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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K/A
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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: 1-4219
ZAPATA CORPORATION
(Exact name of Registrant as specified in its charter)
STATE OF DELAWARE C-74-1339132
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1717 ST. JAMES PLACE, SUITE 550 77056
Houston, Texas (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 940-6100
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $0.25 par value......................... NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None.
On December 17, 1997, there were outstanding 22,909,870 shares of the
Company's Common Stock, $0.25 par value. The aggregate market value of the
Company's voting and non-voting common equity held by nonaffiliates of the
Company is $86,010,664, based on the closing price in consolidated trading on
December 17, 1997, for the Company's Common Stock.
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 [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
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Zapata Corporation hereby amends Item 14 of its annual report on Form 10-K
for the fiscal year ended September 30, 1997. Item 14, as so amended, is as
follows: The financial statements of Envirodyne Industries, Inc. and
subsidiaries, as referenced in Item 14, are also filed herewith.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) LIST OF DOCUMENTS FILED.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) (A) Consolidated financial statements, Zapata Corporation and subsidiary companies--
Report of Coopers & Lybrand L.L.P., independent accountants......................... 14
Consolidated balance sheet -- September 30, 1997 and 1996........................... 15
Consolidated statement of operations for the years ended
September 30, 1997, 1996 and 1995................................................ 16
Consolidated statement of cash flows for the years ended
September 30, 1997, 1996 and 1995................................................ 17
Consolidated statement of stockholders' equity for the years ended
September 30, 1997, 1996 and 1995................................................ 18
Notes to consolidated financial statements.......................................... 19
(B) Consolidated financial statements, Envirodyne Industries, Inc. and subsidiary companies --
Report of Coopers & Lybrand L.L.P., independent accountants......................... F-1
Consolidated balance sheets--December 25, 1997 and December 26, 1996................ F-2
Consolidated statements of operations, for each of the 52 week periods ending
December 25, 1997, December 26, 1996 and December 28, 1995....................... F-3
Consolidated statements of stockholders' equity, for each of the 52 week periods ending
December 25, 1997, December 26, 1996 and December 28, 1995....................... F-4
Consolidated statements of cash flows, for each of the 52 week periods ending
December 25, 1997, December 26, 1996 and December 28, 1995....................... F-5
Notes to consolidated financial statements.......................................... F-6
</TABLE>
All schedules have been omitted since the information required to be
submitted has been included in the financial statements or notes or has been
omitted as not applicable or not required. Page numbers that are referenced
above, except for the "F" pages, refer to the page numbers contained in the
Company's Form 10-K for the fiscal year ended September 30, 1997.
(2) Exhibits.
The exhibits indicated by an asterisk (*) are incorporated by reference.
2
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<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
---------- -----------------------
<S> <C> <C>
3(a)* -- Restated Certificate of Incorporation of Zapata filed
with Secretary of State of Delaware May 3, 1994 (Exhibit
3(a) to Current Report on Form 8-K dated April 27, 1994
(File No. 1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of
$1 Preference Stock (Exhibit 3(c) to Zapata's Quarterly
Report on Form 10-Q for the fiscal quarter ended March
31, 1993 (File No. 1-4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of
$100 Preference Stock (Exhibit 3(d) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(d)* -- By-laws of Zapata, as amended effective November 11,
1996, are incorporated herein by reference to Exhibit
3(b) to Zapata's report on Form 10-K for the fiscal year
ended September 30, 1996.
Certain instruments respecting long-term debt of Zapata
and its subsidiaries have been omitted pursuant to
Regulation S-K, Item 601. Zapata hereby agrees to
furnish a copy of any such instrument to the Commission
upon request.
10(a)*+ -- Zapata 1990 Stock Option Plan (Exhibit 10(b) to
Zapata's Annual Report on Form 10-K for the fiscal year
ended September 30, 1990 (File No. 1-4219)).
10(b)*+ -- First Amendment to Zapata 1990 Stock Option Plan
(Exhibit 10(c) to Zapata's Registration Statement on
Form S-1 (Registration No. 33-40286)).
10(c)*+ -- Zapata Special Incentive Plan, as amended and
restated effective February 6, 1992 (Exhibit 10(a) to
Zapata's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992 (File No. 1- 4219)).
10(d)*+ -- Zapata 1981 Stock Incentive Plan, as amended and
restated effective February 12, 1986 (Exhibit 19(a) to
Zapata's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1986 (File No. 1-4219)).
10(e)*+ -- Zapata Supplemental Pension Plan effective as of
April 1, 1992 (Exhibit 10(b) to Zapata's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1992
(File No. 1-4219)).
10(f)*+ -- Zapata Annual Incentive Plan effective January 1, 1991
(Exhibit 10(h) to Zapata's Registration Statement on
Form S-1 (Registration No. 33-40286)).
10(g)*+ -- Employment Agreement between Lamar C. McIntyre and
Zapata dated as of October 1, 1994 (Exhibit 10(v) to
Zapata's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (File No. 1-4219)).
10(h)* -- Stock Purchase Agreement dated as of August 7, 1995
between Zapata Corporation and Malcolm I. Glazer
(Exhibit 10(o) to Zapata's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 (File No.
1-4219)).
10(i)* -- Purchase and Sale Agreement dated March 26, 1996 by and
among Cimarron Gas Holding Company, Conoco Inc. and
Enogex Products Corporation (Exhibit 2.1 to Zapata's
Current Report on Form 8-K dated April 9, 1996 (File No.
1-4219)).
10(j)* -- Amendment and Clarification of Purchase and Sale
Agreement, Waiver and Closing Agreement dated April 9,
1996 (Exhibit 2.2 to Zapata's Current Report on Form 8-K
dated April 9, 1996 (File No. 1-4219)).
10(k)* -- Agreement and Plan of Merger dated as of June 4, 1996
among Zapata, Zapata Acquisition Corp. and Houlihan's
(Exhibit 2.1 to Zapata's Registration Statement on Form
S-4 (Reg. No. 333- 06729)).
10(l)* -- Standstill Agreement dated April 30, 1996 between Zapata
and Malcolm I. Glazer (Exhibit 10.18 to Zapata's
Registration Statement on Form S-4 (Reg. No.
333-06729)).
</TABLE>
3
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<TABLE>
<S> <C> <C>
10(m)* -- Irrevocable proxy dated June 4, 1996 granted by Malcolm
I. Glazer to members of a Special Committee of the Board
of Directors of Zapata (Exhibit 10.19 to Zapata's
Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(n)* -- Supplemental Agreement dated June 4, 1996 between
Malcolm I. Glazer and Zapata (Exhibit 10.20 to Zapata's
Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(o)*+ -- 1996 Long-Term Incentive Plan of Zapata (Exhibit 10.21
to Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(p)*+ -- Employment Agreement between Joseph L. von Rosenberg III
and Zapata effective as of June 1, 1996.
10(q)* -- Shareholders' Agreement dated May 30, 1997 by Malcolm I.
Glazer and the Malcolm I. Glazer Family Limited
Partnership in favor of Zapata (Exhibit 10(z) to
Zapata's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997 (File No. 1-4219)).
21*++ -- Subsidiaries of the Registrant.
23(a)*++ -- Consent of Coopers & Lybrand L.L.P.
23(b) -- Consent of Coopers & Lybrand L.L.P. with respect to
the consolidated financial statements of Envirodyne
Industries, Inc.
24*++ -- Powers of attorney.
27*++ -- Financial Data Schedule.
</TABLE>
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
++ Exhibits filed with the Company's Form 10-K for fiscal year ended September
30, 1997.
(B) REPORTS ON FORM 8-K.
Current Report on Form 8-K dated July 11, 1997 reporting (Items 2 and 7)
that Zapata had completed the sale of its Bolivian oil and gas interests for
$18.8 million.
(C) FINANCIAL STATEMENT SCHEDULE.
Filed herewith as a financial statement schedule is the schedule
supporting Zapata's consolidated financial statements listed under paragraph (a)
of this Item, and the Independent Accountants' Report with respect thereto.
4
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
ZAPATA CORPORATION
(Registrant)
By: /s/ Eric T. Furey
----------------------------------------
(Eric T. Furey
Vice President, General Counsel and
Corporate Secretary)
April 8, 1998
5
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Envirodyne Industries, Inc.
We have audited the consolidated financial statements and the
financial statement schedules of Envirodyne Industries, Inc. and
Subsidiaries listed in Part IV, Item 14(a) 1 and (a) 2 of this Form
10-K. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Envirodyne Industries, Inc. and Subsidiaries as of December 25, 1997 and
December 26, 1996, and the consolidated results of their operations and
their cash flows for the periods December 27, 1996 to December 25, 1997,
December 29, 1995 to December 26, 1996 and December 30, 1994 to
December 28, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion the schedules referred to above,
when considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the information
required to be included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 20, 1998
F-1
<PAGE> 7
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 25, December 26,
1997 1996
----------- -----------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 24,407 $ 41,794
Receivables, net 75,039 79,174
Inventories 97,802 95,012
Other current assets 25,286 22,141
-------- --------
Total current assets 222,534 238,121
Property, plant and equipment,
including those under capital leases 580,981 578,704
Less accumulated depreciation
and amortization 145,855 116,896
-------- --------
Property, plant and equipment, net 435,126 461,808
Deferred financing costs, net 4,574 5,902
Other assets 39,193 42,809
Excess reorganization value, net 112,426 125,107
-------- --------
Total Assets $813,853 $873,747
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion
of long-term debt and obligations
under capital leases $ 12,880 $ 11,291
Accounts payable 41,734 37,015
Accrued liabilities 71,589 82,109
Current deferred income taxes 10,516 10,324
-------- --------
Total current liabilities 136,719 140,739
Long-term debt including obligations
under capital leases 511,183 521,179
Accrued employee benefits 48,521 53,697
Deferred and noncurrent income taxes 26,510 54,487
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,753,442 shares issued and
outstanding at December 25, 1997 and
14,545,107 shares at December 26, 1996 148 145
Paid in capital 136,183 135,100
Accumulated (deficit) (48,458) (38,813)
Cumulative foreign currency
translation adjustments 3,098 7,305
Unearned restricted stock issued
for future service (51) (92)
-------- --------
Total stockholders' equity 90,920 103,645
-------- --------
Total Liabilities and Stockholders' Equity $813,853 $873,747
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-2
<PAGE> 8
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 weeks 52 weeks 52 weeks
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
(in thousands, except for number of shares
and per share amounts)
<S> <C> <C> <C>
NET SALES $612,868 $651,356 $650,212
COSTS AND EXPENSES
Cost of sales 459,178 488,244 485,048
Selling, general and administrative 108,141 107,088 111,230
Amortization of intangibles and
excess reorganization value 15,936 16,334 15,799
Restructuring charges 3,500
-------- -------- --------
OPERATING INCOME 26,113 39,690 38,135
Interest income 1,416 1,568 670
Interest expense 55,719 58,565 57,336
Other expense, net 3,755 3,075 1,710
-------- -------- --------
(LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (31,945) (20,382) (20,241)
Income tax (benefit) (22,300) (6,700) (2,918)
-------- -------- --------
(LOSS) BEFORE EXTRAORDINARY ITEM (9,645) (13,682) (17,323)
Extraordinary (loss), net of tax (4,196)
-------- -------- --------
NET (LOSS) $(9,645) $(13,682) $(21,519)
======= ======== ========
WEIGHTED AVERAGE COMMON SHARES 14,617,540 14,325,595 13,516,771
========== ========== ==========
PER SHARE AMOUNTS:
(LOSS) BEFORE EXTRAORDINARY ITEM -
BASIC AND DILUTED EARNINGS PER SHARE $(.66) $(.96) $(1.28)
===== ===== ======
NET (LOSS) -
BASIC AND DILUTED EARNINGS PER SHARE $(.66) $(.96) $(1.59)
===== ===== ======
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-3
<PAGE> 9
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative Unearned
Foreign Restricted
Currency Stock Total
Common Paid in Accumulated Translation Issued For Stockholders'
Stock Capital (Deficit) Adjustments Future Service Equity
------ -------- ----------- ------------- -------------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance December 29, 1994 $135 $134,865 $ (3,612) $ 3,961 $135,349
Net (loss) (21,519) (21,519)
Issuance of Common Stock 1 (1)
Translation adjustments 3,266 3,266
---- -------- -------- ------ ---- -------
Balance December 28, 1995 136 134,864 (25,131) 7,227 117,096
Net (loss) (13,682) (13,682)
Issuance of Common Stock 9 236 $ (92) 153
Translation Adjustment 78 78
---- -------- -------- ------ ---- -------
Balance December 26, 1996 145 135,100 (38,813) 7,305 (92) 103,645
Net (loss) (9,645) (9,645)
Issuance of Common Stock 3 1,083 41 1,127
Translation adjustment (4,207) (4,207)
---- -------- -------- ------ ---- -------
Balance December 25, 1997 $148 $136,183 $(48,458) $3,098 $(51) $90,920
==== ======== ======== ====== ==== =======
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-4
<PAGE> 10
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
-------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) before extraordinary item $ (9,645) $(13,682) $ (17,323)
Extraordinary (loss) (4,196)
-------- -------- ---------
Net (loss) (9,645) (13,682) (21,519)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization
under capital leases 43,373 42,086 40,262
Amortization of intangibles and
excess reorganization value 15,936 16,334 15,799
Amortization of deferred
financing fees and discount 1,770 2,272 2,196
Deferred and noncurrent income taxes (24,893) (11,065) (6,450)
Loss on debt extinguishment 6,778
Foreign currency transaction loss (gain) 135 (810) (1,233)
(Gain) loss on disposition of assets (64) 165 73
Changes in operating assets and liabilities:
Accounts receivable 1,299 10,180 (839)
Inventories (12,187) 4,383 12,741
Other current assets (3,916) (788) (1,837)
Accounts payable and accrued liabilities (2,283) 12,463 (1,670)
Other (3,879) (5,214) (5,334)
-------- -------- ---------
Total adjustments 15,291 70,006 60,486
-------- -------- ---------
Total net cash provided by
operating activities 5,646 56,324 38,967
Cash flows from investing activities:
Capital expenditures (57,879) (37,073) (34,465)
Proceeds from disposition of assets 41,867 2,356 86
------- -------- ---------
Net cash (used in) investing activities (16,012) (34,717) (34,379)
Cash flows from financing activities:
Issuance of common stock 1,127 153
Proceeds from revolving loan
and long-term borrowings 2,814 2,186 207,922
Deferred financing costs (523) (142) (7,887)
Repayment of revolving loan,
long-term borrowings and
capital lease obligations (9,490) (11,705) (181,375)
-------- -------- ---------
Net cash (used in) provided by
financing activities (6,072) (9,508) 18,660
Effect of currency exchange rate changes on cash (949) (630) (212)
-------- -------- ---------
Net (decrease) increase in cash and equivalents (17,387) 11,469 23,036
Cash and equivalents at beginning of period 41,794 30,325 7,289
-------- -------- ---------
Cash and equivalents at end of period $24,407 $ 41,794 $ 30,325
======== ======== =========
Supplemental cash flow information
and noncash investing and financing activities:
Interest paid $ 54,937 $ 55,798 $ 55,030
Income taxes paid $ 5,291 $ 1,647 $ 4,895
Capital lease obligations
(machinery and equipment) $ 2,814 $ 2,186 $ 2,081
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-5
<PAGE> 11
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 United States 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 United States 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. For accounting purposes, the Plan of Reorganization was deemed to
be effective as of December 31, 1993.
2. NATURE OF BUSINESS
Envirodyne manufactures food packaging products and foodservice supplies
through three primary operating subsidiaries - Viskase, Sandusky and
Clear Shield. The operations of these subsidiaries are primarily in
North and South America and Europe. Viskase is a leading producer of
cellulosic casings used in preparing and packaging processed meat
products and is a major producer of heat shrinkable plastic bags and
specialty films for packaging and preserving fresh and processed meat
products, poultry and cheeses. Through Sandusky, the Company is a
producer of thermoformed promotional and vending cups, plastic
containers used in the packaging of cultured dairy and delicatessen
products, and of horticultural trays and inserts. Through Clear Shield,
the Company is a major domestic producer of disposable plastic cutlery,
drinking straws, custom dining kits and related products.
International Operations
Viskase has six manufacturing facilities located outside the continental
United States, in Beauvais, France; Thaon, France; Lindsay, Ontario,
Canada; Newton Aycliffe, England (Great Britain); Swansea, Wales (Great
Britain) and Guarulhos, Brazil.
The aggregate of domestic exports and net sales of foreign operations
represents approximately 55% of Viskase's total net sales.
International sales and operations may be subject to various risks
including, but not limited to, possible unfavorable exchange rate fluc-
tuations, political instability, governmental regulations (including
import and export controls), restrictions on currency repatriation,
embargoes, labor relations laws and the possibility of governmental
expropriation. Viskase's foreign operations generally are subject to
taxes on the repatriation of funds.
International operations in certain parts of the world may be subject to
international balance of payments difficulties which may raise the
possibility of delay or loss in the collection of accounts receivable
from sales to customers in those countries. Viskase believes that its
allowance for doubtful accounts makes adequate provision for the
collectibility of its receivables. Management believes that growth
potential exists for many of Viskase's products outside the United States
and that Viskase is well positioned to participate in these markets.
All of Sandusky's and Clear Shield's operations are located in the
United States.
Sales and Distribution
Viskase sells its products in virtually every country in the world with
principal markets in North America, Europe, Latin America and Asia
Pacific. In the United States, Viskase has a staff of technical sales
teams responsible for sales to fresh meat, processed meat and poultry
producers. Approximately 100 distributors market Viskase products to
customers in Europe, Africa, Asia, and Latin America. Its products are
marketed through its own subsidiaries in the United Kingdom, Germany,
France, Italy, Russia, Brazil, Mexico, Australia, Argentina, China and
Chile.
In the United States, Viskase operates distribution centers in Atlanta,
Georgia, and Bensalem, Pennsylvania, as well as centers within the
Chicago, Illinois, and Pauls Valley, Oklahoma, plants. In Latin America,
Viskase operates a service center within the Guarulhos, Brazil, plant
and distribution centers in Buenos Aires, Argentina, Santiago, Chile and
Monterrey, Mexico. In the Asia-Pacific region, Viskase operates a
service center in Brisbane, Australia and distribution centers in
Beijing, China and Hong Kong, China. In Europe, Viskase operates service
centers in Milan, Italy and Pulheim, Germany and distribution centers in
Dublin, Ireland, Warsaw, Poland and Moscow, Russia.
Sandusky's and Clear Shield's sales are predominantly in the United
States.
Competition
Viskase is one of the world's leading producers of cellulosic casings
and a major producer of specialty plastic films. From time to time,
Viskase experiences reduced market share or reduced profits due to price
competition; however, management believes that such market conditions
will not result in any long-term material loss of business.
The dairy and delicatessen containers industry is highly fragmented.
Sandusky competes in the manufacture and sale of dairy and delicatessen
containers with several domestic manufacturers of thermoformed and
injection molded plastic containers. Major competitive factors in the
dairy and delicatessen container business are price, quality and
customer service. Major competitive factors in the specialized
thermoformed container business are price and technical and customer
service capabilities.
Clear Shield's primary competitors include several major corporations,
some of which are larger and better capitalized than Clear Shield and,
in some cases, offer a wider product line than Clear Shield. Clear
Shield's competitors periodically engage in aggressive price discounting
to gain business. Clear Shield management believes, however, that such
market conditions will not result in any long-term material loss of
business for Clear Shield, although its profit margins may be affected
from time to time.
F-6
<PAGE> 12
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of presentation
Effective in 1990 Envirodyne adopted a 52/53 week fiscal year ending on
the last Thursday of December.
(B) Principles of consolidation
The consolidated financial statements include the accounts of Envirodyne
Industries, Inc. and its subsidiaries (the Company). Intercompany
accounts and transactions have been eliminated in consolidation.
(C) Reclassification
Reclassifications have been made to the prior years' financial
statements to conform to the 1997 presentation.
(D) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
(E) Cash equivalents (dollars in thousands)
For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased
with an initial maturity of approximately three months or less. Due to
the short-term nature of these instruments, the carrying values
approximate the fair market value. Cash equivalents include $18,612 and
$26,338 of short-term investments at December 25, 1997 and December 26,
1996, respectively.
(F) Inventories
Domestic inventories are valued primarily at the lower of last-in,
first-out (LIFO) cost or market. Remaining amounts, primarily foreign,
are valued at the lower of first-in, first-out (FIFO) cost or market.
(G) Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated
depreciation. Property and equipment additions include acquisition of
property and equipment and costs incurred for computer software
purchased for internal use including related external direct costs of
materials and services and payroll costs for employees who are directly
associated with the project. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets
ranging from 3 to 32 years. Upon retirement or other disposition, cost
and related accumulated depreciation are removed from the accounts, and
any gain or loss is included in results of operations.
(H) Deferred financing costs
Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred
financing costs is classified as interest expense.
(I) Patents
Patents are amortized on the straight-line method over an estimated
average useful life of ten years.
(J) Excess reorganization value, net
Excess reorganization value is amortized on the straight-line method
over 15 years. Accumulated amortization of excess reorganization value
totaled $41 million and $31 million at December 25, 1997, and December
26, 1996, respectively.
(K) Long-lived assets
The Company continues to evaluate the recoverability of long-lived
assets including property, plant and equipment, patents and excess
reorganization. Impairments are recognized when the expected
undiscounted future operating cash flows derived from long-lived assets
are less than their carrying value. If impairment is identified,
valuation techniques deemed appropriate under the particular
circumstances will be used to determine the asset's fair value. The loss
will be measured based on the excess of carrying value over the
determined fair value. The review for impairment is performed at least
once a year.
(L) Pensions
The North American operations of Viskase and the Company's operations in
Europe have defined benefit retirement plans covering substantially all
salaried and full time hourly employees. Pension cost is computed using
the projected unit credit method.
The Company's funding policy is consistent with funding requirements of
the applicable federal and foreign laws and regulations.
(M) Postretirement benefits other than pensions
The North American operations of Viskase have postretirement health care
and life insurance benefits. Effective January 1, 1993, postretirement
benefits other than pensions are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
(N) Income taxes
Income taxes are accounted for in accordance with SFAS No. 109. Tax
provisions and benefits are recorded at statutory rates for taxable
items included in the consolidated statements of operations regardless
of the period for which such items are reported for tax purposes.
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities.
(O) Net (loss) per share
Net (loss) per share of common stock is based upon the weighted average
number of shares of common stock outstanding during the year. No effect
has been given to options outstanding under the Company's stock option
plans and warrants issued pursuant to the Plan of Reorganization as
their effect is anti-dilutive.
(P) Revenue recognition
Sales to customers are recorded at the time of shipment net of discounts
and allowances.
F-7
<PAGE> 13
(Q) Foreign currency contracts
The Company uses foreign exchange forward contracts to hedge some of its
non-functional currency receivables and payables which are denominated
in major currencies that can be traded on open markets. This strategy is
used to reduce the overall exposure to the effects of currency
fluctuations on cash flows. The Company's policy is not to speculate in
financial instruments.
Receivables and payables which are denominated in non-functional
currencies are translated to the functional currency at month end and
the resulting gain or loss is taken to other income and expense on the
statement of operations. Gains and losses on hedges of receivables and
payables are marked to market. The result is recognized in other income
and expense on the statement of operations.
(R) Stock-based compensation
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and
other equity instruments to employees based on new fair value accounting
rules. Although expense recognition for employee stock-based
compensation is not mandatory, SFAS 123 requires companies that choose
not to adopt the new fair value accounting to disclose pro forma net
income and earnings per share under the new method. The Company has not
adopted fair value accounting, and, accordingly, no compensation cost
has been recognized for employee stock-based compensation. The Company
has complied with the disclosure requirements of SFAS 123 (refer to Note
18).
(S) Other
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 periods beginning 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 periods beginning 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.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (SFAS No. 132), which will be effective
for fiscal years beginning after December 15, 1997. SFAS No. 132
standardizes the disclosure requirements for pensions and other
postretirement benefits, requires additional information on changes in
the benefit obligation and fair values of plan assets and eliminates
certain disclosures that are no longer useful. Management believes the
adoption of SFAS No. 132 will not have a material effect on the Company.
4. RECEIVABLES (dollars in thousands)
Receivables consisted primarily of trade accounts receivable and were
net of allowances for doubtful accounts of $1,275 and $2,051 at
December 25, 1997, and at December 26, 1996, respectively.
Envirodyne has a broad base of customers, with no single customer
accounting for more than 5% of sales.
5. INVENTORIES (dollars in thousands)
Inventories consisted of:
December 25, December 26,
1997 1996
----------- -----------
Raw materials $16,847 $14,960
Work in process 29,297 29,057
Finished products 51,658 50,995
------- -------
$97,802 $95,012
------- -------
Approximately 59% and 55% of the Company's inventories at December 25,
1997, and December 26, 1996, respectively, were valued at LIFO. These
LIFO values exceeded current manufacturing cost by approximately $6,500
and $4,000 at December 25, 1997, and December 26, 1996, respectively.
Inventories were net of reserves for obsolete and slow moving inventory
of $4,470 and $4,397 at December 25, 1997, and December 26, 1996,
respectively.
Raw materials used by Viskase include cellulose (from wood pulp),
fibrous paper, petroleum based resins, plasticizers and various other
chemicals. Viskase generally purchases its raw materials from a single
or small number of suppliers with whom it maintains good relations.
Certain primary and alternative sources of supply are located outside
the United States. Viskase believes, but there can be no assurance, that
adequate alternative sources of supply currently exist for all of
Viskase's raw materials or raw material substitutes that Viskase could
modify its processes to utilize.
The principal raw materials used by Sandusky and Clear Shield are
thermoplastic resins, which are readily available from several domestic
sources.
6. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
December 25, December 26,
1997 1996
----------- -----------
Property, plant and equipment:
Land and improvements $ 10,669 $ 15,644
Buildings and improvements 75,359 84,778
Machinery and equipment 312,475 312,185
Construction in progress 42,785 25,889
Capital leases:
Machinery and equipment 139,693 140,208
-------- --------
$580,981 $578,704
======== ========
Capitalized interest in 1997 and 1996 is $2,110 and $873, respectively.
Maintenance and repairs charged to costs and expenses for 1997, 1996,
and 1995 aggregated $32,584, $34,887 and $33,227, respectively.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 32 years.
F-8
<PAGE> 14
7. OTHER ASSETS (dollars in thousands)
Other assets were comprised of:
December 25, December 26,
1997 1996
----------- -----------
Patents $50,050 $50,000
Less accumulated amortization 20,000 15,000
------- -------
Patents, net 30,050 35,000
Other 9,143 7,809
------- -------
$39,193 $42,809
======= =======
Patents are amortized on the straight-line method over an estimated
average useful life of ten years.
8. ACCRUED LIABILITIES (dollars in thousands)
Accrued liabilities were comprised of:
December 25, December 26,
1997 1996
----------- -----------
Compensation and
employee benefits $32,778 $38,122
Taxes 7,830 11,103
Accrued volume and
sales discounts 14,315 14,959
Other 16,666 17,925
------- -------
$71,589 $82,109
======= =======
9. DEBT OBLIGATIONS (dollars in thousands)
On June 20, 1995, Envirodyne completed the sale of $160,000 aggregate
principal amount of senior secured notes (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 collateralized 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 Europe Limited. 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 in the
Collateral Pool.
The Company finances its working capital needs through a combination of
cash generated through operations and borrowings under the Revolving
Credit Facility. The availability of funds under the Revolving Credit
Facility is subject to the Company's compliance with certain covenants
(which are substantially similar to those included in the Indenture),
borrowing base limitations measured by accounts receivable and inventory
of the Company and reserves which may be established at the discretion
of the lenders. Currently, there are no drawings under the Revolving
Credit Facility. The available borrowing capacity under the Revolving
Credit Facility was $20 million at December 25, 1997.
The Company recognized an extraordinary loss of $6,778 representing the
write-off of deferred financing fees related to the June 20, 1995 debt
refinancing. The extraordinary loss, net of applicable income taxes of
$2,582, was included in the Company's Statement of Operations for the
quarter ended June 29, 1995.
The $151,500 tranche of Senior Secured Notes bears interest at a rate of
12% per annum and the $8,500 tranche bears interest at a rate equal to
the six month London Interbank Offered Rate (LIBOR) plus 575 basis
points. The current interest rate on the floating rate tranche is
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.
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, 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. There
was no Excess Cash Flow for fiscal 1997.
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
F-9
<PAGE> 15
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.
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.
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
1998 102%
1999 101%
2000 and thereafter 100%
The 10-1/4% Note Indenture contains covenants with respect to Envirodyne
and its subsidiaries limiting (subject to a number of important
qualifications), among other things, (i) the ability to pay dividends on
or redeem or repurchase capital stock, (ii) the incurrence of
indebtedness, (iii) certain affiliate transactions and (iv) the ability
of the Company to consolidate with or merge with or into another entity
or to dispose of substantially all its assets.
F-10
<PAGE> 16
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
December 25, December 26,
1997 1996
----------- -----------
<S> <C> <C>
Short-term debt, current maturity of long-term
debt and capital lease obligations:
Current maturity of Viskase Capital Lease Obligation $ 9,675 $ 6,633
Current maturity of Viskase Limited Term Loan (3.2%) 1,629 1,876
Other 1,576 2,782
------- -------
Total short-term debt $12,880 $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 (3.2%) 2,443 4,690
Other 4,605 2,678
-------- --------
Total long-term debt $511,183 $521,179
======== ========
</TABLE>
F-11
<PAGE> 17
The fair value of the Company's debt obligation (excluding capital lease
obligations) is estimated based upon the quoted market prices for the
same or similar issues or on the current rates offered to the Company
for the debt of the same remaining maturities. At December 25, 1997, the
carrying amount and estimated fair value of debt obligations (excluding
capital lease obligations) were $383,852 and $391,763, respectively.
The average interest rate on short-term borrowing during 1997 was 8.7%.
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. Sales proceeds on the sale-leaseback transaction were
$171.5 million; proceeds were used to repay approximately $154 million
of bank debt and a $15 million convertible note outstanding at the time.
The lease has been accounted for as a capital lease.
The principal terms of the sale and leaseback transaction include: (a) a
15-year basic lease term (plus selected renewals at Viskase's option);
(b) annual rent payments in advance beginning in February 1991; and
(c) a fixed price purchase option at the end of the basic 15-year term
and fair market purchase options at the end of the basic term and each
renewal term. Further, the Lease Documents contain covenants requiring
maintenance by the Company of certain financial ratios and restricting
the Company's ability to pay dividends, make payments to affiliates,
make investments and incur indebtedness.
Annual rental payments under the Lease were approximately $19.2 million
through 1997, and will be $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 December 25, 1997, the Company
had met the required financial ratios and the letter of credit has been
reduced by $2 million. The letter can be further reduced in 1998 or
eliminated after 1999 if the Company achieves and maintains certain
financial ratios. Envirodyne and its other principal subsidiaries
guaranteed the obligations of Viskase under the Lease.
The 1998 GECC lease payment of $21.4 million was paid on March 2, 1998.
Principal payments under the capital lease obligations for the years
ended 1998 through 2002 range from approximately $9.7 million to
$17.5 million.
The following is a schedule of minimum future lease payments under all
capital lease obligations together with the present value of the net
minimum lease payments as of December 25, 1997:
Year ending December
1998 $ 21,782
1999 23,901
2000 23,913
2001 23,926
2002 23,940
Thereafter 70,574
--------
Net minimum lease payments 188,036
Less: Amount representing interest (51,423)
--------
$136,613
========
Aggregate maturities of remaining long-term debt for each of the next
five fiscal years are:
Total
-------
1998 $ 12,880
1999 96,235
2000 96,484
2001 235,969
2002 18,089
10. OPERATING LEASES (dollars in thousands)
The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to
pay maintenance, insurance and real estate taxes.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of
December 25, 1997, are:
1998 $2,740
1999 2,020
2000 1,274
2001 666
2002 87
Total thereafter -
------
Total minimum lease payments $6,787
======
Total rent expense during 1997, 1996 and 1995 amounted to $4,506,
$5,026, and $6,749, respectively.
11. RETIREMENT PLANS
The Company and its subsidiaries have defined contribution and defined
benefit plans varying by country and subsidiary.
At December 25, 1997, the North American operations of Viskase
maintained several non-contributory defined benefit retirement plans.
The Viskase plans cover substantially all salaried and full-time hourly
employees, and benefits are based on final average compensation and
years of credited service. The Company's policy is to fund the minimum
actuarially computed annual contribution required under the Employee
Retirement Income Security Act of 1974 (ERISA).
As of the Viskase acquisition date, the former owner assumed the
liability for the accumulated benefit obligation under its plans. The
effect of expected future compensation increases on benefits accrued is
recorded as a liability on the Company's consolidated balance sheet.
F-12
<PAGE> 18
PENSIONS -- NORTH AMERICA (dollars in thousands):
Net pension cost for the Viskase North American plans consisted of:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the year $3,783 $3,301 $3,238
Interest cost on projected benefit obligation 6,043 5,121 4,794
Actual (gain) loss on plan assets (9,537) (4,712) (7,012)
Net amortization and deferral 4,840 1,061 4,086
------ ------ ------
Net pension cost $5,129 $4,771 $5,106
====== ====== ======
</TABLE>
During 1997 the Company sold its PVC business and instituted early
retirement and workforce reduction programs resulting in a curtailment
gain of $.7 million.
F-13
<PAGE> 19
<TABLE>
<CAPTION>
The amounts included in the consolidated balance sheet for the
North American plans of Viskase were:
December 25, December 26,
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefits $65,040 $48,058
Nonvested benefits 4,948 4,112
------- -------
Accumulated benefit obligation 69,988 52,170
Effect of projected future compensation increases 18,951 22,840
------- -------
Projected benefit obligation 88,939 75,010
Plan assets at fair value, primarily listed stocks and
investment grade corporate bonds 65,671 51,896
------- -------
Amount underfunded 23,268 23,114
Unrecognized gain 1,788 5,975
Unrecognized prior service costs 47 55
------- -------
Accrued liability included in consolidated balance sheet $25,103 $29,144
======= =======
Assumed discount rate 7.25% 7.5%
Assumed long-term compensation factor 4.25% 5.0%
Assumed long-term return on plan assets 9.00% 8.5%
</TABLE>
F-14
<PAGE> 20
SAVINGS PLANS (dollars in thousands):
The Company also has defined contribution savings and similar plans,
which vary by subsidiary, and, accordingly, are available to
substantially all full-time United States employees not covered by
collective bargaining agreements. The Company's aggregate contributions
to these plans are based on eligible employee contributions and certain
other factors. The Company expense for these plans was $2,304, $2,207,
and $2,134 in 1997, 1996, and 1995, respectively.
INTERNATIONAL PLANS (dollars in thousands):
The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1997, 1996
and 1995 was $1,216, $1,972, and $1,383, respectively. As of their most
recent valuation dates, in plans where vested benefits exceeded plan
assets, the actuarially computed value of vested benefits exceeded those
plans' assets by approximately $2,225; conversely,
plan assets exceeded the vested benefits in certain other plans by
approximately $2,503.
OTHER POSTRETIREMENT BENEFITS (dollars in thousands):
The Company provides postretirement health care and life insurance
benefits to Viskase's North American employees. The Company does not
fund postretirement health care and life benefits in advance, and has
the right to modify these plans in the future.
Effective January 1, 1993, the company adopted the provisions of SFAS
No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 106 requires that the expected cost of these
benefits must be charged to expense during the years that the employee
renders service. In connection with the 1989 acquisition of the Company,
an accrual of $15,000 had been recorded for the estimated postretirement
benefits liability at the acquisition date. On January 1, 1993, an
additional liability and transition obligation was recorded on a
prospective basis for $6,500. The transaction obligation was to be
amortized over 20 years. Subsequently, Fresh Start Reporting resulted in
the write-off of the transition obligation and statement of the
liability for postretirement health care and life insurance benefits at
fair value. Net periodic postretirement benefit cost for 1997 and 1996
includes the following components:
F-15
<PAGE> 21
<TABLE>
<CAPTION>
Medical Life Total
--------------------------- ---------------------------- -------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
-------- -------- -------- ------ ------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Components of net periodic
postretirement
benefit cost:
Service cost -- benefits earned
during the current year $ 606 $ 515 $ 413 $ 127 $ 163 $ 162 $ 733 $ 678 $ 575
Interest cost -- on accumulated
post-retirement benefit
obligation 1,641 1,404 1,182 412 499 472 2,053 1,903 1,654
Amortization of unrecognized
net loss or (net gain) 42 15 (71) (143) (10) (16) (101) 5 (87)
Amortization of prior
service cost 72 73 (2) 5 5 (1) 77 78 (3)
------ ------ ------- ------ ------ ----- ------ ------- -------
Net periodic benefit cost $2,361 $2,007 $1,522 $ 401 $ 657 $ 617 $2,762 $ 2,664 $ 2,139
====== ====== ======= ====== ====== ====== ====== ======= =======
Accumulated postretirement
benefit obligations:
Retirees $11,826 $ 9,565 $2,993 $3,402 $14,819 $12,967
Fully eligible active
participants 2,512 2,043 1,811 2,173 4,323 4,216
Other active participants 9,601 8,422 1,215 1,712 10,816 10,134
------ ------ ------ ------ ------- -------
Total 23,939 20,030 6,019 7,287 29,958 27,317
Unrecognized gains or (losses) (2,606) (322) 2,118 702 (488) 380
Unrecognized prior service costs (519) (616) (38) (45) (557) (661)
------ ------ ------ ------ ------- -------
Accrued postretirement benefit
cost included in consolidated
balance sheet $20,814 $19,092 $8,099 $7,944 $28,913 $27,036
======= ======= ====== ======= ======= =======
<FN>
Assumed discount rate 7.25%
Assumed medical trend rate 10.00% in 1997 decreasing to 6.50% in 2004
Assumed long-term compensation factor 4.25%
</TABLE>
The postretirement benefit obligation was determined by application of
the terms of the various plans, together with relevant actuarial
assumptions. The effect of a 1% annual increase in these assumed cost
trend rates would increase the accumulated postretirement benefit
obligation at December 25, 1997 and December 26, 1996 by $375 and $322,
respectively, and the service and interest cost components for 1997 and
1996 by a total of $61 and $69, respectively.
F-16
<PAGE> 22
EMPLOYEE RELATIONS
The Company generally maintains productive and amicable relationships
with its 4,550 employees worldwide. One of Viskase's domestic plants,
located in Loudon, Tennessee, is unionized, and all of its Canadian and
European plants have unions. Employees at the Company's European plants
are unionized with negotiations occurring at both local and national
levels. Based on past experience and current conditions, the Company
does not expect a protracted work stoppage to occur stemming from union
activities; however, national events outside of the Company's control
may give rise to such risk. From time to time union organization efforts
have occurred at other individual plant locations.
Unions represent a total of approximately 750 of Viskase's 3,650
employees. None of Clear Shield's employees are represented by unions.
Certain of Sandusky's hourly production personnel are members of a
union. As of December 25, 1997, approximately 700 of the Company's
employees are covered by collective bargaining agreements that will
expire within one year.
12. RESTRUCTURING CHARGES
During the third quarter of 1997, the Company's Viskase subsidiary
committed to a plan of restructuring whereby it will adjust its
operations from a segregated regional focus to a more congruent global
focus. These actions are directly related to lowering Viskase's fixed
costs. Restructuring actions identified resulted in charges to
continuing operations of $3.5 million before tax and included costs
associated with voluntary and involuntary severance expense and the
consolidation of a finishing plant. For the year ended December 25,
1997, $1.8 million was incurred and charged against the reserve.
13. INCOME TAXES (dollars in thousands)
The provision (benefit) for income taxes consisted of:
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
Current:
Federal - - -
Foreign $ 2,593 $ 4,365 $ 950
State and local - - -
-------- ------- -------
$ 2,593 $ 4,365 $ 950
-------- ------- -------
Deferred:
Federal (22,057) (9,911) (7,219)
Foreign (1,307) 393 2,098
State and local (1,529) (1,547) (1,329)
-------- ------- -------
(24,893) (11,065) (6,450)
-------- ------- -------
$(22,300) $(6,700) $(5,500)
======== ======= =======
The income tax benefit for the 1995 period was allocated between loss
before extraordinary loss for $2,918 and to the extraordinary loss for
$2,582.
F-17
<PAGE> 23
A reconciliation from the statutory federal tax rate to the consolidated
effective tax rate follows:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal tax rate (35.0)% (35.0)% (35.0)%
Increase (decrease) in tax rate due to:
State and local taxes net of related federal tax benefit (3.1) (4.9) (3.2)
Net effect of taxes relating to foreign operations 1.5 6.3 .8
Intangibles amortization 8.9 12.5 9.4
Valuation allowance decrease and other (42.1) (11.8) 7.6
----- ------ -----
Consolidated effective tax rate (69.8)% (32.9)% (20.4)%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1997 and 1996 are as follows:
Year 1997
------------------------------------------------------------------
Temporary Difference Tax Effected
---------------------------- ----------------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation basis differences $272,482 $104,188
Inventory basis differences 29,563 11,530
Intangible basis differences 30,000 11,700
Lease transaction $134,548 $52,474
Pension and healthcare 53,296 20,834
Employee benefits accruals 13,355 5,208
Loss and other carryforwards 114,488 44,650
Other accruals and reserves 6,409 2,256
Foreign exchange and other 41,535 16,199
Valuation allowance 48,286 18,831
-------- -------- -------- --------
$322,096 $421,866 $125,422 $162,448
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year 1996
------------------------------------------------------------------
Temporary Difference Tax Effected
---------------------------- ----------------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation basis differences $286,750 $109,383
Inventory basis differences 30,096 11,775
Intangible basis differences 34,916 13,617
Lease transaction $141,182 $55,061
Pension and healthcare 55,235 21,593
Employee benefits accruals 15,119 5,896
Valuation allowances 3,721 1,451
Other accruals and reserves 2,569 921
Foreign exchange and other 38,354 14,958
-------- -------- -------- --------
$217,826 $390,116 $84,922 $149,733
======== ======== ======== ========
</TABLE>
F-18
<PAGE> 24
At December 25, 1997, the Company had $19,173 of undistributed earnings
of foreign subsidiaries considered permanently invested for which
deferred taxes have not been provided.
At December 25, 1997, the Company had federal income tax net operating
loss carryforwards of approximately $114 million, which have been
substantially offset by a valuation allowance. Such losses will expire
beginning in 2008 and running through 2012, if not previously utilized.
In addition the Company has alternative minimum tax credit carryforwards
of $3.5 million. Alternative minimum tax credits have an indefinite
carryforward period. Significant limitations on the utilization of the
net operating loss carryforwards and the alternative minimum tax credit
carryforwards exist under federal income tax rules.
Domestic (losses) after extraordinary loss and before income taxes were
approximately $(34,275), $(30,323) and $(30,138) in 1997, 1996 and 1995,
respectively. Foreign earnings or (losses) before income taxes were
approximately $2,330, $9,942 and $3,118 in 1997, 1996 and 1995,
respectively.
The Company joins in filing a United States consolidated federal income
tax return including all of its domestic subsidiaries.
14. COMMITMENTS
As of December 25, 1997, the Company had capital expediture commitments
outstanding of approximately $3.4 million.
15. 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's use of
two different very low density polyethylene plastic resins in the
manufacture of ANC's multi-layer barrier shrink film products was
infringing various Viskase patents relating to multi-layer barrier
plastic films used for fresh red meat, processed meat and poultry
product applications. In November 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. The Court also entered
an order permanently enjoining ANC from making or selling infringing
products after December 23, 1996.
On September 29, 1997, the Court set aside the jury verdict in part and
ordered a retrial on certain issues. The Court upheld the jury finding
on the validity of all of Viskase's patents and the jury finding that
ANC had willfully infringed Viskase's patents by ANC's use of Dow
Chemical Company's "Attane" brand polyethylene plastic resin in ANC's
products. However, the Court ordered a new trial on the issue of whether
ANC's use of Dow Chemical Company's "Affinity" brand polyethylene
plastic resin infringed Viskase's patents and whether such conduct was
willful. Because the jury rendered one general damage verdict, the Court
ordered a retrial of all damage issues. By operation of the Court's
order, the injunction in respect of ANC's future use of the "Affinity"
brand resin was removed. No new trial date has been set. The Company
expects ANC to vigorously contest this matter and to appeal any final
judgment. No part of the pending claims have been recorded in the
Company's financial statements. Through December 25, 1997, $4,140 in
patent defense costs had been accrued and capitalized.
In March 1997 Viskase Corporation received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a grand
jury investigation of the sausage casings industry. Viskase Corporation
is cooperating fully with the investigation.
The Company and its subsidiaries are involved in various legal
proceedings arising out of their business and other environmental
matters, none of which is expected to have a material adverse effect
upon results of operations, cash flows or financial position.
16. CAPITAL STOCK, PAID IN CAPITAL, AND WARRANTS
Authorized shares of preferred stock ($.01 par value per share) and
common stock ($.01 par value per share) for the reorganized Envirodyne
are 25,000,000 shares and 50,000,000 shares, respectively. 14,753,442
shares of common stock were issued and outstanding as of December 25,
1997. A total of 208,335 shares were issued in 1997 for options
exercised and directors' compensation. In accordance with the Plan of
Reorganization, a total of 900,261, and 64,460 additional shares of
common stock were issued to the general unsecured creditors of
Envirodyne during 1996 and 1995, respectively.
Envirodyne issued 1,500,000 warrants pursuant to the Plan of
Reorganization, exercisable at any time until December 31, 1998. Each
warrant was initially exercisable for one share of common stock at an
initial exercise price of $17.25 per share. The exercise price and the
number of shares of common stock for which a warrant is exercisable were
adjusted as a result of the issuance of certain shares of Envirodyne
after the consummation of the Plan of Reorganization, including the
issuance of shares in settlement of a class action lawsuit by former
employees of the Company's former steel and mining division. Under terms
of the warrant agreement, the exercise price has been adjusted from
$17.25 to $16.08 per share and the number of common shares for which
each warrant is exercisable has been adjusted from 1.000 share to 1.073
shares.
On June 26, 1996, the Board of Directors adopted a Stockholder Rights
Plan (Plan). Under the Plan, the Board declared a dividend of one Common
Stock Purchase Right (Right) for each outstanding common share of the
Company. Rights were issued to the stockholders of record on June 26,
1996. The Rights are attached to and automatically trade with the
outstanding shares of the Company's common stock.
The Rights will only become exercisable ten days after a public
announcement that a person or group has acquired or obtained the right
to acquire 41% or more of the Company's Common Stock or ten business
days after a person or group commences a tender or offer that would
result in such person or group owning 41% or more of the outstanding
shares (even if no purchases actually occur).
When the Rights first become exercisable, each Right will entitle the
holder thereof to buy from the Company one share of Common Stock for
$20.00, subject to adjustment. If any person acquires 41% or more of the
Company's Common Stock, other than pursuant to a tender or exchange
offer for all outstanding shares of the Company approved by a majority
of the independent directors not affiliated with a 40%-or-more
stockholder, after receiving advice from one or more investment banking
firms, each Right not owned by a 41%-or-more stockholder would become
exercisable for shares of the Company having a market value of two times
the exercise price of the Right. If the Company is involved in a merger
or other business combination, or sells 50% or more of its assets or
earning power to another person, at any time after the Rights become
exercisable, the Rights will entitle the holder thereof to buy shares of
common stock of the acquiring company having a market value of twice the
exercise price of each Right.
Rights may be redeemed at a price of $0.001 per Right at any time prior
to their expiration on June 26, 2006.
F-19
<PAGE> 25
17. EARNINGS PER SHARE (dollars in thousands)
In February 1997 the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," which became effective for both
interim and annual financial statement periods ending after December 15,
1997. As required by this Statement, the Company adopted the new
standards for computing and presenting earnings per share (EPS) for
1997, and for all period earnings per share data presented. Following
are the reconciliations of the numerators and denominators of the basic
and diluted EPS.
<TABLE>
<CAPTION>
52 weeks 52 weeks 52 weeks
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Loss available to common stockholders
before extraordinary item $(9,645) $(13,682) $(17,323)
Extraordinary (loss) (4,196)
------- -------- --------
Net loss available to common stockholders
for basic and diluted EPS $(9,645) $(13,682) $(21,519)
Denominator:
Weighted average shares outstanding
for basic EPS 14,617,540 14,325,595 13,516,771
Effect of dilutive securities 0 0 0
---------- ---------- ----------
Weighted average shares outstanding
for diluted EPS 14,617,540 14,325,595 13,516,771
========== ========== ==========
</TABLE>
The exercise of options and warrants is not assumed as the result
would be antidilutive, since the numerators in 1997, 1996 and 1995 are losses.
18. STOCK-BASED COMPENSATION (dollars in thousands)
The Company maintains several stock option plans and agreements. The
plans provide for the granting of incentive and nonqualified stock
options to employees, officers, and directors. Stock options have been
granted at prices at or above the fair market value on the date of
grant. Options generally vest in three equal installments beginning one
year from the grant date and expire ten years from the grant date. Non-
employee director options, however, vest on the date of grant. The
options are subject to acceleration upon the occurrence of certain
events; such acceleration event occurred in both November 1994 and
August 1995.
The Company accounts for these plans under Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations. Accordingly, compensation expense is
recognized using the intrinsic value-based method for options granted
under the plans. The Company has adopted only the disclosure provisions
required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" (SFAS 123).
F-20
<PAGE> 26
A summary of the Company's stock option activity during the fiscal years
ended as of December 25, 1997, December 26, 1996 and December 28, 1995
is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- ----------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------- -------------- -------- -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 898,830 $4.60 424,230 $5.05 388,920 $5.06
Granted 65,000 6.46 536,500 4.26 97,200 5.02
Exercised (177,839) 4.89
Forfeited (50,967) 4.38 (61,900) 4.79 (61,890) 5.06
------- ------- -------
Outstanding at
year end 735,024 4.71 898,830 4.60 424,230 5.05
======= ======= =======
Options exercisable
at year end 368,884 4.84 392,730 5.04 424,230 5.05
======= ======= =======
Future option grants
available
at year end 637,137 651,170 225,770
======= ======= =======
</TABLE>
As of December 25, 1997, total stock options outstanding have a
weighted-average remaining contractual life of 7.91 years. The exercise
price of options outstanding as of December 25, 1997 ranged from $3.50
to $7.25. The weighted average grant date fair value of options granted
during fiscals 1997, 1996 and 1995 was $2.07, $2.20 and $1.81,
respectively.
Compensation expense associated with these plans has not been recognized
to date in accordance with APB 25.
Had the Company elected to apply the provisions of SFAS 123 regarding
recognition of compensation expense to the extent of the calculated fair
value of compensatory options, reported net income and earnings per
share would have been reduced to the following amounts (only options
granted in years 1995 and forward are included in the calculation of pro
forma net income and earnings per share):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
(Loss) before extraordinary item $(9,645) $(13,682) $(17,323)
Pro forma (loss) before extraordinary item (9,909) (13,826) (17,356)
Net (loss) (9,645) (13,682) (21,519)
Pro forma net (loss) (9,909) (13,826) (21,552)
PER SHARE AMOUNTS:
(Loss) before extraordinary item
- basic and diluted EPS $(.66) $(.96) $(1.28)
Pro forma (loss) before extraordinary item
- basic and diluted EPS (.68) (.97) (1.28)
Net (loss) - basic and diluted EPS (.66) (.96) (1.59)
Pro forma net (loss) - basic and diluted EPS (.68) (.97) (1.59)
</TABLE>
The effects of applying SFAS 123 in the above pro forma disclosure are
not likely to be representative of the effects disclosed in future years
as SFAS 123 does not apply to grants prior to 1995.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: (1) expected volatility of 36.39% in 1997 and 40.04% for
both 1996 and 1995, (2) risk-free interest rate equaling the 5-year
treasury yield on the grant date, which ranged from 5.77% to 6.50% in
1997, 6.11% to 6.52% in 1996 and 5.97% to 7.06% in 1995, and (3) the
expected life of 5 years in 1997, 1996 and 1995. The Company has never
declared dividends, nor does it currently expect to declare dividends in
the foreseeable future.
Pursuant to the employment agreement between the Company and its chief
executive officer, the Company issued 35,000 shares of common stock to
its chief executive officer. These shares carry voting and dividend
rights; however sale of the shares is restricted prior to vesting.
Subject to continued employment, vesting occurs on March 27, 1999. The
shares issued under the employment agreement have been recorded at fair
market value on the date of grant with a corresponding charge to
stockholders' equity for the unearned portion of the award. The fair
market value per share was $3.50. The unearned portion is being
amortized as compensation expense on a straight-line basis over the
related vesting period. Compensation expense related to the plan totaled
$41 and $31 during fiscals 1997 and 1996, respectively.
The Company also has a stock compensation plan for the non-employee
directors of the Company that was approved during fiscal 1996. These
directors may elect to receive directors fees in the form of common
stock of the Company based upon the average market price of the
Company's common stock on the grant date. Under this plan, during 1997
and 1996, 30,496 shares of stock were issued at $7.12 per share and
30,386 shares of common stock were issued at $4.03 per share,
respectively.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS (dollars in thousands)
The following table presents the carrying value and estimated fair value
as of December 25, 1997 of the Company's financial instruments. (Refer
to Notes 3 and 9.)
Carrying Estimated
Value Fair Value
---------- -----------
Assets:
Cash and equivalents $ 24,407 $ 24,407
Foreign currency contracts 10,575 10,146
Liabilities:
Long-term debt (excluding
capital lease obligations) 383,852 391,763
20. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands)
Research and development costs are expensed as incurred and totaled
$7,173, $6,841 and $11,034 for 1997, 1996, and 1995, respectively.
21. RELATED PARTY TRANSACTIONS (dollars in thousands)
During fiscal 1997 there were no payments to an affiliate of DPK for the
use of a jet aircraft. During fiscal 1996 and 1995, the Company made
payments of approximately $18 and $156, respectively, to an affiliate of
DPK for the use of a jet aircraft on an as-needed basis.
During fiscal 1997, 1996 and 1995, the Company purchased product and
services from affiliates of DPK in the amounts of approximately $187,
$904 and $1,537, respectively. During fiscal 1997, 1996 and 1995, the
Company sublet office space from DPK for which it paid approximately
$133, $139, and $151, respectively, in rent. During fiscal 1997, 1996
and 1995, the Company reimbursed a non-affiliated medical and benefit
plan in the aggregate amount of $34, $41 and $79 for medical claims and
benefits of certain officers.
During fiscal 1997, 1996 and 1995, the Company advanced funds to and
made payments on behalf of DPK and Donald P. Kelly in the amounts of
$27, $1 and $52, respectively, for legal fees related to litigation for
the period when Mr. Kelly was an executive officer of the Company.
During fiscal years 1997, 1996 and 1995, Viskase Corporation, a wholly
owned subsidiary of the Company, had sales of $21,825, $19,795 and
$18,035, respectively, to Cargill, Inc. and its affiliates. Such sales
were made in the ordinary course of business. During 1997 Cargill
Financial Services Corporation had beneficial ownership of less than 5%
of the Company's outstanding Common Stock, and Gregory R. Page,
President of the Red Meat Group of Cargill, Inc., is a director of the
Company.
During fiscal 1996, the Company sold two autos to an affiliate of DPK.
The total sum received was $135 and was based on the fair market value
of the autos. A gain on the sale of $117 was recognized by the Company.
In March 1996, the Company terminated its management agreement with D.P.
Kelly and Associates, L.P. (DPK). Upon termination of the agreement, the
Company was required to pay the amount of $2,000 to DPK pursuant to
provisions in the agreement. In addition to the above amount, the
Company paid management fees to DPK during 1996 totaling $193. During
1995 the Company paid DPK $770 for management services.
22. BUSINESS SEGMENT INFORMATION AND GEOGRAPHIC
AREA INFORMATION (dollars in thousands)
Envirodyne primarily manufactures and sells cellulosic food casings and
plastic packaging films and containers (food packaging products) and
disposable foodservice supplies. The Company's operations are primarily
in North, South America and Europe. Intercompany sales and charges
(including royalties) have been reflected as appropriate in the
following information. Other expense for 1997, 1996, and 1995 includes
net foreign exchange transaction gains (losses) of approximately
$(2,117), $687, and $(61), respectively.
F-21
<PAGE> 27
Business Segment Information
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Food packaging products $526,952 $572,653 $574,266
Disposable foodservice supplies 85,916 78,865 76,138
Other and eliminations (162) (192)
-------- -------- --------
$612,868 $651,356 $650,212
======== ======== ========
Earnings before income taxes:
Operating income:
Food packaging products $27,012 $37,310 $39,183
Disposable foodservice supplies 7,701 7,342 4,959
Unallocated expenses, net -- corporate (8,600) (4,962) (6,007)
-------- -------- --------
26,113 39,690 38,135
Interest expense, net 54,303 56,997 56,666
Other expense, net 3,755 3,075 1,710
-------- -------- --------
$(31,945) $(20,382) $(20,241)
======== ======== ========
Identifiable assets:
Food packaging products $706,537 $762,233 $796,655
Disposable foodservice supplies 83,348 69,725 69,812
Corporate and other,
primarily cash equivalents 23,968 41,789 33,100
-------- -------- --------
$813,853 $873,747 $899,567
======== ======== ========
Depreciation and amortization
under capital lease
and amortization of intangibles expense:
Food packaging products $53,984 $53,413 $51,404
Disposable foodservice supplies 5,301 4,949 4,581
Corporate and other 24 58 76
-------- -------- --------
$59,309 $58,420 $56,061
======== ======== ========
Capital expenditures:
Food packaging products $46,552 $32,934 $30,744
Disposable foodservice supplies 11,315 4,135 3,687
Corporate and other 12 4 34
-------- -------- --------
$57,879 $37,073 $34,465
======== ======== ========
</TABLE>
Geographic Area Information
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
North America $417,673 $423,092 $417,408
South America 40,169 40,498 31,381
Europe 174,008 201,926 213,618
Other and eliminations (18,982) (14,160) (12,195)
-------- -------- --------
$612,868 $651,356 $650,212
======== ======== ========
Operating profit:
North America $17,154 $22,425 $22,504
South America 2,108 1,883 524
Europe 10,817 15,445 15,373
Other and eliminations (3,966) (63) (266)
-------- -------- --------
$26,113 $39,690 $38,135
======== ======== ========
Identifiable assets:
North America $592,790 $633,201 $645,504
South America 33,389 33,007 31,873
Europe 184,659 205,446 219,802
Other and eliminations 3,015 2,093 2,388
-------- -------- --------
$813,853 $873,747 $899,567
======== ======== ========
United States export sales:
(reported in North America sales above)
Asia $25,282 $28,300 $22,509
South and Central America 14,191 17,056 18,691
Other International 305 259 219
-------- -------- --------
$39,778 $45,615 $41,419
======== ======== ========
</TABLE>
The total assets and net assets of foreign businesses were approximately
$238,385 and $122,867 at December 25, 1997.
23. QUARTERLY DATA (unaudited)
Quarterly financial information for 1997 and 1996 is as follows
(in thousands, except for per share amounts):
First Second Third Fourth
Fiscal 1997 Quarter Quarter Quarter Quarter Annual
- - ---------------- -------- -------- -------- -------- --------
Net Sales $154,539 $156,529 $155,004 $146,796 $612,868
Operating Income 7,414 7,629 2,670 8,400 26,113
Net income (loss) (2,553) (4,505) (3,753) 1,166 (9,645)
Net income (loss)
per share - basic
and diluted (.18) (.31) (.26) .08 (.66)
First Second Third Fourth
Fiscal 1996 Quarter Quarter Quarter Quarter Annual
- - ---------------- -------- -------- -------- -------- --------
Net Sales $159,736 $165,747 $163,825 $162,048 $651,356
Operating Income 9,294 9,275 8,708 12,413 39,690
Net income (loss) (5,927) (4,165) (3,924) 334 (13,682)
Net income (loss)
per share - basic
and diluted (.43) (.29) (.27) .02 (.96)
Net income (loss) per share amounts are computed independently for each
of the quarters presented using weighted average shares outstanding
during each quarter. The sum of the quarterly per share amounts in 1997
and 1996 do not equal the total for the year because of rounding and
stock issuances, as shown on the Consolidated Statement of Stockholders'
Equity.
24. 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 Europe Limited. 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 audited financial statements of Viskase Holding Corporation are
being filed within.
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.
F-22
<PAGE> 28
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 19,004 $ 865 $ 4,538 $ 24,407
Receivables and advances, net 59,223 58,201 44,221 $ (86,606) 75,039
Inventories 63,967 35,029 (1,194) 97,802
Other current assets 1,746 12,612 10,928 25,286
-------- -------- -------- --------- --------
Total current assets 79,973 135,645 94,716 (87,800) 222,534
Property, plant and equipment including
those under capital lease 145 442,506 138,330 580,981
Less accumulated depreciation
and amortization 119 113,672 32,064 145,855
-------- -------- -------- --------- --------
Property, plant and equipment, net 26 328,834 106,266 435,126
Deferred financing costs 4,100 474 4,574
Other assets 36,779 2,414 39,193
Investment in subsidiaries 53,619 120,824 (174,443)
Excess reorganization value 79,595 32,831 112,426
-------- -------- -------- --------- --------
$137,718 $701,677 $236,701 $(262,243) $813,853
======== ======== ======== ========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt and
obligation under capital lease $ 10,233 $ 2,647 $ 12,880
Accounts payable and advances $ 121 86,514 41,706 $ (86,607) 41,734
Accrued liabilities 5,836 46,595 19,158 71,589
Current deferred taxes 10,581 (65) 10,516
-------- -------- -------- --------- --------
Total current liabilities 5,957 153,923 63,446 (86,607) 136,719
Long-term debt including obligation
under capital lease 379,262 126,830 5,091 511,183
Accrued employee benefits 46,018 2,503 48,521
Deferred and noncurrent income taxes 13,084 (7,396) 20,822 26,510
Intercompany loans (1) (351,505) 339,995 11,510
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
none outstanding
Common stock, $.01 par value;
14,753,442 shares issued and
outstanding 148 3 32,738 (32,741) 148
Paid in capital 136,183 88,816 88,280 (177,096) 136,183
Accumulated earnings (deficit) (48,458) (49,550) 9,273 40,277 (48,458)
Cumulative foreign currency
translation adjustments 3,098 3,038 3,038 (6,076) 3,098
Unearned restricted stock issued
for future services (51) (51)
-------- -------- -------- --------- --------
Total stockholders' equity 90,920 42,307 133,329 (175,636) 90,920
-------- -------- -------- --------- --------
$137,718 $701,677 $236,701 $(262,243) $813,853
======== ======== ======== ========= ========
<FN>
(1) Elimination of intercompany receivables, payables and investment accounts.
</TABLE>
F-23
<PAGE> 29
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEETS
DECEMBER 26, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations (1) Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
Current deferred taxes 9,966 358 10,324
-------- -------- -------- --------- --------
Total current liabilities 6,232 146,539 87,044 (99,076) 140,739
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 29,088 858 24,541 54,487
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
======== ======== ======== ========= ========
<FN>
(1) Elimination of intercompany receivables, payables and investment accounts.
</TABLE>
F-24
<PAGE> 30
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $413,567 $241,701 $(42,400) $612,868
COSTS AND EXPENSES
Cost of sales 317,329 184,255 (42,406) 459,178
Selling, general and administrative $ 5,280 60,752 42,109 108,141
Amortization of intangibles and
excess reorganization value 12,731 3,205 15,936
Restructuring charge 3,500 3,500
------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (5,280) 19,255 12,132 6 26,113
Interest income 729 687 1,416
Interest expense 43,270 10,940 1,509 55,719
Intercompany interest expense (income) (40,402) 37,384 3,018
Management fees (income) (4,692) 3,489 1,203
Other expense (income), net 793 (1,444) 4,400 6 3,755
Equity loss (income) in subsidiary 7,500 (1,403) (6,097)
------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (11,020) (29,711) 2,689 6,097 (31,945)
Income tax provision (benefit) (1,375) (22,211) 1,286 (22,300)
------- -------- -------- -------- --------
NET INCOME (LOSS) $(9,645) $ (7,500) $ 1,403 $ 6,097 $ (9,645)
======= ======== ======== ======== ========
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 25, 1997
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(16,544) $ 30,954 $(8,764) $ 5,646
Cash flows from investing activities:
Capital expenditures (12) (40,434) (17,433) (57,879)
Proceeds from disposition of assets 17,689 24,178 41,867
-------- --------- ------- -------- --------
Net cash provided by (used in)
investing activities (12) (22,745) 6,745 (16,012)
Cash flows from financing activities:
Issuance of common stock 1,127 1,127
Proceeds from revolving loan and
long term borrowings 2,814 2,814
Deferred financing costs (523) (523)
Repayment of revolving loan,
long-term borrowings and
capital lease obligations (7,182) (2,308) (9,490)
Increase (decrease) in
Envirodyne loan and advances 9,171 (9,171)
-------- --------- ------- -------- --------
Net cash provided by (used in)
financing activities 9,775 (7,182) (8,665) (6,072)
Effect of currency exchange rate
changes on cash (949) (949)
-------- --------- ------- -------- --------
Net increase (decrease)
in cash and equivalents (6,781) 1,027 (11,633) (17,387)
Cash and equivalents
at beginning of period 25,785 (162) 16,171 41,794
-------- --------- ------- -------- -------
Cash and equivalents at end of period $ 19,004 $ 865 $ 4,538 $24,407
======== ========= ======= ======== =======
</TABLE>
F-25
<PAGE> 31
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 26, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $418,732 $273,435 $(40,811) $651,356
COSTS AND EXPENSES
Cost of sales 322,422 207,520 (41,698) 488,244
Selling, general and administrative $4,973 57,927 44,188 107,088
Amortization of intangibles and
excess reorganization value 12,947 3,387 16,334
-------- -------- -------- --------- --------
OPERATING INCOME (LOSS) (4,973) 25,436 18,340 887 39,690
Interest income 1,061 507 1,568
Interest expense 43,504 12,813 2,248 58,565
Intercompany interest expense (income) (40,596) 37,394 3,202
Management fees (income) (7,226) 5,704 1,522
Other expense (income), net 850 646 1,579 3,075
Equity loss (income) in subsidiary 13,411 (5,538) (7,873)
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (13,855) (25,583) 10,296 8,760 (20,382)
Income tax provision (benefit) (173) (11,285) 4,758 (6,700)
-------- -------- -------- --------- --------
NET INCOME (LOSS) $(13,682) $(14,298) $ 5,538 $ 8,760 $(13,682)
======== ======== ======== ========= ========
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 26, 1996
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(14,896) $ 30,440 $ 40,780 $ 56,324
Cash flows from investing activities:
Capital expenditures (4) (27,496) (9,573) (37,073)
Proceeds from sales of property,
plant and equipment 136 1,767 453 2,356
-------- -------- -------- --------- --------
Net cash provided by (used in)
investing activities 132 (25,729) (9,120) (34,717)
Cash flows from financing activities:
Issuance of common stock 153 153
Proceeds from revolving loan and
long term borrowings 1,130 1,056 2,186
Deferred financing costs (142) (142)
Repayment of revolving loan,
long-term borrowings and
capital lease obligations (6,489) (5,216) (11,705)
Increase (decrease) in
Envirodyne loan and advances 22,525 (22,525)
-------- -------- -------- --------- --------
Net cash provided by
(used in) financing activities 22,536 (5,359) (26,685) (9,508)
Effect of currency exchange rate
changes on cash (630) (630)
-------- -------- -------- --------- --------
Net increase (decrease)
in cash and equivalents 7,772 (648) 4,345 11,469
Cash and equivalents
at beginning of period 18,013 486 11,826 30,325
-------- -------- -------- --------- --------
Cash and equivalents at end of period $ 25,785 $ (162) $ 16,171 $ 41,794
======== ======== ======== ========= ========
</TABLE>
F-26
<PAGE> 32
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
NET SALES $417,756 $267,212 $(34,756) $650,212
COSTS AND EXPENSES
Cost of sales 312,419 207,232 (34,603) 485,048
Selling, general and administrative $ 6,004 65,318 39,908 111,230
Amortization of intangibles and
excess reorganization value 12,466 3,333 15,799
-------- -------- -------- --------- --------
OPERATING INCOME (LOSS) (6,004) 27,553 16,739 (153) 38,135
Interest income 203 12 455 670
Interest expense 40,081 13,902 3,353 57,336
Intercompany interest
expense (income) (38,218) 34,007 4,211
Management fees (income) (8,086) 6,377 1,709
Other expense (income), net (2,400) 52 4,058 1,710
Equity loss (income) in subsidiary 19,571 216 (19,787)
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (16,749) (26,989) 3,863 19,634 (20,241)
Income tax provision (benefit) 1,264 (7,570) 3,388 (2,918)
-------- -------- -------- --------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (18,013) (19,419) 475 19,634 (17,323)
Extraordinary loss, net of tax 3,506 690 4,196
-------- -------- -------- --------- --------
NET (LOSS) $(21,519) $(19,419) $ (215) $ 19,634 $(21,519)
======== ======== ======== ========= ========
</TABLE>
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATING CASH FLOWS
FOR THE YEAR ENDED DECEMBER 28, 1995
<TABLE>
<CAPTION>
Guarantor Nonguarantor Consolidated
Parent Subsidiaries Subsidiaries Eliminations Total
--------- ------------ ------------ ------------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $(13,276) $ 32,242 $ 20,001 $ 38,967
Cash flows from investing activities:
Capital expenditures (34) (27,842) (6,589) (34,465)
Proceeds from sale of property,
plant and equipment 39 47 86
-------- -------- -------- --------- --------
Net cash (used in)
investing activities (34) (27,803) (6,542) (34,379)
Cash flows from financing activities:
Proceeds from revolving loan and
long term borrowings 164,000 1,706 42,216 207,922
Deferred financing costs (6,721) (1,166) (7,887)
Repayment of revolving loan,
long-term borrowings and
capital lease obligations (123,275) (7,512) (50,588) (181,375)
Increase (decrease)
in Envirodyne loan and advances (3,236) 3,236
-------- -------- -------- --------- --------
Net cash provided by
(used in) financing activities 30,768 (5,806) (6,302) 18,660
Effect of currency exchange
rate changes on cash (212) (212)
-------- -------- -------- --------- --------
Net increase (decrease) in cash
and equivalents 17,458 (1,367) 6,945 23,036
Cash and equivalents at beginning
of period 555 1,853 4,881 7,289
-------- -------- -------- --------- --------
Cash and equivalents at end
of period $ 18,013 $ 486 $ 11,826 $ 30,325
======== ======== ======== ========= ========
</TABLE>
F-27
<PAGE> 33
Financial statement schedules required by Regulation S-X
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements:
Report of independent accountants
Consolidated balance sheets, December 25, 1997 and
December 26, 1996
Consolidated statements of operations, for December 27, 1996 to
December 25, 1997; December 29, 1995 to December 26, 1996;
and December 30, 1994 to December 28, 1995
Consolidated statements of stockholders' equity, for
December 27, 1996 to December 25, 1997; December 29, 1995
to December 26, 1996; and December 30, 1994 to December 28, 1995
Consolidated statements of cash flows, for December 27, 1996 to
December 25, 1997; December 29, 1995 to December 26, 1996;
and December 30, 1994 to December 28, 1995;
Notes to consolidated financial statements
F-28
<PAGE> 34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Viskase Holding Corporation
We have audited the consolidated financial statements of Viskase
Holding Corporation and Subsidiaries as referenced in the Index of
Financial Statements required by Regulation S-X, Viskase Holding
Corporation and Subsidiaries. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Viskase Holding Corporation and Subsidiaries as of December 25, 1997 and
December 27, 1996, and the consolidated results of their operations and
their cash flows for the period December 27, 1996 to December 25, 1997,
December 29, 1995 to December 26, 1996 and December 30, 1994 to
December 28, 1995, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
March 20, 1998
F-29
<PAGE> 35
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 25, December 26,
1997 1996
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,538 $ 16,171
Receivables, net 38,081 43,634
Receivables, affiliates 51,796 51,269
Inventories 35,029 36,509
Other current assets 10,928 10,224
-------- --------
Total current assets 140,372 157,807
Property, plant and equipment 138,330 158,175
Less accumulated depreciation 32,064 30,086
-------- --------
Property, plant and equipment, net 106,266 128,089
Deferred financing costs 474 758
Other assets 2,414 2,025
Excess reorganization value 32,831 37,405
-------- --------
Total Assets $282,357 $326,084
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current
portion of long-term debt $ 2,647 $ 4,109
Accounts payable 15,438 13,736
Accounts payable and advances, affiliates 34,210 51,891
Accrued liabilities 19,158 31,677
Current deferred income taxes (65) 358
-------- --------
Total current liabilities 71,388 101,771
Long-term debt 5,091 4,854
Accrued employee benefits 2,503 4,331
Deferred and noncurrent income taxes 20,822 24,541
Intercompany loans 49,520 58,691
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value,
1,000 shares authorized;
100 shares issued and outstanding
Paid in capital 103,463 103,463
Retained earnings 26,496 21,152
Cumulative foreign currency
translation adjustments 3,074 7,281
-------- --------
Total stockholders' equity 133,033 131,896
-------- --------
Total Liabilities and Stockholders' Equity $282,357 $326,084
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-30
<PAGE> 36
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 weeks 52 weeks 52 weeks
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
(in thousands, except for number of shares
and per share amounts)
<S> <C> <C> <C>
NET SALES $241,701 $273,435 $267,212
COSTS AND EXPENSES
Cost of sales 184,255 207,520 207,232
Selling, general and administrative 36,604 38,386 36,288
Amortization of intangibles and
excess reorganization value 3,205 3,387 3,333
-------- -------- --------
OPERATING INCOME 17,637 24,142 20,359
Interest income 687 507 455
Interest expense 1,509 2,248 3,353
Intercompany interest expense 3,018 3,202 4,199
Management fees 1,203 1,522 1,709
Other expense, net 3,400 1,579 3,754
-------- -------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 9,194 16,098 7,799
Income tax provision 3,850 7,046 4,947
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 5,344 9,052 2,852
Extraordinary loss, net of tax 690
-------- -------- --------
NET INCOME $ 5,344 $ 9,052 $ 2,162
======== ======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-31
<PAGE> 37
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Cumulative
Foreign
Currency Total
Common Paid in Retained Translation Stockholder's
Stock Capital Earnings Adjustments Equity
------ ------- ---------- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance December 29, 1994 - $103,463 $ 9,938 $3,912 $117,313
Net income 2,162 2,162
Translation adjustments 3,267 3,267
-------- ------- ------ --------
Balance December 28, 1995 - 103,463 12,100 7,179 122,742
Net income 9,052 9,052
Translation adjustments 102 102
-------- ------- ------ --------
Balance December 26, 1996 - 103,463 21,152 7,281 131,896
Net income 5,344 5,344
Translation adjustments (4,207) (4,207)
-------- ------- ------ --------
Balance December 25, 1997 - $103,463 $26,496 $3,074 $133,033
======== ======= ====== ========
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
F-32
<PAGE> 38
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
------------ ----------- -----------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Income before extraordinary item $ 5,344 $ 9,052 $ 2,852
Extraordinary loss 690
------- ------- --------
Net income 5,344 9,052 2,162
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 10,286 10,687 11,202
Amortization of intangibles and
excess reorganization value 3,205 3,387 3,333
Amortization of deferred financing fees and discount 201 227 208
Increase in deferred and noncurrent income taxes (1,307) 393 2,098
Loss on debt extinguishment 1,030
Foreign currency transaction loss 159
Loss (gain) on disposition of assets (372) (39) 30
Changes in operating assets and liabilities:
Accounts receivable 2,717 11,078 (4,441)
Accounts receivable, affiliates (4,270) (1,802) (2,847)
Inventories (6,177) (743) 7,224
Other current assets (1,757) (1,787) (2,144)
Accounts payable and accrued liabilities (2,364) 9,681 (6,926)
Accounts payable, affiliates (14,861) 860 8,383
Other (409) (214) (790)
------- ------- --------
Total adjustments (15,108) 31,728 16,519
------- ------- --------
Net cash provided by operating activities (9,764) 40,780 18,681
Cash flows from investing activities:
Capital expenditures (17,433) (9,573) (6,589)
Proceeds from disposition of assets 25,178 453 47
------- ------- --------
Net cash (used in) investing activities 7,745 (9,120) (6,542)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 2,814 1,056 42,216
Deferred financing costs (1,166)
Repayment of revolving loan and long-term borrowings (2,308) (5,216) (50,588)
Increase (decrease) in Envirodyne loan and advances (9,171) (22,525) 3,236
------- ------- --------
Net cash provided by (used in) financing activities (8,665) (26,685) (6,302)
Effect of currency exchange rate changes on cash (949) (630) (212)
------- ------- --------
Net increase in cash and equivalents (11,633) 4,345 5,625
Cash and equivalents at beginning of period 16,171 11,826 6,201
------- ------- --------
Cash and equivalents at end of period $ 4,538 $16,171 $ 11,826
======= ======= ========
- - ---------------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Interest paid $212 $791 $1,919
Income taxes paid $4,882 $1,209 $4,255
<FN>
Supplemental schedule of noncash investing and financing activities:
Fiscal 1995
- - -----------
Viskase Corporation transferred equipment totaling $497 thousand to
Viskase S.A.
Viskase Holding Corporation contributed capital consisting of $250
thousand of equipment to Viskase de Mexico S.A. de C.V.
Fiscal 1996
- - -----------
Viskase Corporation transferred equipment totaling $441 thousand to
Viskase de Mexico S.A. de C.V.
Fiscal 1997
- - -----------
Viskase Corporation transferred equipment totaling $536 to Viskase S.A.
Viskase de Mexico S.A. de C.V. transferred equipment totaling $213 to
Viskase Corporation.
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
F-33
<PAGE> 39
VISKASE HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Viskase Holding Corporation is a wholly owned subsidiary of Viskase
Corporation. Viskase Corporation, in turn, is a wholly owned subsidiary
of Envirodyne Industries, Inc. Viskase Holding Corporation serves as the
direct or indirect parent company for the majority of Viskase
Corporation's non-domestic operations. These subsidiaries are as
follows:
<TABLE>
<CAPTION>
Name of Subsidiary Parent of Subsidiary Country of Business
- - ------------------------------- --------------------------- ---------------------
<S> <C> <C>
Viskase Argentina S.A. Viskase Holding Corporation Argentina
Viskase (China) Limited Viskase Holding Corporation China
Viskase (Chile) Embalagens Ltda. Viskase Holding Corporation Chile
Viskase Australia Limited Viskase Holding Corporation Australia
Viskase Brasil Embalagens Ltda. Viskase Holding Corporation Brazil
Viskase Europe Limited Viskase Holding Corporation United Kingdom
Viskase de Mexico S.A. de C.V. Viskase Holding Corporation Mexico
Viskase S.A. Viskase Europe Limited France
Viskase Gmbh Viskase S.A. Germany
Viskase SPA Viskase S.A. Italy
Viskase Canada Inc. Viskase S.A. Canada
Viskase ZAO Viskase S.A. Russia
Viskase Holdings Limited Viskase S.A. United Kingdom
Filmco International Limited Viskase Holdings Limited United Kingdom
Viskase Limited Viskase Holdings Limited United Kingdom
Viskase (UK) Limited Viskase Limited United Kingdom
Viskase Ireland Viskase Limited Ireland
Envirodyne S.A.R.L. Viskase (UK) Limited France
</TABLE>
Viskase Holding Corporation conducts its operations through its
subsidiaries and, for the most part, has no assets or liabilities other
than its investments, accounts receivable and payable with affiliates,
and intercompany loan and advances.
On January 6, 1993, a group of bondholders filed an involuntary petition
for reorganization of Envirodyne Industries, Inc. under Chapter 11 of
the United States Bankruptcy Code. On January 7, 1993, several of the
subsidiaries of Envirodyne Industries, Inc., including Viskase Holding
Corporation, each filed voluntary petitions under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for
the Northern District of Illinois, Eastern Division (the Bankruptcy
Court). None of the subsidiaries of Viskase Holding Corporation entered
into Chapter 11. 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, including Viskase Holding
Corporation. The Plan of Reorganization was consummated and Envirodyne
and certain of its subsidiaries emerged from Chapter 11 on December 31,
1993. For accounting purposes, the Plan of Reorganization was deemed to
be effective as of December 31, 1993.
The Chapter 11 filing was related only to the Company's domestic
operations and did not include the foreign subsidiaries and various
inactive domestic subsidiaries.
2. NATURE OF BUSINESS
Viskase Holding Corporation's subsidiaries manufacture food packaging
products. The operations of these subsidiaries are primarily in Europe
and South and North America. Through its subsidiaries, the Company is a
leading producer of cellulosic casings used in preparing and packaging
processed meat products and is a major producer of heat shrinkable
plastic bags and specialty films for packaging and preserving fresh and
processed meat products, poultry and cheeses.
International Operations
Viskase Holding Corporation's subsidiaries have six manufacturing
facilities located outside the continental United States, in Beauvais,
France; Thaon, France; Lindsay, Ontario, Canada; Newton Aycliffe,
England (Great Britain); Swansea, Wales (Great Britain); and Guarulhos,
Brazil.
International sales and operations may be subject to various risks
including, but not limited to, possible unfavorable exchange rate fluc-
tuations, political instability, governmental regulations (including
import and export controls), restrictions on currency repatriation,
embargoes, labor relations laws and the possibility of governmental
expropriation. Viskase Holding Corporation's foreign operations
generally are subject to taxes on the repatriation of funds.
International operations in certain parts of the world may be subject to
international balance of payments difficulties which may raise the
possibility of delay or loss in the collection of accounts receivable
from sales to customers in those countries. Viskase Holding Corporation
believes that its subsidiaries' allowance for doubtful accounts makes
adequate provision for the collectibility of its receivables. Management
believes that growth potential exists for many of Viskase's products
outside the United States and that Viskase is well positioned to
participate in these markets.
Sales and Distribution
Viskase Holding Corporation's subsidiaries' principal markets are in
Europe, Latin America, North America and Asia Pacific.
In Europe, Viskase Holding Corporation's subsidiaries operate casings
service centers in Milan, Italy, and Pulheim, Germany. The Company also
operates a service center in Guarulhos, Brazil and Brisbane, Australia.
These service centers provide finishing, inventory and delivery services
to customers. Viskase Holding Corporation operates distribution centers
in Buenos Aires, Argentina; Santiago, Chile; Beijing, China; Hong Kong,
China; Dublin, Ireland; Monterrey, Mexico; Warsaw, Poland and Moscow,
Russia. The subsidiaries also use outside distributors to market their
products to customers in Europe, Africa, Asia and Latin America.
Competition
From time to time, Viskase Holding Corporation's subsidiaries experience
reduced market share or reduced profits due to price competition;
however, management believes that such market conditions will not result
in any long-term material loss of business.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of presentation
Effective in 1990 Envirodyne Industries, Inc. adopted a 52/53 week
fiscal year ending on the last Thursday of December. Viskase Holding
Corporation's 1993 financial statements include December 31, 1993 in
order to present the effect of the consummation of the Plan of
Reorganization.
(B) Principles of consolidation
The consolidated financial statements reflect the accounts of Viskase
Holding Corporation and its subsidiaries. All significant intercompany
transactions and balances between and among Viskase Holding Corporation
and its subsidiaries have been eliminated in the consolidation.
Reclassifications have been made to the prior years' financial
statements to conform to the 1997 presentation.
(C) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
(D) Cash equivalents (dollars in thousands)
For purposes of the statement of cash flows, the Company considers cash
equivalents to consist of all highly liquid debt investments purchased
with an initial maturity of approximately three months or less. Due to
the short-term nature of these instruments, the carrying values
approximate the fair market value. Cash equivalents include $37 and
$4,074 of short-term investments at December 25, 1997 and December 26,
1996, respectively.
(E) Inventories
Inventories, primarily foreign, are valued at the lower of first-in,
first-out (FIFO) cost or market.
(F) Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over
the estimated useful lives of the assets ranging from 3 to 32 years.
Upon retirement or other disposition, cost and related accumulated
depreciation are removed from the accounts, and any gain or loss is
included in other income/expense. Effective December 31, 1993 and in
conjunction with the Fresh Start Reporting, property, plant and
equipment was reported at the estimated fair value.
(G) Deferred financing costs
Deferred financing costs are amortized on a straight-line basis over the
expected term of the related debt agreement. Amortization of deferred
financing costs is classified as interest expense.
(H) Excess reorganization value and excess investment over net assets
acquired, net
Excess reorganization value is amortized on the straight-line method
over 15 years.
(I) Long-lived assets
The Company continues to evaluate the recoverability of property, plant
and equipment and excess reorganization value based on operating
performance and undiscounted cash flows of the operating business units.
Impairment will be recognized when the expected undiscounted future
operating cash flows derived from such assets are less than their
carrying value. If impairment is identified, valuation techniques deemed
appropriate under the particular circumstances will be used to determine
the assets' fair value. The loss will be measured based on the excess of
carrying value over the determined fair value. The review for impairment
is performed at least once a year.
(J) Pensions
The Company's operations in Europe have defined benefit retirement plans
covering substantially all salaried and full time hourly employees.
Pension cost is computed using the projected unit credit method.
The Company's funding policy is consistent with funding requirements of
the applicable foreign laws and regulations.
(K) Income taxes
Income taxes are accounted for in accordance with SFAS No. 109. Tax
provisions and benefits are recorded at statutory rates for taxable
items included in the consolidated statements of operations regardless
of the period for which such items are reported for tax purposes.
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities.
(L) Revenue recognition
Sales to customers are recorded at the time of shipment net of discounts
and allowances.
(M) Foreign currency contracts
The Company uses foreign exchange forward contracts to hedge some of its
non-functional currency receivables and payables which are denominated
in major currencies that can be traded on open markets. This strategy is
used to reduce the overall exposure to the effects of currency
fluctuations on cash flows. The Company's policy is not to speculate in
financial instruments.
Receivables and payables which are denominated in non-functional
currencies are translated to the functional currency at month end and
the resulting gain or loss is taken to other income/expense on the
income statement. Gains and losses on hedges of receivables and payables
are marked to market. The result is recognized in other income and
expense on the income statement.
(N) Other
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 periods beginning 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. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits" (SFAS No. 132), which will be effective
for fiscal years beginning after December 15, 1997. SFAS No. 132
standardizes the disclosure requirements for pensions and other
postretirement benefits, requires additional information on changes in
the benefit obligation and fair values of plan assets and eliminates
certain disclosures that are no longer useful. Management believes the
adoption of SFAS No. 132 will not have a material effect on the Company.
4. RECEIVABLES (dollars in thousands)
Receivables consisted primarily of trade accounts receivable and were
net of allowances for doubtful accounts of $851 and $1,404 at
December 25, 1997, and at December 26, 1996, respectively.
5. INVENTORIES (dollars in thousands)
Inventories consisted of:
December 25, December 26,
1997 1996
----------- -----------
Raw materials $ 4,418 $ 3,728
Work in process 10,511 11,395
Finished products 20,100 21,386
------- -------
$35,029 $36,509
======= =======
Inventories were net of reserves for obsolete and slow moving inventory
of $1,583 and $1,283 at December 25, 1997 and December 26, 1996,
respectively.
6. PROPERTY, PLANT AND EQUIPMENT (dollars in thousands)
December 25, December 26,
1997 1996
----------- -----------
Property, plant and equipment:
Land and improvements $ 3,372 $ 5,394
Buildings and improvements 24,124 30,349
Machinery and equipment 102,893 117,312
Construction in progress 7,834 4,916
Capital Leases:
Machinery and equipment 107 204
-------- --------
$138,330 $158,175
======== ========
Maintenance and repairs charged to costs and expenses for 1997, 1996,
and 1995 aggregated $7,139, $8,374 and $10,288, respectively.
Depreciation is computed on the straight-line method over the estimated
useful lives of the assets ranging from 3 to 32 years.
7. ACCRUED LIABILITIES (dollars in thousands)
Accrued liabilities were comprised of:
December 25, December 26,
1997 1996
----------- -----------
Compensation and employee benefits $ 9,225 $10,287
Taxes 2,527 6,073
Accrued volume and sales discounts 3,281 5,101
Inventory received not billed 604 2,805
Other 3,521 7,411
------- -------
$19,158 $31,677
------- -------
8. DEBT OBLIGATIONS (dollars in thousands)
As described in Note 1, Chapter ll Reorganization Proceedings,
Envirodyne and certain of its domestic Subsidiaries (including Viskase
Holding Corporation) emerged from Chapter 11 on December 31, 1993.
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 Envirodyne's $86,125 domestic term loan, (ii)
repay the $68,316 of obligations under Envirodyne'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 collateralized 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 Europe Limited. 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 $160,000 aggregate principle amount of
senior secured notes to certain institutional investors are still
outstanding at December 25, 1997.
The Company finances its working capital needs through a combination of
cash generated through operations, unsecured credit facilities and
intercompany loans.
The Company recognized an extraordinary loss of $1,030 representing the
write-off of deferred financing fees related to the June 20, 1995 debt
refinancing. The extraordinary loss, net of income tax benefits of $340,
was included in Envirodyne's Statement of Operations for the quarter
ended June 29, 1995.
The Viskase Limited term facility is with a foreign financial
institution. The term facility, which is collateralized by substantially
all of the assets of Viskase Limited, bears a variable interest rate and
is payable in semiannual installments through June 2000.
F-34
<PAGE> 40
Outstanding short-term and long-term debt consisted of:
December 25, December 26,
1997 1996
----------- -----------
Short-term debt and current maturity
of long-term debt:
Current maturity of
Viskase Limited Term Loan (3.2%) $1,629 $1,876
Other 1,018 2,233
------ ------
Total short-term debt $2,647 $4,109
====== ======
Long-term debt:
Viskase Limited Term Loan (3.2%) $2,443 $4,690
Other 2,648 164
====== ======
Total long-term debt $5,091 $4,854
====== ======
The fair value of the Company's debt 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. The fair values of debt obligations approximate their
carrying values.
Aggregate maturities of remaining long-term debt for each of the next
five fiscal years are:
Total
-------
1998 $2,647
1999 2,628
2000 1,671
2001 419
2002 149
9. OPERATING LEASES (dollars in thousands)
The Company has operating lease agreements for machinery, equipment and
facilities. The majority of the facilities leases require the Company to
pay maintenance, insurance and real estate taxes.
Future minimum lease payments for operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of
December 25, 1997, are:
1998 $1,415
1999 1,222
2000 887
2001 460
2002 47
Total thereafter
------
Total minimum lease payments $4,031
======
Total rent expense during 1997, 1996 and 1995 amounted to $2,549, $2,905
and $3,750, respectively.
10. RETIREMENT PLANS (dollars in thousands)
The Company maintains various pension and statutory separation pay plans
for its European employees. The expense for these plans in 1997, 1996
and 1995 was $1,216, $1,972 and $1,383, respectively. As of their most
recent valuation dates, in plans where vested benefits exceeded plan
assets, the actuarially computed value of vested benefits exceeded those
plans' assets by approximately $2,225; conversely, plan assets exceeded
the vested benefits in certain other plans by approximately $2,503.
The Company's postretirement benefits are not material.
11. CONTINGENCIES (dollars in thousands)
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's use of
two different very low density polyethylene plastic resins in the
manufacture of ANC's multi-layer barrier shrink film products was
infringing various Viskase patents relating to multi-layer barrier
plastic films used for fresh red meat, processed meat and poultry
product applications. In November 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. The Court also entered
an order permanently enjoining ANC from making or selling infringing
products after December 23, 1996.
On September 29, 1997, the Court set aside the jury verdict in part and
ordered a retrial on certain issues. The Court upheld the jury finding
on the validity of all of Viskase's patents and the jury finding that
ANC had willfully infringed Viskase's patents by ANC's use of Dow
Chemical Company's "Attane" brand polyethylene plastic resin in ANC's
products. However, the Court ordered a new trial on the issue of whether
ANC's use of Dow Chemical Company's "Affinity" brand polyethylene
plastic resin infringed Viskase's patents and whether such conduct was
willful. Because the jury rendered one general damage verdict, the Court
ordered a retrial of all damage issues. By operation of the Court's
order, the injunction in respect of ANC's future use of the "Affinity"
brand resin was removed. No new trial date has been set. The Company
expects ANC to vigorously contest this matter and to appeal any final
judgment. No part of the pending claims have been recorded in the
Company's financial statements.
In March 1997 Viskase Corporation received a subpoena from the Antitrust
Division of the United States Department of Justice relating to a grand
jury investigation of the sausage casings industry. Viskase Corporation
is cooperating fully with the investigation.
The Company and its subsidiaries are involved in various legal
proceedings arising out of its business and other environmental matters,
none of which is expected to have a material adverse effect upon its
results of operations, cash flows or financial position.
12. RESTRUCTURING CHARGES
During the third quarter of 1997, the Company's Viskase subsidiary
committed to a plan of restructuring whereby it will adjust its
operations from a segregated regional focus to a more congruent global
focus. These actions are directly related to lowering Viskase's fixed
costs. Restructuring actions identified resulted in charges to
continuing operations of $1.5 million before tax and included costs
associated with voluntary and involuntary severance expense and the
consolidation of a finishing plant. For the year 1997, $1.1 million was
incurred and charged against the reserve.
13. INCOME TAXES (dollars in thousands)
The provision (benefit) for income taxes consisted of:
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
Current:
Federal $2,159 $1,909 $1,316
Foreign 2,593 4,365 950
State and local 405 379 243
------ ------ ------
5,157 6,653 2,509
------ ------ ------
Deferred:
Federal - - -
Foreign (1,307) 393 2,098
State and local - - -
------- ------ ------
(1,307) 393 2,098
------- ------ ------
$ 3,850 $7,046 $4,607
======= ====== ======
A reconciliation from the statutory federal tax rate to the
consolidated effective tax rate follows:
<TABLE>
<CAPTION>
December 27, December 29, December 30,
1996 to 1995 to 1994 to
December 25, December 26, December 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Increase (decrease) in tax rate due to:
State and local taxes net of related federal tax benefit 2.9 1.5 2.3
Net effect of taxes relating to foreign operations 3.8 7.9 30.4
Other .2 (.6) .4
Consolidated effective tax rate 41.9% 43.8% 68.1%
</TABLE>
F-35
<PAGE> 41
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
Temporary Difference Tax Effected
-------------------------------- ----------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation basis differences $63,853 $22,823
Pension and healthcare 1,537 551
Other accruals, reserves, and other $7,776 441 $2,844 227
------ ------- ------ -------
$7,776 $65,831 $2,844 $23,601
====== ======= ====== =======
</TABLE>
At December 25, 1997, the Company had $19,173 of undistributed earnings
of foreign subsidiaries considered permanently invested for which deferred
taxes have not been provided.
<TABLE>
<CAPTION>
1996
Temporary Difference Tax Effected
-------------------------------- ----------------------------
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Depreciation basis differences $70,911 $25,206
Pension and healthcare 1,684 605
Other accruals, reserves, and other $6,457 3,813 $2,363 1,451
------ ------- ------ -------
$6,457 $76,408 $2,363 $27,262
====== ======= ====== =======
</TABLE>
At December 26, 1996, the Company had $16,393 of undistributed earnings
of foreign subsidiaries considered permanently invested for which
deferred taxes have not been provided.
Domestic earnings after extraordinary gain or loss and before income
taxes were approximately $6,505, $6,156 and $3,937 in 1997, 1996 and
1995, respectively. Foreign earnings before income taxes were
approximately $2,689, $9,942 and $2,832 in 1997, 1996 and 1995,
respectively.
14. RESEARCH AND DEVELOPMENT COSTS (dollars in thousands)
Research and development costs are expensed as incurred and totaled
$1,368, $1,282 and $1,106, for 1997, 1996, and 1995, respectively.
15. RELATED PARTY TRANSACTIONS (dollars in thousands)
Intercompany loans and advances:
December 25, December 26,
1997 1996
----------- -----------
Viskase S.A. 12% promissory note
due to Envirodyne $ 7,000
Viskase Europe Limited 12% promissory
note due to Envirodyne $11,510 13,681
Advances:
Viskase Corporation to
Viskase Holding Corporation 38,010 38,010
------- -------
$49,520 $58,691
======= =======
The Viskase S.A. 12% promissory note due to Envirodyne is payable upon
demand. The note was repaid in Fiscal 1997.
The Viskase Europe Limited 12% promissory note due to Envirodyne is
payable on demand. Interest is payable semiannually on June 30 and
December 31.
The Viskase Corporation advance to Viskase Holding Corporation is
payable on demand.
License Agreements
Viskase Holding Corporation has been granted the right to license
Viskase Corporation's patents and technology pursuant to a license
agreement between Viskase Corporation and Viskase Holding Corporation.
Intercompany transactions:
In 1997, 1996 and 1995, the Company was charged $703, $999 and $1,022,
respectively, by Viskase Corporation for management services. In 1997,
1996 and 1995, the Company was charged $500, $520 and $687,
respectively, by Envirodyne for management services.
During 1997, 1996 and 1995, the Company purchased semi-finished and
finished inventory from Viskase Sales Corporation in the amount of
$35,149, $32,489 and $26,953, respectively. In addition, during 1997,
1996 and 1995, the Company had sales of inventory to Viskase Sales
Corporation in the amount of $6,524, $7,842 and $7,329, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying value and estimated fair value
as of December 25, 1997 of the Company's financial instruments. (Refer
to Notes 3 and 8.)
Carrying Estimated
Value Fair Value
-------- -----------
Assets:
Cash and equivalents $ 4,538 $ 4,538
Foreign currency contracts 10,575 10,148
Liabilities:
Long-term debt excluding
capital lease obligations 4,226 4,226
F-36
<PAGE> 42
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Provision Balance
Beginning Charged to at End
Description of Period Expense Write-offs Recoveries Other(1) of Period
-------------------- ---------- ----------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1997 for the year ended
December 25
Allowance for
doubtful accounts $2,051 $ 665 $(1,452) $ 13 $ (2) $1,275
1996 for the year ended
December 26
Allowance for
doubtful accounts 3,224 659 (2,293) 469 (8) 2,051
1995 for the year ended
December 28
Allowance for
doubtful accounts 2,136 1,403 (472) 6 151 3,224
1997 for the year ended
December 25
Reserve for obsolete and
slow moving inventory 4,397 1,944 (1,865) (6) 4,470
1996 for the year ended
December 26
Reserve for obsolete and
slow moving inventory 3,818 1,805 (1,210) (16) 4,397
1995 for the year ended
December 28
Reserve for obsolete and
slow moving inventory 5,353 1,264 (2,868) 69 3,818
<FN>
(1) Foreign currency translation.
</TABLE>
F-37
<PAGE> 43
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
---------- -----------------------
<S> <C> <C>
3(a)* -- Restated Certificate of Incorporation of Zapata filed
with Secretary of State of Delaware May 3, 1994 (Exhibit
3(a) to Current Report on Form 8-K dated April 27, 1994
(File No. 1-4219)).
3(b)* -- Certificate of Designation, Preferences and Rights of
$1 Preference Stock (Exhibit 3(c) to Zapata's Quarterly
Report on Form 10-Q for the fiscal quarter ended March
31, 1993 (File No. 1-4219)).
3(c)* -- Certificate of Designation, Preferences and Rights of
$100 Preference Stock (Exhibit 3(d) to Zapata's
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1993 (File No. 1- 4219)).
3(d)* -- By-laws of Zapata, as amended effective November 11,
1996, are incorporated herein by reference to Exhibit
3(b) to Zapata's report on Form 10-K for the fiscal year
ended September 30, 1996.
Certain instruments respecting long-term debt of Zapata
and its subsidiaries have been omitted pursuant to
Regulation S-K, Item 601. Zapata hereby agrees to
furnish a copy of any such instrument to the Commission
upon request.
10(a)*+ -- Zapata 1990 Stock Option Plan (Exhibit 10(b) to
Zapata's Annual Report on Form 10-K for the fiscal year
ended September 30, 1990 (File No. 1-4219)).
10(b)*+ -- First Amendment to Zapata 1990 Stock Option Plan
(Exhibit 10(c) to Zapata's Registration Statement on
Form S-1 (Registration No. 33-40286)).
10(c)*+ -- Zapata Special Incentive Plan, as amended and
restated effective February 6, 1992 (Exhibit 10(a) to
Zapata's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1992 (File No. 1- 4219)).
10(d)*+ -- Zapata 1981 Stock Incentive Plan, as amended and
restated effective February 12, 1986 (Exhibit 19(a) to
Zapata's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1986 (File No. 1-4219)).
10(e)*+ -- Zapata Supplemental Pension Plan effective as of
April 1, 1992 (Exhibit 10(b) to Zapata's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1992
(File No. 1-4219)).
10(f)*+ -- Zapata Annual Incentive Plan effective January 1, 1991
(Exhibit 10(h) to Zapata's Registration Statement on
Form S-1 (Registration No. 33-40286)).
10(g)*+ -- Employment Agreement between Lamar C. McIntyre and
Zapata dated as of October 1, 1994 (Exhibit 10(v) to
Zapata's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994 (File No. 1-4219)).
10(h)* -- Stock Purchase Agreement dated as of August 7, 1995
between Zapata Corporation and Malcolm I. Glazer
(Exhibit 10(o) to Zapata's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 (File No.
1-4219)).
10(i)* -- Purchase and Sale Agreement dated March 26, 1996 by and
among Cimarron Gas Holding Company, Conoco Inc. and
Enogex Products Corporation (Exhibit 2.1 to Zapata's
Current Report on Form 8-K dated April 9, 1996 (File No.
1-4219)).
10(j)* -- Amendment and Clarification of Purchase and Sale
Agreement, Waiver and Closing Agreement dated April 9,
1996 (Exhibit 2.2 to Zapata's Current Report on Form 8-K
dated April 9, 1996 (File No. 1-4219)).
10(k)* -- Agreement and Plan of Merger dated as of June 4, 1996
among Zapata, Zapata Acquisition Corp. and Houlihan's
(Exhibit 2.1 to Zapata's Registration Statement on Form
S-4 (Reg. No. 333- 06729)).
10(l)* -- Standstill Agreement dated April 30, 1996 between Zapata
and Malcolm I. Glazer (Exhibit 10.18 to Zapata's
Registration Statement on Form S-4 (Reg. No.
333-06729)).
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C>
10(m)* -- Irrevocable proxy dated June 4, 1996 granted by Malcolm
I. Glazer to members of a Special Committee of the Board
of Directors of Zapata (Exhibit 10.19 to Zapata's
Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(n)* -- Supplemental Agreement dated June 4, 1996 between
Malcolm I. Glazer and Zapata (Exhibit 10.20 to Zapata's
Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(o)*+ -- 1996 Long-Term Incentive Plan of Zapata (Exhibit 10.21
to Zapata's Registration Statement on Form S-4 (Reg. No.
333-06729)).
10(p)*+ -- Employment Agreement between Joseph L. von Rosenberg III
and Zapata effective as of June 1, 1996.
10(q)* -- Shareholders' Agreement dated May 30, 1997 by Malcolm I.
Glazer and the Malcolm I. Glazer Family Limited
Partnership in favor of Zapata (Exhibit 10(z) to
Zapata's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997 (File No. 1-4219)).
21*++ -- Subsidiaries of the Registrant.
23(a)*++ -- Consent of Coopers & Lybrand L.L.P.
23(b) -- Consent of Coopers & Lybrand L.L.P. with respect to
the consolidated financial statements of Envirodyne
Industries, Inc.
24*++ -- Powers of attorney.
27*++ -- Financial Data Schedule.
</TABLE>
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
++ Exhibits filed with the Company's Form 10-K for fiscal year ended September
30, 1997.
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Zapata Corporation on Form S-3 (File 33-68034) and on Form S-8
(File Nos. 33-19085, 33-45251 and 333-43223) of our reports dated March 20,
1998, on our audits of (a) the consolidated financial statements and financial
statement schedules of Envirodyne Industries, Inc. and Subsidiaries as of
December 25, 1997 and December 26, 1996 and for the period December 27, 1996 to
December 25, 1997 and December 29, 1995 to December 26, 1996, and December 30,
1994 to December 28, 1995 and (b) the consolidated financial statements and
financial statement schedules of Viskase Holding Corporation and Subsidiaries as
of December 25, 1997 and December 26, 1996 and for the period December 27, 1996
to December 25, 1997, December 29, 1995 to December 26, 1996, and December 30,
1994 to December 28, 1995, which reports are included in this Form 10-K/A.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
April 7, 1998
6
