-----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, HO43QhqJz+uAfHqN/ij+LjsgInkyHAmFtf9XSdtJpgJkN8BpDprlQFUma9dL3r4z JLzDqsf3bitK6G1P/thuug== 0000033073-97-000017.txt : 19970812 0000033073-97-000017.hdr.sgml : 19970812 ACCESSION NUMBER: 0000033073-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970626 FILED AS OF DATE: 19970811 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: 97655522 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 26, 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 60523 - ------------------------------------------------ ---------- (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 August 8, 1997, there were 14,636,741 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of 31 Pages INDEX TO FINANCIAL STATEMENTS ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at June 26, 1997 (unaudited) and December 26, 1996 4 Unaudited consolidated statements of operations for the three months ended June 26, 1997 and June 27, 1996 and for the six months ended June 26, 1997 and June 27, 1996 5 Unaudited consolidated statements of cash flows for the six months ended June 26, 1997 and June 27, 1996 6 Notes to consolidated financial statements 7 VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at June 26, 1997 (unaudited) and December 26, 1996 19 Unaudited consolidated statements of operations for the three months ended June 26, 1997 and June 27, 1996 and for the six months ended June 26, 1997 and June 27, 1996 20 Unaudited consolidated statements of cash flows for the six months ended June 26, 1997 and June 27, 1996 21 Notes to consolidated financial statements 22 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 June 26, December 26, 1997 1996 ------------ ----------- (in thousands) ASSETS Current assets: Cash and equivalents $ 13,859 $ 41,794 Receivables, net 74,542 79,174 Inventories 97,938 95,012 Other current assets 29,681 22,141 -------- -------- Total current assets 216,020 238,121 Property, plant and equipment, including those under capital leases 579,746 578,704 Less accumulated depreciation and amortization 130,233 116,896 -------- -------- Property, plant and equipment, net 449,513 461,808 Deferred financing costs 5,015 5,902 Other assets 40,202 42,809 Excess reorganization value 119,930 125,107 -------- -------- $830,680 $873,747 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 13,456 $ 11,291 Accounts payable 38,949 37,015 Accrued liabilities 68,720 82,109 -------- -------- Total current liabilities 121,125 130,415 Long-term debt including obligations under capital leases 509,799 521,179 Accrued employee benefits 52,850 53,697 Deferred and noncurrent income taxes 54,022 64,811 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,602,047 shares issued and outstanding at June 26, 1997 and 14,545,107 shares at December 26, 1996 146 145 Paid in capital 135,363 135,100 Accumulated (deficit) (45,871) (38,813) Cumulative foreign currency translation adjustments 3,317 7,305 Unearned restricted stock issued for future service (71) (92) -------- -------- Total stockholders' equity 92,884 103,645 -------- -------- $830,680 $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 Three Months Six Months Six Months Ended June Ended June Ended June Ended June 26, 1997 27, 1996 26, 1997 27, 1996 ------------- ------------- ------------- ------------- (in thousands, except for number of shares and per share amounts) NET SALES $156,529 $165,747 $ 311,068 $325,483 COSTS AND EXPENSES Cost of sales 117,729 124,053 233,727 243,762 Selling, general and administrative 27,125 28,304 54,200 54,946 Amortization of intangibles and excess reorganization value 4,046 4,115 8,098 8,206 -------- -------- -------- -------- OPERATING INCOME 7,629 9,275 15,043 18,569 Interest income 254 381 758 772 Interest expense 14,149 14,496 28,408 29,372 Other expense (income), net 1,839 225 1,451 3,261 -------- -------- -------- -------- (LOSS) BEFORE INCOME TAXES (8,105) (5,065) (14,058) (13,292) Income tax (benefit) (3,600) (900) (7,000) (3,200) -------- -------- -------- -------- NET (LOSS) $ (4,505) $ (4,165) $(7,058) $(10,092) ======== ======== ======= ======== WEIGHTED AVERAGE COMMON SHARES 14,570,519 14,479,721 14,558,950 14,093,895 PER SHARE AMOUNTS: NET (LOSS) $(.31) $(.29) $(.48) $(.72) ===== ===== ===== ===== 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 26, June 27, 1997 1996 ------------- ------------ (in thousands) Cash flows from operating activities: Net (loss) $(7,058) $(10,092) Adjustments to reconcile net (loss) to net cash provided by operating activities: Depreciation and amortization under capital leases 21,879 21,861 Amortization of intangibles and excess reorganization value 8,098 8,206 Amortization of deferred financing fees and discount 863 1,156 (Decrease) in deferred and noncurrent income taxes (8,471) (5,794) Foreign currency transaction loss 701 5 (Gain) on disposition of assets (1,080) (159) Changes in operating assets and liabilities: Accounts receivable 1,949 670 Inventories (7,629) (6,095) Other current assets (8,060) (5,613) Accounts payable and accrued liabilities (7,343) 8,316 Other (237) (98) ------- ------- Total adjustments 670 22,455 ------- ------- Net cash provided by (used in) operating activities (6,388) 12,363 Cash flows from investing activities: Capital expenditures (25,003) (16,568) Proceeds from disposition of assets 11,895 275 ------- ------- Net cash (used in) investing activities (13,108) (16,293) Cash flows from financing activities: Issuance of common stock 285 Proceeds from revolving loan and long-term borrowings 1,130 Deferred financing costs (47) Repayment of revolving loan, long-term borrowings and capital lease obligations (7,933) (8,859) ------- ------- Net cash (used in) financing activities (7,695) (7,729) Effect of currency exchange rate changes on cash (744) 1,108 ------- ------- Net (decrease) in cash and equivalents (27,935) (10,551) Cash and equivalents at beginning of period 41,794 30,325 ------- ------- Cash and equivalents at end of period $13,859 $ 19,774 ======= ======== - ----------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $33,581 $34,501 Income taxes paid $ 3,907 $ 690 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 December 26, 1997 26, 1996 ---------- ---------- Raw materials $ 16,393 $ 14,960 Work in process 31,649 29,057 Finished products 49,896 50,995 -------- -------- $ 97,938 $ 95,012 ======== ======== Approximately 59% of the inventories at June 26, 1997 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $ 5.4 million at June 26, 1997. 2. DEBT OBLIGATIONS (dollars in thousands) Outstanding short-term and long-term debt consisted of: June December 26, 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%) 1,688 1,876 Other 2,093 2,782 ------- ------- Total short-term debt $13,456 $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%) 3,375 4,690 Other 2,289 2,678 -------- -------- Total long-term debt $509,799 $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 third 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%. If the Court does not grant a new trial, 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 Rifkin 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, 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. 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. The appeal has been fully briefed and oral arguments heard in May 1997. The parties are awaiting the U.S. Court of Appeals decision. 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 bankruptcy 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. In 1993, the Antitrust Division of the United States Department of Justice began an investigation of the disposable plastic cutlery industry. This investigation has resulted in the indictment and conviction of certain companies and individuals in the industry. Although the United States Department of Justice had advised a former officer and an existing employee of Clear Shield National that they were targets of the investigation, neither person nor Clear Shield National were indicted. 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 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. The appeal has been fully briefed and the parties are awaiting the U.S. District Court's decision. 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 their business and other environmental matters, none of which is expected to have a material adverse effect upon 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. The Company will implement the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Management believes that adoption of SFAS No. 130 will not have a material effect on the Company. The Company will implement the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. Management believes that adoption of SFAS No. 131 will not have a material effect on the Company. 5. SUBSEQUENT EVENTS On August 11, 1997, the Company received an offer from Heico Holdings, Inc., a Delaware corporation, associated with Michael E. Heisley, a director of Envirodyne, to acquire Envirodyne in the form of a statutory merger pursuant to which holders of the Company's common stock would receive $8.50 per share in cash plus additional cash consideration based on the final amount of any damages awarded in the patent infringement lawsuit against American National Can Company. The offer is the second offer by a company affiliated with Mr. Heisley. On June 11, 1997, the Company received an offer from HK Acquisitions Corporation, another company affiliated with Mr. Heisley, to acquire Envirodyne for $8.50 per share in cash. On June 23, 1997, an independent committee of the Board of Directors determined that the offer from HK Acquisitions Corporation was unacceptable and not in the best interests of stockholders. 6. 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 26, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ------------ ------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 11,008 $ (1,306) $ 4,157 $ 13,859 Receivables and advances, net 69,156 50,167 44,114 $ (88,895) 74,542 Inventories 63,631 35,678 (1,371) 97,938 Other current assets 910 18,429 10,342 29,681 -------- -------- -------- --------- -------- Total current assets 81,074 130,921 94,291 (90,266) 216,020 Property, plant and equipment including those under capital lease 144 438,899 140,703 579,746 Less accumulated depreciation and amortization 109 103,215 26,909 130,233 -------- -------- -------- --------- -------- Property, plant and equipment, net 35 335,684 113,794 449,513 Deferred financing costs 4,428 587 5,015 Other assets 38,129 2,073 40,202 Investment in subsidiaries 54,536 119,861 (174,397) Excess reorganization value 84,235 35,695 119,930 -------- -------- -------- --------- -------- $140,073 $708,830 $246,440 $(264,663) $830,680 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 10,224 $ 3,232 $ 13,456 Accounts payable and advances $ 35 98,165 29,644 $ (88,895) 38,949 Accrued liabilities 5,844 37,815 25,061 68,720 -------- -------- -------- --------- -------- Total current liabilities 5,879 146,204 57,937 (88,895) 121,125 Long-term debt including obligation under capital lease 379,262 127,110 3,427 509,799 Accrued employee benefits 48,669 4,181 52,850 Deferred and noncurrent income taxes 28,184 3,497 22,341 54,022 Intercompany loans (366,136) 340,000 26,136 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,602,047 shares issued and outstanding 146 3 32,738 (32,741) 146 Paid in capital 135,363 87,899 87,871 (175,770) 135,363 Accumulated earnings (deficit) (45,871) (47,809) 8,552 39,257 (45,871) Cumulative foreign currency translation adjustments 3,317 3,257 3,257 (6,514) 3,317 Unearned restricted stock issued for future services (71) (71) -------- -------- -------- --------- -------- Total stockholders' equity 92,884 43,350 132,418 (175,768) 92,884 -------- -------- -------- --------- -------- $140,073 $708,830 $246,440 $(264,663) $830,680 ======== ======== ======== ========= ======== (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 SIX MONTHS ENDED JUNE 26, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $207,467 $124,806 $(21,205) $311,068 COSTS AND EXPENSES Cost of sales 159,657 95,149 (21,079) 233,727 Selling, general and administrative $2,415 29,449 22,336 54,200 Amortization of intangibles and excess reorganization value 6,533 1,565 8,098 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (2,415) 11,828 5,756 (126) 15,043 Interest income 491 267 758 Interest expense 21,713 5,889 806 28,408 Intercompany interest expense (income) (20,235) 18,700 1,535 Management fees (income) (2,343) 1,761 582 Other expense (income), net 863 (919) 1,507 1,451 Equity loss (income) in subsidiary 5,885 (680) (5,205) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (7,807) (12,923) 1,593 5,079 (14,058) Income tax provision (benefit) (749) (7,164) 913 (7,000) -------- -------- -------- --------- -------- NET INCOME (LOSS) $(7,058) $(5,759) $ 680 $5,079 $(7,058) ======== ======== ======== ========= ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 26, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) NET SALES $106,089 $60,579 $(10,139) $156,529 COSTS AND EXPENSES Cost of sales 81,089 46,766 (10,126) 117,729 Selling, general and administrative $1,318 14,896 10,911 27,125 Amortization of intangibles and excess reorganization value 3,266 780 4,046 -------- -------- -------- --------- -------- OPERATING INCOME (LOSS) (1,318) 6,838 2,122 (13) 7,629 Interest income 108 146 254 Interest expense 10,686 3,043 420 14,149 Intercompany interest expense (income) (10,129) 9,349 780 Management fees (income) (1,173) 885 288 Other expense (income), net (618) 8 2,449 1,839 Equity loss (income) in subsidiary 4,512 1,272 (5,784) -------- -------- -------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES (4,488) (7,719) (1,669) 5,771 (8,105) Income tax provision (benefit) 17 (3,220) (397) (3,600) -------- -------- -------- --------- -------- NET INCOME (LOSS) $(4,505) $(4,499) $(1,272) $ 5,771 $ (4,505) ======== ======== ======== ========= ======== /TABLE ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR SIX MONTHS ENDED JUNE 26, 1997
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $(9,915) $23,205 $(19,678) $(6,388) Cash flows from investing activities: Capital expenditures (11) (18,611) (6,381) (25,003) Proceeds from sales of property, plant and equipment 1,173 10,722 11,895 -------- -------- -------- --------- -------- Net cash provided by (used in) investing activities (11) (17,438) 4,341 (13,108) Cash flows from financing activities: Issuance of common stock 285 285 Deferred financing costs (44) (3) (47) Repayment of revolving loan, long-term borrowings and capital lease obligations (6,911) (1,022) (7,933) Increase (decrease) in Envirodyne loan (5,092) 5,092 -------- -------- -------- --------- -------- Net cash provided by (used in) financing activities (4,851) (6,911) 4,067 (7,695) Effect of currency exchange rate changes on cash (744) (744) -------- -------- -------- --------- -------- Net (decrease) in cash and equivalents (14,777) (1,144) (12,014) (27,935) Cash and equivalents at beginning of period 25,785 (162) 16,171 41,794 -------- -------- -------- --------- -------- Cash and equivalents at end of period $11,008 $(1,306) $ 4,157 $13,859 ======== ======== ======== ========= ========
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 ======== ======== ======== ========= ========
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 June 26, December 26, 1997 1996 ----------- ------------ (in thousands) ASSETS Current assets: Cash and equivalents $ 4,157 $ 16,171 Receivables, net 41,119 43,634 Receivables, affiliates 50,016 51,269 Inventories 35,679 36,509 Other current assets 10,342 10,224 -------- -------- Total current assets 141,313 157,807 Property, plant and equipment 140,703 158,175 Less accumulated depreciation 26,909 30,086 -------- -------- Property, plant and equipment, net 113,794 128,089 Deferred financing costs 587 758 Other assets 2,073 2,025 Excess reorganization value 35,695 37,405 -------- -------- $293,462 $326,084 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Short-term debt including current portion of long-term debt $ 3,232 $ 4,109 Accounts payable 11,227 13,736 Accounts payable and advances, affiliates 28,944 51,891 Accrued liabilities 25,061 31,677 -------- -------- Total current liabilities 68,464 101,413 Long-term debt 3,427 4,854 Accrued employee benefits 4,181 4,331 Deferred and noncurrent income taxes 22,341 24,899 Intercompany loans 64,146 58,691 Commitments and contingencies Stockholder's 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 24,183 21,152 Cumulative foreign currency translation adjustments 3,257 7,281 -------- -------- Total stockholders' equity 130,903 131,896 -------- -------- $293,462 $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 Three Months Six Months Six Months Ended June Ended June Ended June Ended June 26, 1997 27, 1996 26, 1997 27, 1996 ------------- ------------- ------------- ------------- (in thousands, except for number of shares and per share amounts) NET SALES $60,579 $66,998 $124,806 $133,210 COSTS AND EXPENSES Cost of sales 46,766 51,071 95,149 101,529 Selling, general and administrative 9,600 9,482 19,463 18,394 Amortization of intangibles and excess reorganization value 780 886 1,565 1,749 -------- -------- -------- -------- OPERATING INCOME 3,433 5,559 8,629 11,538 Interest income 146 194 267 369 Interest expense 420 502 806 1,095 Intercompany interest expense 780 824 1,535 1,958 Management fees 288 379 582 752 Other expense (income), net 2,449 546 507 1,199 -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (358) 3,502 5,466 6,903 Income tax provision 510 1,688 2,435 3,160 -------- -------- -------- -------- NET INCOME (LOSS) $(868) $ 1,814 $ 3,031 $ 3,743 ======== ======== ======= ======== WEIGHTED AVERAGE COMMON SHARES 100 100 100 100 PER SHARE AMOUNTS: NET INCOME (LOSS) $(8,680) $18,140 $30,310 $37,430 ======== ======== ======= ======== The accompanying notes are an integral part of the consolidated financial statements.
VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended ----------------------------------- June 26, June 27, 1997 1996 ------------- ------------ (in thousands) Cash flows from operating activities: Net income $3,031 $ 3,743 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,325 5,879 Amortization of intangibles and excess reorganization value 1,565 1,749 Amortization of deferred financing fees and discount 103 113 (Decrease) in deferred and noncurrent income taxes (395) (507) (Gain) on sales of property, plant and equipment (1,000) (55) Changes in operating assets and liabilities: Accounts receivable 168 5,258 Accounts receivable, affiliates (893) (2,692) Inventories (3,872) (785) Other current assets (506) (102) Accounts payable and accrued liabilities (5,477) 8,996 Accounts payable and advances, affiliates (18,727) (3,751) Other (3) ------- ------- Total adjustments (23,709) 14,100 ------- ------- Net cash provided by (used in) operating activities (20,678) 17,843 Cash flows from investing activities: Capital expenditures (6,381) (1,729) Proceeds from sale of property, plant and equipment 11,722 99 ------- ------- Net cash provided by (used in) investing activities 5,341 (1,630) Cash flows from financing activities: Deferred financing costs (3) Repayment of revolving loan and long-term borrowings (1,022) (2,639) Increase (decrease) in Envirodyne loan 5,092 (17,945) ------- ------- Net cash provided by (used in) financing activities 4,067 (20,584) Effect of currency exchange rate changes on cash (744) 1,108 ------- ------- Net (decrease) in cash and equivalents (12,014) (3,263) Cash and equivalents at beginning of period 16,171 11,826 ------- ------- Cash and equivalents at end of period $ 4,157 $ 8,563 ======= ======== Supplemental cash flow information: Interest paid $ 97 $ 398 Income taxes paid $ 3,653 $ 389 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 26, December 26, 1997 1996 ---------- ------------- Raw materials $ 4,422 $ 3,728 Work in process 10,629 11,395 Finished products 20,628 21,386 ------- ------- $35,679 $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 third 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%. If the Court does not grant a new trial, 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 their business and other environmental matters, none of which is expected to have a material adverse effect upon 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. The Company will implement the provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Management believes that adoption of SFAS No. 130 will not have a material effect on the Company. The Company will implement the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), which will be effective for interim and annual financial statements issued for periods ending after December 15, 1997. SFAS No. 131 specifies revised guidelines for determining an entity's operating segments and the type and level of financial information to be disclosed. Management believes that adoption of SFAS No. 131 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 ----------------------------- June 26, June 27, 1997 1996 ----------- ----------- (in thousands) Net sales: Food packaging products $133,074 $144,615 Disposable foodservice supplies 23,455 21,132 -------- -------- $156,529 $165,747 ======== ======== Operating income: Food packaging products $ 6,993 $ 8,341 Disposable foodservice supplies 1,926 2,198 Other and eliminations (1,290) (1,264) ------- ------- $ 7,629 $ 9,275 ======= ======= Depreciation and amortization under capital lease and amortization of intangible expense: Food packaging products $13,385 $13,764 Disposable foodservice supplies 1,305 1,226 Other 7 12 ------- ------- $14,697 $15,002 ======= ======= Capital expenditures: Food packaging products $11,563 $ 9,156 Disposable foodservice supplies 3,040 869 Other 1 ------- ------- $14,604 $10,025 ======= ======= Results of Operations - --------------------- The Company's net sales for the first six months and second quarter of 1997 were $311.1 million and $156.5 million, respectively, which represented decreases of 4.4% and 5.6%, respectively, from comparable periods of 1996. Second quarter net sales at Viskase decreased by 7.5% from 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. Second quarter net sales at Clear Shield increased 11.0% from the prior year due to volume expansion in the western region markets partially offset by lower pricing due to competitive pressures. Second quarter net sales at Sandusky decreased by 15.2% from the prior year due partially to the company's previously announced closing of its injection molding operations. Operating income for the first six months and second quarter of 1997 was $15.0 million and $7.6 million, respectively, representing decreases of 19.0% and 17.7%, respectively, from the comparable periods 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. Lower selling, general and administrative expenses had some offsetting effects. Additionally, lower volumes at Sandusky negatively affected 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 affected. Net interest expense for the six-month period totaled $27.7 million representing a decrease of $1.0 million from the first six 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 $(1.5) million and $(3.3) million for the first six months of 1997 and 1996, respectively. The 1997 expense consists principally of foreign exchange losses offset by a $1.0 million gain recorded on the January 1997 sale of the oriented polystyrene business. The gain is offset by foreign exchange 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. This practice minimizes 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 $7.0 million was provided on a loss before income taxes of $14.1 million. The U.S. tax benefit is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. Other - ----- In July 1997, the Company committed to a plan to restructure its operations. This action is directly related to lowering the Company's fixed costs. Management estimates that a before-tax charge of $3.0 million will be recorded to operations in the third quarter of 1997 to cover the costs of restructuring. In March 1997, the Company announced that it was exploring the potential sale of Viskase Corporation's PVC film business and on July 11, 1997, the Company announced that Viskase Corporation had entered into a non-binding letter of intent with LINPAC Plastics Limited for the purchase of such PVC film business. Viskase's plants in Aurora, Ohio, and Sedgefield, England, would be affected by a sale. The purchase is subject to a number of contingencies and is expected to be consummated by October 1997. 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. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income." 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. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." 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 $27.9 million during the six months ended June 26, 1997. Cash flows used in operating activities, used by investing activities and used in financing activities were $6.4 million, $13.1 million and $7.7 million, respectively. 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 used in investing activities consist principally of capital expenditures for property, plant and equipment net of the proceeds from the sale 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 and proceeds available from asset sales. 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 that, among other things, require the maintenance of a minimum level of tangible net worth, maximum ratios of debt and senior debt to total capitalization, and a minimum fixed charge coverage. As described in more detail below, the Company solicited and has received the required consents from the holders of Senior Secured Notes for certain amendments to, and waivers under, the Indenture. In addition, the Company has amended, and received substantially similar waivers under, the Revolving Credit Facility and Letter of Credit Facility. The Company is currently in compliance with the amended covenants under the Indenture, Revolving Credit Facility and Letter of Credit Facility. The Company determined that, as of June 26, 1997, its Consolidated Debt was approximately 85.37% of Consolidated Total Capitalization. Under the terms of the Indenture, as well as the Revolving Credit Facility and Letter of Credit Facility, the Company covenanted that it would not permit its Consolidated Debt to be more than 85% of Consolidated Total Capitalization. As described above, the Company has received required consents and waivers from holders of Senior Secured Notes, the Revolving Credit Facility and Letter of Credit Facility. 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 six months of 1997 and 1996 totaled $25.0 million and $16.6 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 June 26, 1997. 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 16, 1997. The following business was conducted at the Meeting; (i) the election of five (5) directors; (ii) the ratification of the appointment of Coopers & Lybrand L.L.P. as the Company's independent accountants for the fiscal year ended December 25, 1997; and (iii) the approval of a stockholder proposal to recommend to the Board of Directors that it redeem or otherwise terminate the Stockholder Rights Plan, and not adopt any other stockholder rights plan without a binding vote by stockholders. The results were as follows: Election of Directors For Withheld - --------------------- ------------ ----------- Robert N. Dangremond 8,012,654 4,114 Avram A. Glazer 49,555 1,771 Malcolm I. Glazer 49,555 1,771 F. Edward Gustafson 8,012,654 4,114 Michael E. Heisley 8,013,853 2,915 Robert V. Leffler, Jr. 49,555 1,771 Gregory R. Page 8,013,854 2,914 Mark D. Senkpiel 8,012,653 4,115 Ratification of Appointment of Coopers & Lybrand For Against Abstaining - --------------------------- --------- --------- ---------- 8,051,904 9,290 6,900 Approval of Stockholder Proposal For Against Abstaining - ----------------------- -------- --------- ---------- 66,990 7,998,109 2,995 There were no broker non-votes. Item 5 - Other Information ----------------- None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits 10.9 Envirodyne Industries, Inc. Corporate Office Management Incentive Plan for Fiscal Year 1997. 10.21 Envirodyne Industries, Inc. Corporate Office Severance Pay Policy. 27 Financial Data Schedules. (b) Reports on Form 8-K (1) On May 9, 1997, the Company filed a Form 8-K to report that on May 9, 1997 the Company announced that its wholly owned subsidiary, Viskase Corporation, has successfully developed a new process for the manufacture of its cellulose casings. (2) On May 16, 1997, the Company filed a Form 8-K to report that on May 14, 1997 (i) the Company announced that it had received a proposal from Zapata Corporation to acquire all of the then outstanding shares of Envirodyne common stock not owned by Zapata Corporation in a negotiated merger transaction, and (ii) the Board of Directors of the Company had amended the Amended and Restated By-Laws of the Company (a) to provide that the Board will consist of five directors, (b) to establish a standing committee of "Independent Directors" to review, evaluate and make recommendations to the Board with respect to a transaction between the Company and an "Interested Person," and (c) to require an 80% approval of the Board to enter into a transaction between the Company and an "Interested Person" or to amend, modify or repeal the Amended and Restated By-Laws. (3) On May 21, 1997, the Company filed a Form 8-K to report that on May 21, 1997, the Company announced the final results of the Annual Meeting of Stockholders held on May 16, 1997. The Company announced that the stockholders had overwhelmingly elected the five directors nominees proposed by the Company and rejected a proposal by Zapata Corporation to eliminate the stockholder rights plan.* (4) On June 13, 1997, the Company filed a Form 8-K to report that on June 12, 1997, the Company announced that it had received an offer from HK Acquisitions Corporation, formed by Michael E. Heisley, a director, and Donald P. Kelly, the former chairman, president and chief executive officer of the Company, to purchase all of the outstanding shares of common stock of the Company in a negotiated merger transaction. (5) On June 20, 1997, the Company filed a Form 8-K to report that on June 18, 1997 the Company announced that the offer from HK Acquisitions Corporation, which was due to expire at the close of business on June 18, 1997, was extended to the close of business on June 23, 1997. (6) On June 24, 1997, the Company filed a Form 8-K to report that on June 23, 1997 the Company announced that the independent committee of the Board of Directors responded to an offer from HK Acquisitions Corporation and that the independent committee determined that the offer was unacceptable and not in the best interests of stockholders. * On June 4, 1997, the Company filed an amended Form 8-K as it had inadvertently reported the Date of Event as May 21, 1997, and attached a press release dated May 21, 1997 for the original Form 8-K. The Company issued the press release on May 20, 1997 and therefore the Date of Event and the press release attached to the Form 8-K should have both been dated May 20, 1997. 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: August 11, 1997 EX-27 2
5 6-MOS DEC-25-1997 JUN-26-1997 13,859,000 0 76,193,000 (1,651,000) 97,938,000 216,020,000 579,746,000 130,233,000 830,680,000 121,125,000 509,799,000 0 0 146 89,421,000 830,680,000 311,068,000 311,068,000 233,727,000 233,727,000 0 31,000 28,408,000 (14,058,000) (7,000,000) (7,058,000) 0 0 0 (7,058,000) (0.48) (0.48)
EX-10.9 3 EXHIBIT 10.9 ENVIRODYNE INDUSTRIES, INC. CORPORATE OFFICE MANAGEMENT INCENTIVE PLAN Fiscal Year 1997 I. Purpose ------- The Envirodyne Industries, Inc. Management Incentive Plan (MIP) has been established for Fiscal Year 1997 for those covered employees defined under Section III below. The purpose of this Management Incentive Plan is to provide additional compensation to participants for their contribution to the achievement of the objectives of the Company including: - Assisting in attracting and retaining highly qualified key employees. - Encouraging and stimulating superior performance by such personnel. II. Definitions ----------- A. Base Salary equals the salary earnings for the portion ----------- of the Fiscal Year during which the participant was an active employee in the particular level of management for which the computation is being made. Salary earnings do not include Plan awards, long-term incentive awards, imputed income from such programs as executive life insurance or non-recurring earnings such as moving expenses and is based on salary earnings before reductions for such items as contributions under Section 401-(K) of the Internal Revenue Code of 1986 as amended. B. Company means Envirodyne Industries, Inc., its ------- successors and assigns. C. Fiscal Year means the Company's Fiscal Year beginning ----------- January 1 and ending the last day of December. D. Plan means the Envirodyne Industries, Inc. Management ---- Incentive Plan as from time to time amended. E. Chairman of the Board and Chief Executive Officer means ------------------------------------------------- the Chairman of the Board and Chief Executive Officer of Envirodyne Industries, Inc. F. Financial Targets are the financial goal(s) appropriate ----------------- to the company for the Fiscal Year. These goals are identified in Exhibit B and are specifically identified by participant in Exhibit C. G. Discretionary Goals refer to the personal goals and ------------------- objectives set by each participant and his/her supervisor at the beginning of each Fiscal Year against which performance is measured. III. EMPLOYEES COVERED BY THIS PLAN ------------------------------ The Plan is applicable to those management employees and other key personnel in the management levels specified in the attached Exhibit C. IV. FINANCIAL AWARD --------------- A participant in the Plan shall be entitled to a Financial Award computed in accordance with the following formula: Base Financial Bonus Financial Salary x Performance x Percent = Performance Incentive Allocated Award Earned To Financial Targets Where: - "Base Salary" is as defined in Section II A. - "Financial Performance Incentive Earned" is determined by the relationship of actual achievement to targeted goals and can range from target to maximum, with full attain- ment of the financial goals equating to the target for each measure as set forth in the business plan. The target/maximum range for each participant is a function of management level slotting (See Exhibit C). The relationship of actual achievement to the performance range will be determined by using straight-line interpolation for achievement between the target and the maximum of the payout range as applicable (see Exhibit B). Actual performance below target will result in no award being paid on that particular financial measure. - "Bonus Percent Allocated To Financial Targets" shall range from 0% to 100%. If a participant was in more than one management level during a Fiscal Year, a separate computation shall be made for each level applicable to the participant during such Fiscal Year; the sum of the separate computations shall be the participant's Financial Performance Award. V. Personal Performance Award -------------------------- Goals for each participant are to be developed jointly by the participant and his/her supervisor at the beginning of a Fiscal Year. It is anticipated that both quantifiable and non-quantifiable goals will be developed in the process. Each goal should be weighted from 0% to 100%, with the sum of the weights equal to 100%. A participant in the Plan shall be entitled to a Personal Performance Award computed in accordance with the following formula: Base Personal Bonus Personal Salary x Performance x Percent = Performance Incentive Allocated Award Earned To Personal Objectives Where: - "Base Salary" is as defined in Section II A. - "Percent of Personal Objectives Achieved" ranges from 0% to 100% and is determined by the agreed upon performance of the individual against pre-established individual goals. - "Percent of Bonus Allocated to Personal Objectives" shall range from 0% to 100%. It is intended that the participant and his/her supervisor will agree on meaningful individual goals. The following is a partial list of the type of goals or objectives that may be developed: - Achievement of income goals - Development of subordinates - Successful development of new accounts/products - Improvement in product merchandising programs - Attainment of self-development objectives - Control or reduction of operating expenses At the end of a Fiscal Year, each participant will review and evaluate his/her accomplishment of personal goals and objectives. The participant and his/her supervisor will then review the preliminary rating. Thereafter, the supervisor will assign a Personal Performance %, from 0% to 100%, reflecting the participant's achievement of his/her goals during such Fiscal Year. The Personal Performance % recommendation of the supervisor shall be reviewed by the President of the Company, who shall recommend an appropriate Personal Performance % to the Chairman of the Board and Chief Executive Officer who shall approve the final Personal Performance % for each participant. VI. Performance Measures, Targets and Payout Ranges ----------------------------------------------- The financial performance measures, targets and payout ranges used for incentive purposes shall be established by the Company based on the annual business plan. Those measures, targets and payout ranges, as appropriate, shall be approved by the Chairman of the Board and Chief Executive Officer. The performance measures, targets and payout ranges are defined in Exhibit B. VII. Participant Bonus Composition ----------------------------- The composition of each participant's bonus shall be determined by the President of the Company or his designee(s). The composition may have a Discretionary portion and a Financial portion. The composition of the bonuses are established in Exhibit C. VIII. Computation and Disbursement of Funds ------------------------------------- As soon as possible after the close of the Fiscal Year, the President of the Company will recommend a final personal goal achievement percentage and incentive award payment to the Chairman of the Board and Chief Executive Officer. Once approved, payment of the awards shall be made within sixty (60) days after the end of the Fiscal Year. If the participant dies before receiving his/her award, the amount due will be paid to the designated beneficiaries on file with the Company and, in the absence of such designation, to the participant's estate. All payment awards shall be reduced by amounts required to be withheld for taxes at the time payments are made. IX. Changes to Target ----------------- The President of the Company may recommend to the Chairman of the Board and Chief Executive Officer, at any time prior to the final determination of awards, changes to the performance measures, targets, and payout ranges used for incentive purposes. If, in the judgment of the Chairman of the Board and Chief Executive Officer, such change(s) is/are desirable in the interests of equitable treatment of the participants and the Company as a result of extraordinary or non-recurring events, changes in applicable accounting rules or principles, changes in the Company's methods of accounting, changes in applicable law, changes due to consolidation, acquisitions, or reorganization, the Chairman of the Board and Chief Executive Officer shall authorize and approve such change(s) for immediate incorporation into the Plan. Further, should actual performance on any one or all of the financial measure(s) be less than or greater than target by twenty-five percent (25%) or more, the award actually earned under that measure(s) will be at the sole discretion of the Chairman of the Board and Chief Executive Officer subject to approval by the Compensation Committee of the Board. X. Partial Awards -------------- A participant shall be entitled to payment of a partial Financial Award and a partial Personal Objectives Award, computed in accordance with Sections IV and V, and based on Base Salary in a Fiscal Year, if prior to the end of such Fiscal Year, a participant: - Dies, - Retires (is eligible to immediately receive retirement benefits under a Company sponsored retirement plan), - Becomes permanently disabled, - Transfers to a position with a salary grade not eligible for participation in the Plan, - Enters military service, - Takes an approved leave of absence, - Is appointed or elected to public office, - Is terminated due to position elimination, provided that the participant was an active employee for a minimum of 30 consecutive calendar days during such Fiscal Year. Such partial awards shall be paid when payments of non-deferred awards for such Fiscal Year are made. Participants hired during the course of a Fiscal Year and who are employed through the end of such Fiscal Year shall be eligible for an award based on their Base Salary during such Fiscal Year, provided that such employees begin active service prior to February 1 of such Fiscal Year. XI. Forfeiture of Bonus ------------------- Except as provided in Section X, no participant who ceases to be an employee of the Company prior to the end of a Fiscal Year shall be entitled to any amounts under this Plan for such Fiscal Year unless the Chairman of the Board and Chief Executive Officer, in consultation with the Vice President, Human Resources, decides otherwise. Participants who cease to be an employee of the Company between the end of a Fiscal Year and the payment date of awards for such Fiscal Year shall be entitled to awards earned during such Fiscal Year. XII. Administration -------------- This Plan shall be administered by the Vice President, Human Resources of Envirodyne Industries, Inc., subject to the control and supervision of the Chairman of the Board and Chief Executive Officer and the Compensation Committee of the Board of Directors of Envirodyne Industries. Any changes to the context of the Plan, the performance ranges, Plan adjustments and actual payouts will be reviewed with and approved by the Compensation Committee of the Board of Directors. In the event of a claim or dispute brought forth by a participant, the decision of the Chairman of the Board and Chief Executive Officer as to the facts in the case and the meaning and intent of any provision of the Plan, or its application, shall be final and conclusive. XIII. No Employment Contract; Future Plans ------------------------------------ Participation in this Plan shall not confer upon any participant any right to continue in the employ of the Company nor interfere in any way with the right of the Company to terminate any participant's employment at any time. The company is under no obligation to continue the Plan in future Fiscal Years. XIV. Amendment or Termination ------------------------ The Company may at any time, or from time to time, (a) amend, alter or modify the provisions of this Plan, (b) terminate this Plan, or (c) terminate the participation of an employee or group of employees in this Plan; provided, however, that in the event of the termination of this Plan or a termination of participation, the Company shall provide the partial awards to the affected participant(s) for the portion of the Fiscal Year during which such employee(s) were participants in this Plan, in a manner in which the Company, in its sole judgment, determines to be equitable to such participants and the Company. XV. General Provisions ------------------ (a) No right under the Plan shall be assignable, either voluntarily or involuntarily by way of encumbrance, pledge, attachment, level or charge of any nature (except as may be required by state or federal law). (b) Nothing in the Plan shall require the Company to segregate or set aside any funds or other property for the purpose of paying any portion of an award. No participant, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the close of the Fiscal Year, or in any property of the Company or its subsidiaries. _____________________ ____________________________ Final Approval Date Chairman of the Board and Chief Executive Officer ____________________________ Vice President Human Resources EX-10.21 4 EXHIBIT 10.21 ENVIRODYNE INDUSTRIES, INC. CORPORATE OFFICE SEVERANCE PAY POLICY Envirodyne Industries, Inc. (the "Company") hereby adopts the Envirodyne Industries, Inc. Severance Pay Policy (this "Policy") for its eligible employees at its Corporate Office effective as of May 15, 1996 and thereafter until otherwise amended or terminated by the Company; provided, -------- however, that in the event a Change of Control (as hereinafter defined) or - ------- the elimination or consolidation of all or part of this office occurs during the term of this Policy, the term of this Policy shall be deemed to be extended to and including the anniversary date twenty-four (24) months following the effective date of such Change of Control or office consolidation or elimination. With respect to "Employees" as defined in Section A, this Policy shall replace and supersede any and all other policies, plans or programs of the Company regarding severance benefits. A. Covered Employees ----------------- All permanent, full-time salaried executive and administrative personnel employed by the Company at its Corporate Office (Employees) are covered by this Policy. B. Eligibility ----------- An Employee shall be eligible for the severance pay set forth in this Policy in the event of any actions/decisions deemed to eliminate or consolidate all or part of this office including, but not limited to, a Change of Control or office consolidation or elimination and: (1) any involuntary separation of employment from the Company for any reason other than death, disability or willful misconduct on the part of the Employee; (2) any voluntary separation of employment from the Company following a reduction in the Employee's base compensation and/or incentive bonus opportunity from that in effect on the day immediately before the effective date of the Change of Control or office consolidation or elimination; or (3) any voluntary separation of employment from the Company following a reduction in the Employee's principal responsibilities from those in effect on the day immediately before the effective date of the Change of Control or office consolidation or elimination. C. Amount of Severance Pay ----------------------- An Employee eligible for severance pay under Section B shall receive the following: (1) Cash Payment (a) Employees in VP; I-P and I of the Approved Company -------------------------------------------------- Management Incentive Plan ------------------------- An amount equivalent to twenty-four (24) months' salary (at the highest annual rate in effect during the three-year period prior to termination), plus a target bonus under the Management Incentive Plan (MIP) in effect at the time of termination. (b) Other Approved Company Management Plan Participants An amount equivalent to twelve (12) months' salary (at the highest annual rate in effect during the three-year period prior to termination), plus a target bonus under the Management Incentive Plan (MIP) in effect at the time of termination. (c) All Other Employees ------------------- An amount equivalent to six (6) months salary (at the highest annual rate in effect during the three year period prior to termination), plus "notice pay" equivalent to one (1) month's pay. (d) Form of Payment --------------- Employees shall elect to receive their cash severance payment in a single lump sum or in semi-monthly installment payments, consistent with paragraphs (a), (b) and (c) above and the Company's established payroll procedures for the duration of the severance period. All cash severance payments will be net of all applicable federal and state withholding taxes. An Employee receiving installment payments may at any time elect to suspend such future payments and receive any remaining installments in a lump sum. (2) Group Insurance --------------- Medical, life and dental insurance benefits, if any, in effect at the time of termination shall be extended to the earlier of when the Employee is covered by another employer's plan or: (a) for any Employee electing cash severance payment in a single lump sum, six (6) months after termination. (b) for any Employee electing cash severance payment in installment payments, the end of the month in which the severance installment payments expire. (c) All other insurance coverage (LTD; AD/D; travel/ accident) will cease effectiveness as of the conclusion of the severed employee's last day of active employment. (3) Envirodyne Retirement Savings Plan ---------------------------------- Participation in the Envirodyne Retirement Income Plan will cease as of the employee's last day of active employment. Company contributions to the Plan on behalf of such employee will also cease of the employee's last day of active employment. The act of severance as defined in this Policy will, however, cause an acceleration of the vesting provision of the Plan such that the terminated employee will be one hundred percent (100%) vested in the company's contributions on his/her behalf as of the last day of the employee's active employment with the Company. (4) Vacation -------- Employees shall receive cash payment for earned but not taken vacation in addition to severance pay. Payments for earned but not taken vacation shall be made at the time of termination. (5) Executive Automobiles --------------------- For those participants, the act of severance as defined in this policy shall result in the acceleration of the monthly automobile allowance remaining under each executive's lease arrangement in place at the time of separation. The executive, however, will become responsible for all expenses associated with the operation of the car, i.e., insurance, maintenance and repair, registration fees, etc. This payment will be made to the executive at the time of separation and will be grossed up for income tax purposes at the executive's rate of tax withholding, both federal and state. (6) Outplacement ------------ At the discretion of the Company, outplacement services may be provided for Employees in the manner determined by the Company. No payment shall be made to an Employee in lieu of outplacement services. D. Severance Policy Integration ---------------------------- Notwithstanding any provision of this Policy to the contrary, the severance pay under this Policy shall be reduced by the severance benefits then payable to an Employee under any other agreement, understanding, plan, policy, program or arrangement of the Company or a subsidiary of the Company. E. Other Company Payments ---------------------- In addition to any severance benefits payable to an Employee under this Policy, such Employee shall be entitled to receive all benefits payable under any other plan or agreement of the Company unrelated to severance benefits. F. Change of Control Definition ---------------------------- A "Change of Control" for purposes of this Policy shall mean the occurrence of either of the following events: (i) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) is or becomes a "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the Common Stock of the Company or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new or replacement directors whose election by such Board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office. G. General Release --------------- Notwithstanding Section B or any other provision of this Policy to the contrary, in order to receive any severance pay under this Policy, an Employee must sign a statement, in such form as determined by the Company, which releases the Company and its subsidiaries, shareholders, directors, officers, employees, successors and assigns from any existing and future claims except as such claims of any nature relate directly to the payment of any benefits due under this Policy or any other severance benefit. H. No Alienation of Severance Benefits ----------------------------------- No interest of an Employee or his spouse or any other beneficiary under this Policy, or any right to receive any payments or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, an Employee or his spouse or other beneficiary, including claims for alimony, support, separate maintenance, and claims of bankruptcy proceedings. I. Administration -------------- The President of the Company and the Vice President, Human Resources of Envirodyne Industries, Inc. be responsible for interpreting and assuring the effective administration of this Policy. All exceptions to or interpretations of this Policy must be approved in advance. J. Duration of Policy ------------------ This Policy shall become effective as of May 15, 1996, and shall remain in effect until this Policy is otherwise amended or terminated by the Company; provided, however, that in the event a Change of Control or the elimination or consolidation of all or part of this office occurs during the term of this Policy, the term of this Policy shall be deemed to be extended to and including the anniversary date twenty-four (24) months following the effective date of such Change of Control or office consolidation or elimination. IN WITNESS WHEREOF, Envirodyne Industries, Inc. has caused this instrument to be executed by its duly authorized officer on May 15, 1996. ENVIRODYNE INDUSTRIES, INC. By: __________________________ F. Edward Gustafson Chief Executive Officer Envirodyne Industries, Inc. -----END PRIVACY-ENHANCED MESSAGE-----