41,794 -------- -------- -------- --------- -------- Cash and equivalents at end of period $ 13,070 $ (14) $15,744 $28,800 ======== ======== ======== ========= ======== /TABLE 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 disposition of assets 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 ======== ======== ======== ========= ======== /TABLE 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 26, 1996 (1996 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1996 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 26, 1996 was derived from the audited Viskase Holding Corporation's consolidated financial statements included in Envirodyne Industries, Inc.'s annual report on 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 27, December 26, 1997 1996 ------------ ----------- (in thousands) ASSETS Current assets: Cash and equivalents $ 15,744 $ 16,171 Receivables, net 41,796 43,634 Receivables, affiliates 46,674 51,269 Inventories 34,679 36,509 Other current assets 9,430 10,224 -------- -------- Total current assets 148,323 157,807 Property, plant and equipment 136,678 158,175 Less accumulated depreciation 24,844 30,086 -------- -------- Property, plant and equipment, net 111,834 128,089 Deferred financing costs 746 758 Other assets 1,954 2,025 Excess reorganization value 36,551 37,405 -------- -------- $299,408 $326,084 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 3,070 $ 4,109 Accounts payable 11,280 13,736 Accounts payable and advances, affiliates 29,316 51,891 Accrued liabilities 30,201 31,677 -------- -------- Total current liabilities 73,867 101,413 Long-term debt 4,483 4,854 Accrued employee benefits 4,196 4,331 Deferred and noncurrent income taxes 22,812 24,899 Intercompany loans 63,963 58,691 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 25,051 21,152 Cumulative foreign currency translation adjustments 1,573 7,281 -------- -------- Total stockholders' equity 130,087 131,896 -------- -------- $299,408 $326,084 ======== ======== 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 27, March 28, 1997 1996 --------- --------- (in thousands, except for number of shares and per share amounts) NET SALES $64,227 $66,212 COSTS AND EXPENSES Cost of sales 48,383 50,458 Selling, general and administrative 9,863 8,912 Amortization of intangibles and excess reorganization value 785 863 ------- ------- OPERATING INCOME 5,196 5,979 Interest income 121 175 Interest expense 386 593 Intercompany interest expense 755 1,134 Management fees 294 373 Other expense (income), net (1,942) 653 ------- ------- INCOME BEFORE INCOME TAXES 5,824 3,401 Income tax provision 1,925 1,472 ------- ------- NET INCOME $ 3,899 $ 1,929 ======= ======= WEIGHTED AVERAGE COMMON SHARES 100 100 NET INCOME PER SHARE $38,990 $19,290 ======= ======= 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 27, March 28, 1997 1996 ----------- ------------ (in thousands) Cash flows from operating activities: Net income $ 3,899 $ 1,929 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 2,847 2,982 Amortization of intangibles and excess reorganization value 785 863 Amortization of deferred financing fees and discount 57 (Decrease) in deferred and noncurrent income taxes (418) (536) (Gain) on disposition of assets (1,000) (14) Changes in operating assets and liabilities: Accounts receivable (206) 2,872 Accounts receivable, affiliates 1,684 97 Inventories (2,363) (338) Other current assets 535 591 Accounts payable and accrued liabilities (5,937) 2,865 Accounts payable, affiliates (14,469) (3,964) Other (3) -------- ------- Total adjustments (18,542) 5,472 -------- ------- Net cash provided by (used in) operating activities (14,643) 7,401 Cash flows from investing activities: Capital expenditures (1,827) (621) Proceeds from disposition of assets 11,722 14 -------- ------- Net cash provided by (used in) investing activities 9,895 (607) Cash flows from financing activities: Deferred financing costs (46) Repayment of revolving loan and long-term borrowings (13) (1,150) Increase (decrease) in Envirodyne loan and advances 5,033 (9,540) -------- ------- Net cash provided by (used in) financing activities 4,974 (10,690) Effect of currency exchange rate changes on cash (653) 506 -------- ------- Net (decrease) in cash and equivalents (427) (3,390) Cash and equivalents at beginning of period 16,171 11,826 -------- ------- Cash and equivalents at end of period $15,744 $ 8,436 ======= ======= - ----------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 49 $138 Income taxes paid $153 $250 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 27, December 26, 1997 1996 --------- ----------- Raw materials $ 4,363 3,728 Work in process 10,551 11,395 Finished products 19,765 21,386 ------- ------- $34,679 $36,509 ======= ======= 2. CONTINGENCIES In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC was infringing on various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. On November 8, 1996, after a three week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. On December 5, 1996, ANC posted a supersedeas bond in the amount of $108 million and the Court entered an order staying Viskase's enforcement of the judgment. The Court also entered an order permanently enjoining ANC from making or selling infringing products after December 23, 1996. The judgment is not final and the parties are presently engaged in the post-judgment motion phase of the case. ANC has filed motions to reduce the damage award by at least $75 million or alternatively, grant ANC a new trial. Viskase is seeking a determination that the case be deemed "exceptional" and that the award be increased by approximately $46 million which includes compensatory damages for ANC's infringement during the period of October 1, 1996 through December 23, 1996 and additional damages for prejudgment interest, attorneys' fees and related expenses. Due to ANC's willful infringement of the patents, Viskase has asked the court to treble the compensatory award. These motions are all pending before the Court and rulings are expected in the second quarter 1997. Meanwhile post-judgment interest is accruing on the $102.4 million award from November 8, 1996 at an annual rate of 5.49%. The Company expects ANC to aggressively contest the award and to appeal any final judgment. The award and any pending claims for additional damages have not been recorded in the Company's financial statements. In March 1997 Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase Corporation is cooperating fully with the investigation. 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. 3. ACCOUNTING STANDARDS The Company will implement the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the previous standards for computing earnings per share, replacing the presentation of primary earnings per share with a presentation of basic earnings per share. It also requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures, which applies to the Company. Management believes that adoption of SFAS No. 128 will not have a material effect on the Company's earnings per share amounts. The Company will implement the provisions of Statement of Financial Accounting Standards No. 129, "Disclosure of Information About Capital Structure" (SFAS No. 129), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 129 requires that companies include additional detail in disclosures about capital structure related to rights and privileges associated with outstanding security issues. Management believes that adoption of SFAS No. 129 will not have a material effect on the Company. 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 ---------------------- March 27, March 28, 1997 1996 --------- --------- (in thousands) Net sales: Food packaging products $135,614 $142,220 Disposable foodservice supplies 18,925 17,678 Other and eliminations (162) -------- -------- $154,539 $159,736 ======== ======== Operating income: Food packaging products $7,037 $9,252 Disposable foodservice supplies 1,474 1,595 Other and eliminations (1,097) (1,553) -------- -------- $7,414 $9,294 ======== ======== Depreciation and amortization under capital lease and amortization of intangible expense: Food packaging products $13,987 $13,837 Disposable foodservice supplies 1,286 1,202 Other 7 26 -------- -------- $15,280 $15,065 ======== ======== Capital expenditures: Food packaging products $ 9,632 $ 5,509 Disposable foodservice supplies 757 1,031 Other 10 3 -------- -------- $10,399 $ 6,543 ======== ======== Results of Operations - --------------------- The Company's net sales for the first three months of 1997 were $154.5 million, which represented a decrease of 3.3% over the first three months of 1996. Net sales at Viskase decreased by 3.6% over the prior year. The benefits of a stronger presence in the Latin American markets were offset by lower pricing due to competitive pressures in both the domestic and European markets. European sales were also negatively affected by foreign currency translation due to the strengthening of the U.S. dollar. First quarter net sales at Clear Shield increased 7.1% from the prior year primarily due to expansion into the West Coast markets. First quarter net sales at Sandusky decreased by 17.4% from the prior year due partially to the company's previously announced closing of its injection molding operation. Operating income for the first three months of 1997 was $7.4 million, representing a decrease of 20.2% from the first three months of 1996. 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. Additionally, lower volumes at Sandusky negatively affected gross margins. On November 8, 1996, a jury awarded $102.4 million in damages to Viskase Corporation in its patent infringement lawsuit against ANC. Viskase brought suit against ANC with respect to its infringement of various Viskase patents relating to multilayer barrier plastic films used for fresh red meat, processed meat and poultry product applications. The jury found that ANC had willfully infringed Viskase's patents. Envirodyne expects ANC to appeal the award. This award has not been recorded in the Company's financial statements. (See Part 1, Note 3, Contingencies in Notes to Consolidated Financial Statements for Envirodyne Industries, Inc. and Subsidiaries.) The British beef industry continues to be affected by concerns over bovine spongiform encephalopathy (BSE), or mad cow disease. While certain of our product lines in Europe are sold to customers in affected industries, Viskase's results have not been significantly impacted, nor does management expect any significant impact in the future. Net interest expense for the three-month period totaled $13.8 million representing a decrease of $.7 million from the first three months of 1996. The decrease is a result of the combination of lower borrowing levels, a reduction in amortization of deferred financing fees and the effects of translation. Other income (expense) approximated $.4 million and $(3.0) million for the first three months of 1997 and 1996, respectively. In January of 1997, the sale of the oriented polystyrene business resulted in a $1.0 million gain. The gain was offset by foreign exchange gains and losses. The 1996 expense included a $(2.0) million charge for the termination of the management agreement with D.P. Kelly & Associates, L.P. 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 $3.4 million was provided on a loss before income taxes of $(6.0) 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. Other - ----- In March 1997 the Company announced that it was exploring the potential sale of Viskase Corporation's PVC film business. Viskase's plants in Aurora, Ohio, and Sedgefield, England, would be affected by a sale. Net sales of PVC films in 1996 totaled approximately $54 million. In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). This statement will be adopted by the Company, as required, for periods ending after December 15, 1997. Implementation of this statement is not expected to have a material impact on the earnings per-share data presented by the Company. In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information About Capital Structure." This Statement will be adopted by the Company, as required, for periods ending after December 15, 1997. Implementation of this Statement is not expected to have a material impact on the Company. Liquidity and Capital Resources - ------------------------------- Cash and equivalents decreased by $13.0 million during the three months ended March 27, 1997. Cash flows used in operating activities of $7.0 million and used in financing activities of $6.8 million exceeded the funds provided by investing activities of $1.4 million. Cash flows used in operating activities were principally attributable to the Company's loss from operations and the Company's seasonal increase in working capital offset by the effect of depreciation and amortization. Cash flows used for financing activities were principally attributable to the principal repayment under the GECC Lease. Cash flows provided by investing activity consist principally of the proceeds, net of capital expenditures for property, plant and equipment, from sales of certain assets principally related to the Company's former oriented polystyrene business. 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 $20 million Revolving Credit Facility. The Company's Senior Secured Notes, Revolving Credit Facility and Letter of Credit Facility contain a number of financial covenants including covenants that require the maintenance of minimum level of tangible net worth, maximum ratios of debt and senior debt to total capitalization, and a minimum fixed charge coverage. The Company is currently in compliance with its debt covenants. In the event that the Company is unable to maintain compliance with the covenants, it will be necessary to obtain a waiver or an amendment of such covenants from such lenders. 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 and borrowings under the Revolving Credit Facility 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 1997 and 1996 totaled $10.4 million and $6.5 million, respectively. Capital expenditures for 1997 are expected to be approximately $45 million. The Company spent approximately $7 million in 1996 on research and development programs, including product and process development, and on new technology development. The 1997 and future research and development and product introduction expenses are expected to be approximately $8 million annually. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to a new process for the manufacture of cellulosic casings. The first production unit is currently under construction and is expected to begin full production in late 1998. The commercialization of these applications and the related capital expenditures associated with such commercialization will require substantial financial commitments in future periods. The Company and its subsidiaries are taking actions to provide that their computer systems are capable of processing for the periods of the year 2000 and beyond. The costs associated with this are not expected to significantly affect operating cash flow. PART II. OTHER INFORMATION Item 1 - Legal Proceedings ----------------- For a description of pending litigation and other contingencies, see Part 1, Note 3, Contingencies in Notes to Consolidated Financial Statements for Envirodyne Industries, Inc. and Subsidiaries. Item 2 - Changes in Securities --------------------- No reportable events occurred during the quarter ended March 27, 1997. 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 27 Financial Data Schedules. (b) Reports on Form 8-K On March 20, 1997, the Company filed a Form 8-K reporting that the Board of Directors amended the Amended and Restated By-Laws of the Company to provide for advance written notice by any stockholder intending to nominate any person for election as director or to bring any other business before an annual meeting of stockholders. 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, Chief Financial Officer and Treasurer (Duly authorized officer and principal financial officer of the registrant) Date: May 12, 1997 EX-27 2
5 3-MOS DEC-25-1997 MAR-27-1997 28,800,000 0 77,596,000 (2,131,000) 97,910,000 234,735,000 565,749,000 120,035,000 849,922,000 132,638,000 510,995,000 0 0 146,000 93,700,000 849,922,000 154,539,000 154,539,000 115,998,000 115,998,000 0 313,000 14,259,000 (5,953,000) (3,400,000) (2,553,000) 0 0 0 (2,553,000) (0.18) (0.18)
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