-----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, UvX7Nmp1dGlFFsXfI7irIAuieX1fDnsO88n7t7/ha5e0lEVSXfrr1BCO6Pd4v8CY kbxhi+Cqy/inZImUa0zMdg== 0000950124-95-003432.txt : 19951027 0000950124-95-003432.hdr.sgml : 19951027 ACCESSION NUMBER: 0000950124-95-003432 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950629 FILED AS OF DATE: 19951026 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-05485 FILM NUMBER: 95584585 BUSINESS ADDRESS: STREET 1: 701 HARGER ROAD STE 1190 CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7085718800 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________ FORM 10-Q/A AMENDMENT NO. 1 / X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 29, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission file number 0-5485 ENVIRODYNE INDUSTRIES, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 95-2677354 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 701 Harger Road, Suite 190, Oak Brook, Illinois 60521 - ----------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 571-8800 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ----- APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No ----- ----- As of August 11, 1995, there were 13,515,000 shares outstanding of the registrant's Common Stock, $.01 par value. 2 INDEX TO FINANCIAL STATEMENTS ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at June 29, 1995 (unaudited) and December 29, 1994....... 4 Unaudited consolidated statements of operations for the three months ended June 29, 1995 and June 30, 1994 and for the six months ended June 29, 1995 and June 30, 1994............................................................................... 5 Unaudited consolidated statements of cash flows for the six months ended June 29, 1995 and June 30, 1994............................................................. 6 Notes to consolidated financial statements........................................... 7 VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at June 29, 1995 (unaudited) and December 29, 1994....... 24 Unaudited consolidated statements of operations for the three months ended June 29, 1995 and June 30, 1994 and for the six months ended June 29, 1995 and June 30, 1994............................................................................... 25 Unaudited consolidated statements of cash flows for six months ended June 29, 1995 and June 30, 1994.................................................................. 26 Notes to consolidated financial statements........................................... 27
2 3 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 29, 1994 (1994 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1994 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 29, 1994 was derived from the audited consolidated financial statements in the Company's annual report of Form 10-K. Reported interim results of operations are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. 3 4 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 29, December 29, 1995 1994 ------------ -------------- (in thousands) ASSETS Current assets: Cash and equivalents $ 6,291 $ 7,289 Receivables, net 95,460 86,868 Inventories 125,754 110,483 Other current assets 27,173 19,466 -------- -------- Total current assets 254,678 224,106 Property, plant and equipment, including those under capital lease 527,129 506,099 Less accumulated depreciation and amortization 56,537 35,761 -------- -------- Property, plant and equipment, net 470,592 470,338 Deferred financing costs 9,081 9,143 Other assets 44,446 47,181 Excess reorganization value 140,634 145,868 -------- -------- $919,431 $896,636 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 14,798 $ 25,798 Accounts payable 42,455 34,335 Accrued liabilities 62,623 72,246 -------- -------- Total current liabilities 119,876 132,379 Long-term debt including obligation under capital lease 534,298 489,358 Accrued employee benefits 56,851 56,217 Deferred and noncurrent income taxes 80,671 83,333 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,515,000 shares issued and outstanding 135 135 Paid in capital 134,865 134,865 Accumulated (deficit) (15,020) (3,612) Cumulative foreign currency translation adjustments 7,755 3,961 -------- -------- Total stockholders' equity 127,735 135,349 -------- -------- $919,431 $896,636 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 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 29, 1995 30, 1994 29, 1995 30, 1994 ------------- -------------- ------------ -------------- (in thousands, except for number of shares and per share amounts) NET SALES $165,184 $150,788 $ 321,008 $293,381 Patent infringement settlement income 9,457 9,457 COSTS AND EXPENSES Cost of sales 122,083 108,083 235,772 210,202 Selling, general and administrative 29,107 29,582 58,643 56,500 Amortization of intangibles and excess reorganization value 3,905 3,841 7,815 7,687 ----------- ----------- ------------ ------------ OPERATING INCOME 10,089 18,739 18,778 28,449 Interest income 19 71 83 132 Interest expense 13,796 12,315 27,230 24,374 Other income, net 548 1,403 1,139 1,684 Minority interest in loss of subsidiary 50 ----------- ----------- ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (3,140) 7,898 (7,230) 5,941 Income tax provision (benefit) 177 4,450 (18) 5,000 ----------- ----------- ------------ ------------ INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (3,317) 3,448 (7,212) 941 Extraordinary loss, net of tax 4,196 4,196 ----------- ----------- ------------ ------------ NET INCOME (LOSS) $ (7,513) $ 3,448 $(11,408) $ 941 =========== =========== ============ ============ WEIGHTED AVERAGE COMMON SHARES 13,515,000 13,500,000 13,515,000 13,500,000 PER SHARE AMOUNTS: INCOME (LOSS) BEFORE EXTRAORDINARY ITEM $(.25) $.26 $(.53) $.07 =========== =========== ============ ============ NET INCOME (LOSS) $(.56) $.26 $(.84) $.07 =========== =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 5 6 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended -------------------------------- June 29, June 30, 1995 1994 ------------ ------------ (in thousands) Cash flows from operating activities: Income (loss) before extraordinary item $ (7,212) $ 941 Extraordinary (loss) on debt extinguishment (4,196) -------- --------- Net income (loss) (11,408) 941 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization under capital lease 20,132 17,996 Amortization of intangibles and excess reorganization value 7,815 7,687 Amortization of deferred financing fees and discount 1,031 729 Increase (decrease) in deferred and noncurrent income taxes (3,705) 995 Loss on debt extinguishment 6,778 Foreign currency transaction (gain) (2,079) (2,659) (Gain) on sales of property, plant and equipment (11) (2) Changes in operating assets and liabilities: Accounts receivable (6,130) (9,608) Inventories (12,851) (11,585) Other current assets (7,360) (5,777) Accounts payable and accrued liabilities (3,834) 7,841 Other (25) 15 ---------- ---------- Total adjustments (239) 5,632 ---------- ---------- Net cash provided by (used in) operating activities (11,647) 6,573 Cash flows from investing activities: Capital expenditures (13,597) (15,967) Proceeds from sale of property, plant and equipment 29 76 Purchase of minority interest in subsidiary (4,200) --------- ------- Net cash (used in) investing activities (13,568) (20,091) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 206,053 23,188 Deferred financing costs (7,667) (227) Repayment of revolving loan, long-term borrowings and capital lease obligations (173,494) (8,003) ---------- ------- Net cash provided by financing activities 24,892 14,958 Effect of currency exchange rate changes on cash (675) (526) ---------- ---------- Net increase (decrease) in cash and equivalents (998) 914 Cash and equivalents at beginning of period 7,289 7,743 -------- ---------- Cash and equivalents at end of period $ 6,291 $ 8,657 ======= ======== - -------------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $33,373 $28,459 Income taxes paid $ 3,996 $ 2,715
The accompanying notes are an integral part of the consolidated financial statements. 6 7 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CHAPTER 11 REORGANIZATION PROCEEDINGS, (dollars in thousands) On January 6, 1993, a group of bondholders filed an involuntary petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of the U.S. Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase Sales Corporation, Viskase Holding Corporation, Clear Shield National, Inc., Sandusky Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne Finance Company each filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993, the Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization as twice modified (Plan of Reorganization) with respect to Envirodyne Industries, Inc. (Envirodyne) and certain of its subsidiaries. The Plan of Reorganization was consummated and Envirodyne and certain of its subsidiaries emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting purposes, the Plan of Reorganization was deemed to be effective as of December 31, 1993. The Plan of Reorganization provided for the initial issuance of approximately 13,500,000 shares of Envirodyne common stock, warrants to purchase an additional 1,500,000 shares (subject to adjustment) and $219,262 principal amount of 10-1/4% Senior Notes Due 2001 (10-1/4% Notes). Holders of allowed general unsecured claims of Envirodyne (as opposed to subsidiaries of Envirodyne) became entitled to receive 32.28 shares of common stock for each five hundred dollars of their prepetition claims, or a total of 8,070 shares of common stock, representing .06% of the common stock initially issued pursuant to the Plan of Reorganization. These claims totaled approximately $125. If the allowed amount of general unsecured claims of Envirodyne exceeds $125, for example upon the resolution of disputed claims, additional shares of common stock will have to be issued to the holders of allowed general unsecured claims of Envirodyne in order to provide equitable allocation of value among Envirodyne's unsecured creditors under the Plan of Reorganization. Such additional shares of common stock would be distributed with respect to allowed general unsecured claims of Envirodyne as follows: (i) approximately 2.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $125 and $25,000; (ii) approximately 5.61 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $75,000 and $100,000. Refer to Note 5 for a discussion of disputed claims which, if determined adversely to Envirodyne, would result in the issuance of common stock. The Company accounted for the reorganization using the principles of fresh start reporting in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Accordingly, all assets and liabilities were restated to reflect their reorganization value. A reorganization value of the Company's equity of $135,000 was based on the consideration of many factors and various valuation methods, including discounted cash flows and comparable multiples of earnings valuation techniques believed by management and its financial advisors to be representative of the Company's business and industry. Factors considered by the 7 8 Company included the following: * Forecasted operating and cash flow results which gave effect to the estimated impact of debt restructuring and other operational reorganization. * Discounted residual value at the end of the forecasted period based on the capitalized cash flows for the last year of that period. * Competition and general economic considerations * Projected sales growth * Potential profitability * Seasonality and working capital requirements The excess of the reorganization value over the fair value of net assets and liabilities has been reported as excess reorganization value and is being amortized over a fifteen-year period. The Company continues to evaluate the recoverability of excess reorganization value based on the operating performance and expected undiscounted future cash flows of the operating business units. 8 9 2. INVENTORIES, (dollars in thousands)
Inventories consisted of: June 29, December 29, 1995 1994 -------- ------------ Raw materials $ 23,378 $ 20,358 Work in process 41,250 37,613 Finished products 61,126 52,512 -------- -------- $125,754 $110,483 ======== ========
Approximately 52% of the inventories at June 29, 1995 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $3.7 million at June 29, 1995. 3. DEBT OBLIGATIONS, (dollars in thousands) On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate principal amount of senior secured notes to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151,500 of 12% Senior Secured Notes due 2000 and (ii) $8,500 of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to (i) repay the Company's $86,125 domestic term loan, (ii) repay the $68,316 of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered into a new $20,000 domestic revolving credit facility (Revolving Credit Facility) and a new $28,000 letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. The Company recognized an extraordinary loss of $6,778 representing the write-off of deferred financing fees related to the June 20, 1995 debt refinancing. The extraordinary loss, net of applicable income taxes of $2,582, has been included in the Company's Statement of 9 10 Operations for the quarter ended June 29, 1995. The $151,500 tranche of Senior Secured Notes bears interest at a rate of 12% per annum and the $8,500 tranche bears interest at a rate equal to the six month London Interbank Offered Rate (LIBOR) plus 575 basis points. The initial interest rate on the floating rate tranche was approximately 11.7%. The interest rate on the floating rate tranche is reset semi-annually on June 15 and December 15. Interest on the Senior Secured Notes is payable each June 15 and December 15, commencing December 15, 1995. On June 15, 1999, $80,000 of the aggregate principal amount of the Senior Secured Notes is subject to a mandatory redemption. The remaining principal amount outstanding will mature on June 15, 2000. In the event the Company has Excess Cash Flow (as defined) in excess of $5,000 in any fiscal year, beginning with fiscal 1995, Envirodyne will be required to make an offer to purchase Senior Secured Notes together with any borrowed money obligations outstanding under the Revolving Credit Facility, on a pro rata basis, in an amount equal to the Excess Cash Flow at a purchase price of 100% plus any accrued interest to the date of purchase. The Senior Secured Notes are redeemable, in whole or from time to time in part, at Envirodyne's option, at the greater of (i) the outstanding principal amount or (ii) the present value of the expected future cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. Upon the occurrence of a Change of Control (which includes the acquisition by any person of more than 50% of Envirodyne's Common Stock), each holder of the Senior Secured Notes has the right to require the Company to repurchase such holder's Senior Secured Notes at a price equal to the greater of (i) the outstanding principal amount or (ii) the present value of the expected cash flows from the Senior Secured Notes discounted at a rate equal to the Treasury Note yield corresponding closest to the remaining average life of the Senior Secured Notes at the time of prepayment plus 100 basis points; plus accrued interest thereon to the date of purchase. The Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends or redeem or repurchase common stock, (ii) the incurrence of indebtedness, (iii) the creation of liens, (iv) certain affiliate transactions and (v) the ability to consolidate with or merge into another entity and to dispose of assets. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the three month London Interbank Offered Rate (LIBOR) on the first day of each calendar quarter plus 300 basis points. The Revolving Credit Facility expires on June 20, 1998. Envirodyne has entered into interest rate agreements that cap $50 million of interest rate exposure at an average LIBOR rate of 6.50% until January 1997. These interest rate cap 10 11 agreements were entered into under terms of the senior bank financing that was repaid on June 20, 1995. Interest expense includes $306 of amortization of the interest rate cap premium during the six-month period ended June 29, 1995. Envirodyne has not received any payments under the interest rate protection agreements. The Letter of Credit Facility expires on June 20, 1998. Fees on the outstanding amount of letters of credit are 2.0% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. There is a commitment fee of 0.5% per annum on the unused portion of the Letter of Credit Facility plus an issuance fee. 11 12 Had the refinancing taken place at the beginning of 1995, the pro forma Envirodyne consolidated statement of operations would have been: (in thousands, except for number of shares and per share amounts)
Pro forma Six Months Ended June 29, 1995 -------------------- Net sales $321,008 Cost of sales 235,772 Selling, general and administrative 58,643 Amortization of intangibles and excess reorganization cost 7,815 -------- Operating income 18,778 Interest income 83 Interest expense 30,066 Other expense (income), net (1,139) -------- (Loss) before income taxes (10,066) Income tax (benefit) (1,124) --------- Net (loss) $ (8,942) ========= Weighted average common shares 13,515,000 Net (loss) per share $(.66) =====
The pro forma information reflects the change in interest expense and related tax effect due to the issuance of $160 million principal amount of Senior Secured Notes and refinancing of the Company's bank debt. The $219,262 principal amount of 10-1/4% Notes were issued pursuant to an Indenture dated as of December 31, 1993 (10-1/4% Note Indenture) between Envirodyne and Bankers Trust Company, as Trustee. The 10-1/4% Notes are the unsecured senior obligations of Envirodyne, bear interest at the rate of 10-1/4% per annum, payable on each June 1 and December 1, and mature on December 1, 2001. The 10-1/4% Notes are redeemable, in whole or from time to time in part, at the option of Envirodyne, at the percentages of principal amount specified below plus accrued and unpaid interest to the redemption date, if the 10-1/4% Notes are redeemed during the twelve-month period commencing on January 1 of the following years:
Year Percentage ---- ---------- 1995 105% 1996 104% 1997 103% 1998 102% 1999 101% 2000 and thereafter 100%
The 10-1/4% Note Indenture contains covenants with respect to Envirodyne and its subsidiaries limiting (subject to a number of important qualifications), among other things, (i) the ability to pay dividends on or redeem or repurchase capital stock, (ii) the incurrence of 12 13 indebtedness, (iii) certain affiliate transactions and (iv) the ability of the Company to consolidate with or merge with or into another entity or to dispose of substantially all its assets. Outstanding short-term and long-term debt consisted of:
June December 29, 1995 29, 1994 -------- -------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Bank Term Loan $ 11,100 Current maturity of Viskase Capital Lease Obligation $ 6,012 5,450 Current maturity of Viskase Limited Term Loan (5.2%) 2,056 1,882 Other 6,730 7,366 -------- -------- Total short-term debt $ 14,798 $ 25,798 ======= ======== Long-term debt: Bank Credit Agreement: Term Loan due 1999 $ 80,575 Revolving Loan due 1999 32,524 Revolving loans (9.3%) $ 4,000 12% Senior Secured Notes due 2000 160,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 141,182 147,194 Viskase Limited Term Loan (5.2%) 8,367 8,466 Other 1,487 1,337 -------- -------- Total long-term debt $534,298 $489,358 ======== ========
The fair value of the Company's debt obligation (excluding capital lease obligation) is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for the debt of the same remaining maturities. At June 29, 1995, the carrying amount and estimated fair value of debt obligations (excluding capital lease obligation) were $401,690 and $348,741, respectively. On December 28, 1990, Viskase and GECC entered into a sale and leaseback transaction. The sale and leaseback of assets included the production and finishing equipment at Viskase's four domestic casing production and finishing facilities. The facilities are located in Chicago, Illinois; Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the Lessee under the relevant agreements, will continue to operate all of the facilities. The lease has been accounted for as a capital lease. The principal terms of the sale and leaseback transaction include: (a) a 15 year basic lease term (plus selected renewals at Viskase's option), (b) annual rent payments in advance beginning in 13 14 February 1991, and (c) a fixed price purchase option at the end of the basic 15 year term and fair market purchase options at the end of the basic term and each renewal term. Further, the Lease Documents contain covenants requiring maintenance by the Company of certain financial ratios and restricting the Company's ability to pay dividends, make payments to affiliates, make investments and incur indebtedness. Annual rental payments under the Lease will be approximately $19.2 million through 1997, $21.4 million in 1998 and $23.5 million through the end of the basic 15-year term. Viskase is required to provide credit support consisting of a standby letter of credit in an amount up to one year's rent through at least 1997. This credit support can be reduced up to $4 million currently if the Company achieves and maintains certain financial ratios. As of June 29, 1995, the Company had met the required financial ratios and the letter of credit has been reduced by $4 million. The letter can be further reduced in 1997 or eliminated after 1998 if the Company achieves and maintains certain financial ratios. Envirodyne and its other principal subsidiaries guaranteed the obligations of Viskase under the Lease. The following is a schedule of minimum future lease payments under the capital lease together with the present value of the net minimum lease payments as of June 29, 1995:
Year ending December 1996 $ 19,227 1997 19,227 1998 21,363 1999 23,499 2000 23,499 Thereafter 117,495 -------- Net minimum lease payments 224,310 Less: Amount representing interest (77,116) -------- $147,194 ========
The 1995 rental payment of $19,227 was paid on February 28, 1995. Principal payments under the capital lease obligation for the years ended 1995 through 1999 range from approximately $5 million to $13 million. Aggregate maturities of remaining long-term debt, after reflecting the June 20, 1995 refinancing, for each of the next five fiscal years are:
Total --------------- 1995 (last six months only) $ 3,181 1996 8,258 1997 8,880 1998 11,920 1999 95,082
14 15 4. SUBSIDIARY GUARANTORS Envirodyne's payment obligations under the Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis (collectively, Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation, Viskase Sales Corporation, Clear Shield National, Inc., Sandusky Plastics, Inc. and Sandusky Plastics of Delaware, Inc., each a direct or indirect wholly-owned subsidiary of Envirodyne and each a "Guarantor." These subsidiaries represent substantially all of the operations of Envirodyne conducted in the United States. The remaining subsidiaries of Envirodyne generally are foreign subsidiaries or otherwise relate to foreign operations. The obligations of each Guarantor under its Subsidiary Guarantee are the senior obligation of such Guarantor, and are collateralized, subject to certain permitted liens, by substantially all of the domestic assets of the Guarantor and, in the case of Viskase Holding Corporation, by a pledge of 65% of the capital stock of Viskase S.A. The Subsidiary Guarantees and security are shared with the lenders under the Revolving Credit Agreement on a pari passu basis and are subject to the priority interest of the holders of obligations under the Letter of Credit Facility, each pursuant to an intercreditor agreement. The following consolidating condensed financial data illustrate the composition of the combined Guarantors. No single Guarantor has any significant legal restrictions on the ability of investors or creditors to obtain access to its assets in 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 Viskage 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. 15 16 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total -------- ------------ ------------ ------------ ---------- (in thousands) ASSETS Current assets: Cash and equivalents $ 3,062 $ (549) $ 3,778 $6,291 Receivables, net 73,992 55,411 $(33,943) 95,460 Inventories 73,441 54,386 (2,073) 125,754 Other current assets 663 18,948 7,562 27,173 -------- -------- -------- --------- -------- Total current assets 3,725 165,832 121,137 (36,016) 254,678 Property, plant and equipment including those under capital lease 260 377,376 149,493 527,129 Less accumulated depreciation and amortization 113 41,002 15,422 56,537 -------- -------- -------- ---------- -------- Property, plant and equipment, net 147 336,374 134,071 470,592 Deferred financing costs 9,044 37 9,081 Other assets 42,991 1,455 44,446 Investment in subsidiaries 85,380 115,956 (201,336) Excess reorganization value 98,096 42,538 140,634 -------- -------- -------- --------- -------- $ 98,296 $759,249 $299,238 $(237,352) $919,431 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $8,236 $6,562 $14,798 Accounts payable $ 113 26,051 50,234 $ (33,943) 42,455 Accrued liabilities 9,669 29,052 23,902 62,623 ------- -------- -------- ---------- ------- Total current liabilities 9,782 63,339 80,698 (33,943) 119,876 Long-term debt including obligations under capital lease 383,262 141,804 9,232 534,298 Accrued employee benefits 52,684 4,167 56,851 Deferred and noncurrent income taxes 28,096 28,415 24,160 80,671 Other long-term liabilities (2) (450,579) 399,710 50,832 37 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 13,515,000 shares issued and outstanding 135 3 32,738 (32,741) 135 Paid in capital 134,865 83,887 89,524 (173,411) 134,865 Accumulated earnings (deficit) (15,020) (18,293) 180 18,113 (15,020) Cumulative foreign currency translation adjustments 7,755 7,700 7,707 (15,407) 7,755 -------- ------- --------- ----------- ----- Total stockholders' equity 127,735 73,297 130,149 (203,446) 127,735 -------- ------- --------- --------- ------- $ 98,296 $759,249 $299,238 $(237,352) $919,431 ======== ======== ======== ========= ========
(1) Elimination of intercompany receivables, payables and investment accounts. (2) Includes intercompany loans. 16 17 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $211,180 $129,214 $(19,386) $321,008 COSTS AND EXPENSES Cost of sales 154,687 100,359 (19,274) 235,772 Selling, general and administrative $3,125 33,391 22,127 58,643 Amortization of intangibles and excess reorganization value 6,133 1,682 7,815 ------- ------- ------- ------- ------- OPERATING INCOME (LOSS) (3,125) 16,969 5,046 (112) 18,778 Interest income 4 38 41 83 Interest expense 18,232 7,033 1,965 27,230 Intercompany interest expense (income) (18,441) 17,000 1,441 Management fees (income) (3,700) 3,219 481 Other expense (income), net (2,714) 9 1,566 (1,139) Equity Loss (income) in subsidiary 10,072 2,369 (12,441) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (6,570) (12,623) (366) 12,329 (7,230) Income tax provision (benefit) 1,332 ( 2,663) 1,313 (18) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (7,902) (9,960) (1,679) 12,329 (7,212) Extraordinary loss, net of tax 3,506 690 4,196 ------- ------- ------- ------- ------- NET INCOME (LOSS) $(11,408) $ (9,960) $(2,369) $ 12,329 $(11,408) ======== ======== ======== ======== ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $108,891 $66,694 $(10,401) $165,184 COSTS AND EXPENSES Cost of sales 79,618 52,722 (10,257) 122,083 Selling, general and administrative $ 1,552 16,037 11,518 29,107 Amortization of intangibles and excess reorganization value 3,067 838 3,905 ------- ------- ------- ------- ------- OPERATING INCOME (LOSS) (1,552) 10,169 1,616 (144) 10,089 Interest income 4 13 2 19 Interest expense 9,148 3,541 1,107 13,796 Intercompany interest expense (income) (9,089) 8,498 591 Management fees (income) (1,850) 1,661 189 Other expense (income), net (562) 52 (38) (548) Equity loss (income) in subsidiary 4,532 1,613 (6,145) ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (3,727) (5,183) (231) 6,001 (3,140) Income tax provision (benefit) 280 (795) 692 177 ------- ------- ------- ------- ------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (4,007) (4,388) (923) 6,001 (3,317) Extraordinary loss, net of tax 3,506 690 4,196 ------- ------- ------- ------- ------- NET INCOME (LOSS) $(7,513) $(4,388) $(1,613) $6,001 $(7,513) ======== ======== ======== ======== ========
17 18 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR SIX MONTHS ENDED JUNE 29, 1995
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ------------- (in thousands) Net cash provided by (used in) operating activities $ 867 $(11,421) $(1,093) $(11,647) Cash flows from investing activities: Capital expenditures (33) $(10,289) (3,275) (13,597) Proceeds from sale of property, plant and equipment 29 29 -------- --------- -------- ---------- ------- Net cash (used in) investing activities (33) (10,289) (3,246) (13,568) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 164,000 42,053 206,053 Deferred financing costs (7,667) (7,667) Repayment of revolving loan, long-term borrowings and capital lease obligations (119,275) (5,578) (48,641) (173,494) Increase (decrease) in Envirodyne loan and advances (35,385) 24,886 10,499 --------- ------- ---------- ---------- --------- Net cash provided by (used in) financing activities 1,673 19,308 3,911 24,892 Effect of currency exchange rate changes on cash (675) (675) ------- ------- --------- ---------- -------- Net increase (decrease) in cash and equivalents 2,507 (2,402) (1,103) (998) Cash and equivalents at beginning of period 555 1,853 4,881 7,289 -------- ------ -------- ---------- ------- Cash and equivalents at end of period $ 3,062 $ (549) $3,778 $6,291 ======= ====== ======= =========== =======
18 19 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $206,154 $101,885 $(14,658) $293,381 Patent infringement settlement income 9,457 9,457 COSTS AND EXPENSES Cost of sales 147,087 77,430 (14,315) 210,202 Selling, general and administrative $3,182 38,455 14,863 56,500 Amortization of intangibles and excess reorganization value 6,129 1,558 7,687 -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (3,182) 23,940 8,034 (343) 28,449 Interest income 3 20 109 132 Interest expense 15,628 7,012 1,734 24,374 Intercompany interest expense (income) (16,168) 14,168 2,000 Management fees (income) (3,700) 3,225 475 Other expense (income), net (2,640) (24) 980 (1,684) Equity loss (income) in subsidiary 1,315 45 (1,360) Minority interest in loss of subsidiary 50 50 -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES 2,386 (466) 2,954 1,067 5,941 Income tax provision (benefit) 1,445 556 2,999 5,000 -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 941 $ (1,022) $ (45) $ 1,067 $ 941 ====== ======== ======== ======== ========
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) NET SALES $107,794 $51,534 $(8,540) $150,788 Patent infringement settlement income 9,457 9,457 COSTS AND EXPENSES Cost of sales 76,486 40,018 (8,421) 108,083 Selling, general and administrative $1,564 20,841 7,177 29,582 Amortization of intangibles and excess reorganization value 3,062 779 3,841 -------- -------- -------- ------- -------- OPERATING INCOME (LOSS) (1,564) 16,862 3,560 (119) 18,739 Interest income 1 11 59 71 Interest expense 7,959 3,474 882 12,315 Intercompany interest expense (income) (9,375) 8,499 876 Management fees (income) (1,850) 1,610 240 Other expense (income), net (1,834) (144) 575 (1,403) Equity loss (income) in subsidiary (1,205) 755 450 -------- -------- -------- ------- -------- INCOME (LOSS) BEFORE INCOME TAXES 4,742 2,679 1,046 (569) 7,898 Income tax provision (benefit) 1,294 1,355 1,801 4,450 -------- -------- -------- ------- -------- NET INCOME (LOSS) $3,448 $ 1,324 $ (755) $ (569) $ 3,448 ====== ======== ======== ======== ========
19 20 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR SIX MONTHS ENDED JUNE 30, 1994
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ ------------ (in thousands) Net cash provided by (used in) operating activities $(354) $ 3,002 $ 3,925 $6,573 Cash flows from investing activities: Capital expenditures (15) (10,205) (5,747) (15,967) Proceeds from sales of property, plant and equipment 76 76 Purchase of minority interest in subsidiary (4,200) (4,200) -------- -------- ------- -------- ------- Net cash (used in) investing activities (15) (14,329) (5,747) (20,091) Cash flows from financing activities: Proceeds from revolving loan and long term borrowings 15,050 8,138 23,188 Deferred financing costs (174) (53) (227) Repayment of revolving loan, long-term borrowings and capital lease obligations (5,058) (2,945) (8,003) Increase (decrease) in Envirodyne loan and advances (15,563) 18,750 (3,187) -------- -------- ------- -------- ------- Net cash provided by (used in) financing activities (687) 13,692 1,953 14,958 Effect of currency exchange rate changes on cash (526) (526) -------- -------- ------- -------- ------- Net increase (decrease) in cash and equivalents (1,056) 2,365 (395) 914 Cash and equivalents at beginning of period 930 1,922 4,891 7,743 -------- -------- ------- -------- ------- Cash and equivalents at end of period $ (126) $ 4,287 $ 4,496 $8,657 ======= ======== ======= ======== =======
20 21 5. CONTINGENCIES, (dollars in thousands) A class action lawsuit by former employees of subsidiary corporations comprising most of the Company's former steel and mining division (SMD) was pending as of the commencement of the bankruptcy case in which the plaintiffs are seeking substantial damages. The Company and the plaintiffs are currently participating in a mediation process to attempt to resolve the case. Envirodyne denies liability and believes it has sufficient defenses to all of plaintiffs' claims. In the absence of successful mediation or other settlement negotiations, the Company will continue to vigorously defend these claims. While Envirodyne cannot predict with certainty the outcome of these claims, when ultimately concluded or adjudicated, these claims will not, in the opinion of management, have a material adverse effect on the results of operations or the financial condition of the Company. However, inasmuch as the Plan of Reorganization provides for the issuance of common stock with respect to prepetition Envirodyne general unsecured claims (refer to Note 1), an adverse finding of liability and damages could result in substantial dilution to the holders of the common stock. If additional shares of common stock have to be issued to the former SMD employees, as holders of allowed Envirodyne general unsecured claims under the Plan of Reorganization, such additional shares of common stock would be distributed as follows: (i) approximately 2.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $125 and $25,000; (ii) approximately 5.61 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $25,000 and $50,000; (iii) approximately 9.22 additional shares per five hundred dollars in the event allowed general unsecured claims of Envirodyne are between $50,000 and $75,000; and (iv) approximately 13.58 additional shares per five hundred dollars in claims in the event allowed general unsecured claims of Envirodyne are between $75,000 and $100,000 (refer to Note 1). Litigation has been initiated with respect to events arising out of the bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald Acquisition Corporation (Emerald) with respect to which, although Envirodyne is not presently a party to such litigation, certain defendants have asserted indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind and Michael Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (Bankruptcy Court), ARTRA Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious inference in connection with the negotiation and consummation of the Plan of Reorganization. In ARTRA Group Incorporated v. Salomon Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P. Kelly, Charles K. Bobrinskoy and Michael Zimmerman, Case No. 93 L 2198, Circuit Court of the Eighteenth Judicial Circuit, County of DuPage, State of Illinois, ARTRA alleges negligence, breach of fiduciary duty and duty of loyalty, fraudulent misrepresentation and breach of contract in connection with the 1989 acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the total amount of $136.2 million plus interest and punitive damages of $408.6 million. D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind and Zimmerman have asserted common law and contractual rights of indemnity against Envirodyne for attorneys' fees, costs and any ultimate liability relating to the claims set forth in the complaints. Envirodyne is continuing its evaluation of the merits of the indemnification claims against Envirodyne and the underlying claims in the litigation. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay such funds in the event it is ultimately determined that there is no right to indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and Mr. Kelly for the 21 22 payment of legal fees in the case pending before the Bankruptcy Court. Although the case is in a preliminary stage and the Company is not a party thereto, the Company believes that the plaintiff's claims raise similar factual issues to those raised in the Envirodyne bankruptcy cases which, if resolved in a manner similar to that in the Envirodyne bankruptcy cases, would render it difficult for the plaintiff to establish liability. Accordingly, the Company believes that the indemnification claims would not have a material adverse effect upon the business or financial position of the Company, even if the claimants were successful in establishing their right to indemnification. In the Envirodyne bankruptcy case the United States Environmental Protection Agency (USEPA), the Economic Development Authority (EDA), and Navistar International Transportation Corp. (Navistar Transportation) filed proofs of claim with respect to unreimbursed environmental response costs at the location of the former SMD operations. Envirodyne, Navistar Transportation, EDA and USEPA have negotiated a definitive settlement agreement, subject to final approval by the Bankruptcy Court and public comment pursuant to regulations applicable to EDA and USEPA, to settle the claims against Envirodyne through the payment of five thousand dollars to the USEPA and the issuance of 64,460 shares of common stock to Navistar Transportation. In the event that the settlement is not completed, Envirodyne believes that it has valid defenses to the claims and will continue its objections to the claims. To the extent that USEPA, EDA or Navistar Transportation were able to establish liability and damages as to their respective proofs of claim, such parties would receive Common Stock under the Plan of Reorganization in satisfaction of their claims. Certain of Envirodyne's stockholders prior to the acquisition of Envirodyne by Emerald failed to exchange their certificates representing old Envirodyne common stock for the $40 per share cash merger consideration specified by the applicable acquisition agreement. In the Envirodyne bankruptcy case, Envirodyne sought to equitably subordinate the interests of the holders of untendered shares, in which event such holders would receive no distribution pursuant to the Plan of Reorganization. The Bankruptcy Court granted Envirodyne's motion for summary judgment to equitably subordinate the holders of untendered shares. The United States District Court for the Northern District of Illinois has affirmed the Bankruptcy Court's summary judgment. If such holders were nonetheless ultimately successful in a further appeal of this matter, Envirodyne believes that the maximum number of shares of common stock that it would be required to issue to such claimants is approximately 106,000. Clear Shield National, Inc. and some of its employees have received subpoenas from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the disposable plastic cutlery industry. Clear Shield National, Inc. is cooperating fully with the investigation. The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 22 23 FINANCIAL STATEMENTS The information included in these quarterly financial statements has been prepared in conformity with the accounting principles and practices reflected in the financial statements of Viskase Holding Corporation and Subsidiaries that are being filed within this quarterly report. These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto of Viskase Holding Corporation and Subsidiaries. The accompanying financial information, which is unaudited, reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. The condensed consolidated balance sheet as of December 29, 1994 was derived from the audited consolidated financial statements of Viskase Holding Corporation that are being filed within this quarterly report. Reported quarterly results of operations are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. 23 24 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 29, DECEMBER 29, 1995 1994 -------- ------------ (IN THOUSANDS) ASSETS Current assets: Cash and equivalents................................................ $ 3,778 $ 6,201 Receivables, net.................................................... 52,434 46,834 Receivables, affiliates............................................. 50,018 48,138 Inventories......................................................... 54,386 43,725 Other current assets................................................ 7,562 6,515 -------- -------- Total current assets............................................. 168,178 151,413 Property, plant and equipment......................................... 149,493 138,030 Less accumulated depreciation....................................... 15,422 8,967 -------- -------- Property, plant and equipment, net.................................. 134,071 129,063 Deferred financing costs.............................................. 37 1,081 Other assets.......................................................... 1,455 1,424 Excess reorganization value........................................... 42,538 43,638 -------- -------- $346,279 $326,619 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt......... $ 6,562 $ 6,978 Accounts payable.................................................... 18,754 15,479 Accounts payable, affiliates........................................ 48,534 42,756 Accrued liabilities................................................. 24,002 25,358 -------- -------- Total current liabilities........................................ 97,852 90,571 Long-term debt........................................................ 9,232 14,023 Accrued employee benefits............................................. 4,167 3,969 Deferred and noncurrent income taxes.................................. 24,160 22,400 Intercompany loans and advances....................................... 88,842 78,343 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital..................................................... 105,106 103,463 Retained earnings................................................... 9,213 9,938 Cumulative foreign currency translation adjustments................. 7,707 3,912 -------- -------- Total stockholders' equity....................................... 122,026 117,313 -------- -------- $346,279 $326,619 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 24 25 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS THREE MONTHS ENDED ENDED SIX MONTHS SIX MONTHS JUNE 29, JUNE 30, ENDED ENDED 1995 1994 JUNE 29, 1995 JUNE 30, 1994 ------------ ------------ ------------- ------------- (IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES AND PER SHARE AMOUNTS) NET SALES.................................... $ 66,694 $ 51,534 $ 129,214 $ 101,885 Patent infringement settlement income...... 9,457 9,457 COSTS AND EXPENSES Cost of sales.............................. 52,722 40,018 100,359 77,430 Selling, general and administrative........ 9,744 6,424 19,856 13,318 Amortization of intangibles and excess reorganization value.................... 838 779 1,682 1,558 ------- ------- -------- -------- OPERATING INCOME............................. 3,390 13,770 7,317 19,036 Interest income............................ 2 59 41 109 Interest expense........................... 1,107 882 1,965 1,734 Intercompany interest expense.............. 591 865 1,429 1,980 Management fees............................ 189 240 481 475 Other (income) expense, net................ (343) 425 1,261 980 ------- ------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM......................... 1,848 11,417 2,222 13,976 Income tax provision (benefit)............. 1,409 5,812 2,257 7,290 ------- ------- -------- -------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM...... 439 5,605 (35) 6,686 Extraordinary loss, net of tax............. 690 690 ------- ------- -------- -------- NET INCOME (LOSS)............................ $ (251) $ 5,605 $ (725) $ 6,686 ======= ======= ======== ======== WEIGHTED AVERAGE COMMON SHARES............... 100 100 100 100 PER SHARE AMOUNTS: INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.... $ 4,390 $ 56,050 $ (350) $ 66,860 ======= ======= ======== ======== NET INCOME (LOSS)............................ $ (2,510) $ 56,050 $ (7,250) $ 66,860 ======= ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 25 26 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED -------------------- JUNE 29, JUNE 30, 1995 1994 -------- -------- (IN THOUSANDS) Cash flows from operating activities: Income (loss) before extraordinary item............................... $ (35) $ 6,686 Extraordinary loss on debt extinguishment............................. 690 -------- -------- Net income (loss)..................................................... (725) 6,686 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation..................................................... 5,761 5,399 Amortization of intangibles and excess reorganization value...... 1,682 1,558 Amortization of deferred financing fees and discount............. 94 101 Increase (decrease) in deferred and noncurrent income taxes...... (89) 45 Loss on debt extinguishment...................................... 1,030 (Gain) on sales of property, plant and equipment................. (11) Changes in operating assets and liabilities: Accounts receivable........................................... (3,138) (3,680) Accounts receivable, affiliates............................... (2,002) (16,413) Inventories................................................... (8,241) (8,751) Other current assets.......................................... (700) (305) Accounts payable and accrued liabilities...................... (605) 5,300 Accounts payable, affiliates.................................. 4,531 18,203 -------- -------- Total adjustments................................................ (1,688) 1,457 -------- -------- Net cash provided by (used in) operating activities........... (2,413) 8,143 Cash flows from investing activities: Capital expenditures.................................................. (3,275) (5,747) Proceeds from sale of property, plant and equipment................... 29 Purchase of minority interest in subsidiary........................... (4,200) -------- -------- Net cash (used in) investing activities....................... (3,246) (9,947) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings................. 42,053 8,138 Deferred financing costs.............................................. (53) Repayment of revolving loan and long-term borrowings.................. (48,641) (2,945) Increase (decrease) in Envirodyne loan and advances................... 10,499 (3,187) -------- -------- Net cash provided by financing activities..................... 3,911 1,953 Effect of currency exchange rate changes on cash........................ (675) (526) -------- -------- Net increase (decrease) in cash and equivalents......................... (2,423) (377) Cash and equivalents at beginning of period............................. 6,201 6,170 -------- -------- Cash and equivalents at end of period................................... $ 3,778 $ 5,793 ======== ======== - ----------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid......................................................... $ 987 $ 992 Income taxes paid..................................................... $ 3,536 $ 1,316
The accompanying notes are an integral part of the consolidated financial statements. 26 27 VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES, (DOLLARS IN THOUSANDS) Inventories consisted of:
JUNE 29, DECEMBER 29, 1995 1994 -------- ------------ Raw materials.......................................................... $ 8,229 $ 5,778 Work in process........................................................ 18,686 13,975 Finished products...................................................... 27,471 23,972 ------- ------- $ 54,386 $ 43,725 ======= =======
2. CONTINGENCIES, (DOLLARS IN THOUSANDS) The Company and its subsidiaries are involved in various legal proceedings arising out of its business and other environmental matters, none of which is expected to have a material adverse effect upon its results of operations, cash flows or financial position. 27 28 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 29, June 30, 1995 1994 ----------- ------------ (in thousands) Net sales: Food packaging products $144,261 $133,013 Disposable foodservice supplies 20,923 17,775 Other and eliminations -------- -------- $165,184 $150,788 ======== ======== Operating income: Food packaging products $ 9,958 $18,922 Disposable foodservice supplies 1,683 1,374 Other and eliminations (1,552) (1,557) ------- -------- $10,089 $18,739 ======= ======= Depreciation and amortization under capital lease and amortization of intangible expense: Food packaging products $12,897 $11,495 Disposable foodservice supplies 1,133 1,327 Other 21 15 ------- ------- $14,051 $12,837 ======= ======= Capital expenditures: Food packaging products $5,278 $7,563 Disposable foodservice supplies 655 1,042 Other 33 8 ------- ------ $5,966 $8,613 ====== ======
Results of Operations The Company's net sales for the first six months and second quarter of 1995 were $321.0 million and $165.2 million, respectively, which represented an increase of 9.4% and 9.5% over the comparable periods of 1994, respectively. Second quarter net sales at Viskase increased 28 29 by 11.1% over the prior year due to the expansion of European and Latin American sales, selected price increases, strong worldwide film sales, combined with the favorable effects of foreign currency translation. Second quarter net sales at Sandusky declined 19.0% due to the loss of Scott Paper Company's premoistened baby wipe container business, combined with an 11.8% reduction in dairy and deli container sales. The loss in container sales is primarily attributed to a shift in demand from thermoformed to injection molded containers. The Company has purchased injection molding equipment that will increase capacity. This effort is expected to substantially contribute to improving the Company's competitiveness in this market. Second quarter net sales at Clear Shield increased 17.7% from the prior year primarily due to selling price increases. Operating income for the first six months and second quarter of 1995 was $18.8 million and $10.1 million, respectively, representing decreases of $9.7 million and $8.7 million, respectively, from the comparable periods of 1994. The operating income decline for the first six months and second quarter from the prior year is the result of 1994 benefitting from a net $8.7 million settlement of a patent infringement suit. In addition, for the first six months of 1995 the Company continued to experience resin price increases, price competition in domestic and foreign markets, coupled with additional selling, general and administrative expenses resulting from strategic expansions in foreign markets, including Europe, Latin America and Australia and the decline in Sandusky's sales, partially offset by the consolidation of manufacturing operations at its Sandusky, Ohio facility. External factors affecting casing sales in both the domestic and foreign markets include a general softness in hot dog sales in the U.S. and a weakening of processed meat sales in Europe. In addition, Viscofan, S.A., a Spanish small diameter casing producer entered the U.S. market in November 1994. Although the Company has yet to experience any significant volume loss to Viscofan, management believes that Viskase will experience further pricing pressures as a result of Viscofan's entrance into the domestic market. Net interest expense for the six months period totaled $27.2 million representing an increase of $2.9 million from the first six months of 1994. The increase is primarily the result of both increased borrowing and higher interest rates on the term and revolving loan facilities. Other income of $1.1 million and $1.7 million in the first six months of 1995 and 1994, respectively, consists principally of foreign currency transaction gains and losses. The Company has entered into forward foreign exchange contracts to hedge certain foreign currency transactions on a continuing basis for periods consistent with its committed foreign exchange exposures. The effect of this practice is to minimize the effect of foreign exchange rate movements on the Company's operating results. The Company's hedging activities do not subject the Company to additional exchange risk because gains and losses on these contracts offset losses and gains on the transactions being hedged. The cash flows from forward contracts are classified consistent with the cash flows from the transactions or events being hedged. Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was issued in March 1995 and established financial accounting and reporting standards for the impairment of long-lived 29 30 assets and certain identifiable intangibles to be disposed of. The Company is not required to adopt this statement until the first quarter of fiscal year 1996, although earlier adoption is permitted. The adoption of this statement is not expected to have a significant impact on the Company's income from continuing operations nor cash flows. The tax benefit for the first six months resulted from the benefit of U.S. losses partially offset by the provision related to income from foreign subsidiaries. Due to the permanent differences in the U.S. resulting from non-deductible amortization and foreign losses for which no tax benefit is provided, a benefit of $18 thousand was provided on a loss before income taxes and extraordinary items of $7.2 million. The U.S. tax benefit is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. The extraordinary loss represents the write-off of unamortized financing fees related to the Company's senior secured bank facility that was refinanced by the private placement. The extraordinary loss of $4.2 million is net of a tax benefit of $2.6 million. (Refer to Part I, Item I, Note 3 of Notes to Consolidated Financial Statements.) Liquidity and Capital Resources Cash and equivalents decreased by $998 during the six months ended June 29, 1995. Cash flows used in investing activities of $13,568 and used in operating activities of $11,647 exceed cash flows provided by financing activities of $24,892. Cash flows used in investing activity consist principally of capital expenditures for property, plant and equipment. Cash flows used in operating activities were principally attributable to the Company's loss from operations, the extraordinary loss due to the write-off of deferred financing fees and an increase in operating assets and liabilities offset by the effect of depreciation and amortization. Cash flows provided by financing activities were principally attributable to the June 20, 1995 placement of $160,000 of 12% senior secured notes net of the repayment of the senior secured bank credit facility and the payment of the transaction fees and expenses with the $160,000 proceeds. On June 20, 1995, Envirodyne completed the sale of $160 million aggregate principal amount of senior secured notes to certain institutional investors in a private placement. The senior secured notes were issued pursuant to an indenture dated June 20, 1995 (Indenture) and consist of (i) $151.5 million of 12% Senior Secured Notes due 2000 and (ii) $8.5 million of Floating Rate Senior Secured Notes due 2000 (collectively, the Senior Secured Notes). Envirodyne used the net proceeds of the offering primarily to (i) repay the Company's $86.1 million domestic term loan, (ii) repay the $68.3 million of obligations under the Company's domestic and foreign revolving loans and (iii) pay transaction fees and expenses. Concurrently with the June 20, 1995 placement, Envirodyne entered into a new $20 million domestic revolving credit facility (Revolving Credit Facility) and a new $28 million letter of credit facility (Letter of Credit Facility). The Senior Secured Notes and the obligations under the Revolving Credit Facility and the Letter of Credit Facility are guaranteed by Envirodyne's significant domestic subsidiaries and secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property (subject to non-exclusive licensing 30 31 agreements); (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Envirodyne's significant domestic subsidiaries and 65% of the capital stock of Viskase S.A. Such guarantees and security are shared by the holders of the Senior Secured Notes and the holders of the obligations under the Revolving Credit Facility on a pari passu basis pursuant to an intercreditor agreement. Pursuant to such intercreditor agreement, the security interest of the holders of the obligations under the Letter of Credit Facility has priority over all other liens on the Collateral Pool. The Company finances its working capital needs through a combination of cash generated through operations and borrowings under the Revolving Credit Facility. The availability of funds under the Revolving Credit Facility is subject to the Company's compliance with certain covenants (which are substantially similar to those included in the Indenture), to borrowing base limitations measured by accounts receivable and inventory of the Company and to reserves which may be established in the discretion of the lenders. The available borrowing capacity under the Revolving Credit Facility was approximately $16 million at June 29, 1995. The Company anticipates that its operating cash flow will be sufficient to meet its operating expenses and to service its interest payments on the Senior Secured Notes and its other outstanding indebtedness. The Company will be required to satisfy its $80 million mandatory redemption obligation with respect to the Senior Secured Notes in 1999 and to pay the remaining principal amount of the Senior Secured Notes in 2000. Additionally, the Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company expects that in order to make these payments it will be required to pursue one or more alternative strategies, such as refinancing its indebtedness, selling additional equity capital, reducing or delaying capital expenditures, or selling assets. There can be no assurance that any of these strategies could be effected on satisfactory terms, if at all. Capital expenditures for the first six months of 1995 and 1994 totaled $13.6 million and $16 million, respectively. Capital expenditures for 1995 and future years are expected to be approximately $30 million. Capital expenditures totaled $32.6 million during 1994. This represents an $8.3 million decrease from 1993 capital expenditure levels. The decreased level of capital expenditures in 1994 was principally related to the completion of both the second phase of the European expansion program and initial productive capacity investment program in Brazil during the prior year. The Company has entered into interest rate agreements that cap $50 million of interest rate exposures at an average LIBOR rate of 6.50% until January 1997. These interest rate cap agreements were entered into under terms of the senior bank financing that was repaid on June 20, 1995. Interest expense includes $306 of amortization of interest rate cap premium during the six-month period ended June 29, 1995. The Company has not received any payments under the interest rate protection agreements. The Company acquired the minority shareholder's interest in Viskase's Brazilian subsidiary for $4.2 million during the first quarter of 1994. The Company has spent approximately $12 million to $17 million annually on research and 31 32 development programs, including product and process development, and on new technology development during each of the past three years, and the 1995 research and development and product introduction expenses are expected to be approximately $16 million. Among the projects included in the current research and development efforts is the application of certain patents and technology recently licensed by Viskase to the manufacture of cellulosic casings. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. 32 33 PART II. OTHER INFORMATION Item 1 - Legal Proceedings For a description of pending litigation and other contingencies, see Part 1, Note 5, Contingencies. Item 2 - Changes in Securities No reportable events occurred during the quarter ended June 29, 1995. 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 10, 1995. The business conducted at the Meeting was previously reported in the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 30, 1995. Item 5 - Other Information None. 33 34 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit No. Description of Exhibits - ---------- -------------------------------------------------------------------------------------------------- 4.3 Indenture dated as of June 20, 1995 (the Indenture) between Envirodyne Industries, Inc. and Shawmut Bank Connecticut, National Association, as Trustee. * 4.4 Forms of the Senior Secured Notes issued pursuant to the Indenture (included in Exhibit 4.3). * 4.5 Exchange and Registration Rights Agreement dated as of June 20, 1995 between Envirodyne Industries, Inc. and the purchasers of the Senior Secured Notes. * 4.6 Guaranty Agreement, dated as of June 20, 1995, made by Clear Shield National, Inc., Sandusky Plastics, Inc., Sandusky Plastics of Delaware, Inc., Viskase Corporation, Viskase Holding Corporation and Viskase Sales Corporation, in favor of BT Commercial Corporation, as Collateral Agent. * 10.10 Note Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and each of the purchasers identified therein. * 10.11 Letter Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and certain purchasers of the Senior Secured Notes. * 10.12 Revolving Credit Agreement, dated as of June 20, 1995, between Envirodyne Industries, Inc. and The Prudential Insurance Company of America. * 10.13 Credit Agreement, dated as of June 20, 1995, among Envirodyne Industries, Inc., the lenders identified therein and BT Commercial Corporation, as Agent. * 10.14 Intercreditor and Collateral Agency Agreement, dated as of June 20, 1995, among BT Commercial Corporation, The Prudential Insurance Company of America, Shawmut Bank Connecticut, National Association, and certain other parties identified therein. * 10.15 GECC Intercreditor Agreement, dated as of June 20, 1995, among BT Commercial Corporation, General Electric Capital Corporation, Shawmut Bank Connecticut, National Association, Envirodyne Industries, Inc. and Viskase Corporation. *
* Incorporated herein by reference to Exhibits with the same number to the Company's Registration Statement on Form S-4 (Registration No. 33-61161), filed with the Securities and Exchange Commission on July 20, 1995. (b) Reports on Form 8-K None. 34 35 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENVIRODYNE INDUSTRIES, INC. Registrant By: /s/ --------------------------------- John S. Corcoran Executive Vice President and Chief Financial Officer (Duly authorized officer and principal financial officer of the registrant) Date: October 26, 1995 35 EX-27 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-28-1995 JUN-29-1995 6,291 0 97,731 (2,271) 125,754 254,678 527,129 56,537 919,431 119,876 534,298 135 0 0 119,845 919,431 321,008 321,008 235,772 235,772 0 459 27,230 (7,230) (18) (7,212) 0 (4,196) 0 (11,408) (0.84) (0.84)
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