<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-Q/A
AMENDMENT NO. 1
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended March 30, 1995
---------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ______________
Commission file number 0-5485
------
ENVIRODYNE INDUSTRIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2677354
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Harger Road, Suite 190, Oak Brook, Illinois 60521
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (708) 571-8800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has
filed all documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X No
----- -----
As of May 12, 1995, there were 13,515,000 shares outstanding of the
registrant's Common Stock, $.01 par value.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information included in this quarterly report has been prepared
in conformity with the accounting principles and practices reflected in the
financial statements included in the annual report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 29, 1994 (1994
Form 10-K). These quarterly financial statements should be read in conjunction
with the financial statements and the notes thereto included in the 1994 Form
10-K. The accompanying financial information, which is unaudited, reflects all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods presented.
The condensed consolidated balance sheet as of December 29, 1994 was derived
from the audited consolidated financial statements in the Company's annual
report of Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
2
<PAGE> 3
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1995 1994
---- ----
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 7,209 $ 7,289
Receivables, net 89,007 86,868
Inventories 124,470 110,483
Other current assets 30,311 19,466
-------- --------
Total current assets 250,997 224,106
Property, plant and equipment, including those
under capital lease 518,958 506,099
Less accumulated depreciation and amortization 46,166 35,761
-------- --------
Property, plant and equipment, net 472,792 470,338
Deferred financing costs 9,130 9,143
Other assets 45,842 47,181
Excess reorganization value 143,252 145,868
-------- --------
$922,013 $896,636
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt including current portion of
long-term debt and obligation under capital lease $ 28,221 $ 25,798
Accounts payable 34,680 34,335
Accrued liabilities 73,805 72,246
-------- --------
Total current liabilities 136,706 132,379
Long-term debt including obligation under capital lease 510,944 489,358
Accrued employee benefits 56,927 56,217
Deferred and noncurrent income taxes 83,426 83,333
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; none outstanding
Common stock, $.01 par value; 13,515,000 shares
issued and outstanding 135 135
Paid in capital 134,865 134,865
Accumulated (deficit) (7,507) (3,612)
Cumulative foreign currency translation adjustments 6,517 3,961
-------- --------
Total stockholders' equity 134,010 135,349
-------- --------
$922,013 $896,636
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 30, MARCH 31,
1995 1994
---- ----
(IN THOUSANDS, EXCEPT
FOR NUMBER OF SHARES
AND
PER SHARE AMOUNTS)
<S> <C> <C>
NET SALES $ 155,824 $ 142,593
COSTS AND EXPENSES
Cost of sales 113,689 102,119
Selling, general and administrative 29,536 26,918
Amortization of intangibles and
excess reorganization value 3,910 3,846
----------- -----------
OPERATING INCOME 8,689 9,710
Interest income 64 61
Interest expense 13,434 12,059
Other income, net 591 281
Minority interest in loss of subsidiary 50
----------- -----------
(LOSS) BEFORE INCOME TAXES (4,090) (1,957)
Income tax provision (benefit) (195) 550
----------- -----------
NET (LOSS) $ (3,895) $ (2,507)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 13,515,000 13,500,000
PER SHARE AMOUNTS:
NET (LOSS) $ (.29) $ (.19)
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 30, MARCH 31,
1995 1994
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (3,895) $ (2,507)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization under capital lease 9,986 9,000
Amortization of intangibles and excess
reorganization value 3,910 3,846
Amortization of deferred financing fees and discount 549 362
Decrease in deferred and noncurrent income taxes (907) (936)
Foreign currency transaction gain (1,586) (837)
Changes in operating assets and liabilities:
Accounts receivable (438) (7,798)
Inventories (12,192) (7,719)
Other current assets (10,615) (9,529)
Accounts payable and accrued liabilities 254 1,954
Other 398 949
-------- --------
Total adjustments (10,641) (10,708)
-------- --------
Net cash used in operating activities (14,536) (13,215)
Cash flows from investing activities:
Capital expenditures (7,631) (7,354)
Proceeds from sale of property, plant and equipment 20
Purchase of minority interest in subsidiary (4,200)
-------- --------
Net cash (used in) investing activities (7,631) (11,534)
Cash flows from financing activities:
Proceeds from revolving loan and long-term borrowings 42,249 25,836
Deferred financing costs (464) (10)
Repayment of revolving loan, long-term borrowings and
capital lease obligations (19,973) (5,058)
-------- --------
Net cash provided by financing activities 21,812 20,768
Effect of currency exchange rate changes on cash 275 175
-------- --------
Net decrease in cash and equivalents (80) (3,806)
Cash and equivalents at beginning of period 7,289 7,743
-------- --------
Cash and equivalents at end of period $ 7,209 $ 3,937
======== ========
Supplemental cash flow information:
Interest paid $ 16,330 $ 16,420
Income taxes paid $ 1,045 $ 479
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION PROCEEDINGS, (DOLLARS IN THOUSANDS)
On January 6, 1993, a group of bondholders filed an involuntary
petition for reorganization of Envirodyne Industries, Inc. under Chapter 11 of
the U.S. Bankruptcy Code. On January 7, 1993 Viskase Corporation, Viskase
Sales Corporation, Viskase Holding Corporation, Clear Shield National, Inc.,
Sandusky Plastics of Delaware, Inc., Sandusky Plastics, Inc. and Envirodyne
Finance Company each filed voluntary petitions under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the Northern District
of Illinois, Eastern Division (the Bankruptcy Court). On December 17, 1993,
the Bankruptcy Court confirmed the First Amended Joint Plan of Reorganization
as twice modified (Plan of Reorganization) with respect to Envirodyne
Industries, Inc. (Envirodyne) and certain of its subsidiaries. The Plan of
Reorganization was consummated and Envirodyne and certain of its subsidiaries
emerged from Chapter 11 on December 31, 1993 (Effective Date). For accounting
purposes, the Plan of Reorganization was deemed to be effective as of December
31, 1993.
The Plan of Reorganization provided for the initial issuance of
approximately 13,500,000 shares of Envirodyne common stock, warrants to
purchase an additional 1,500,000 shares (subject to adjustment) and $219,262
principal amount of 10-1/4% Senior Notes Due 2001 (10-1/4% Notes).
Holders of allowed general unsecured claims of Envirodyne (as opposed
to subsidiaries of Envirodyne) became entitled to receive 32.28 shares of
common stock for each five hundred dollars of their prepetition claims, or a
total of 8,070 shares of common stock, representing .06% of the common stock
initially issued pursuant to the Plan of Reorganization. These claims totaled
approximately $125. If the allowed amount of general unsecured claims of
Envirodyne exceeds $125, for example upon the resolution of disputed claims,
additional shares of common stock will have to be issued to the holders of
allowed general unsecured claims of Envirodyne in order to provide equitable
allocation of value among Envirodyne's unsecured creditors under the Plan of
Reorganization. Such additional shares of common stock would be distributed
with respect to allowed general unsecured claims of Envirodyne as follows: (i)
approximately 2.58 additional shares per five hundred dollars in claims in the
event allowed general unsecured claims of Envirodyne are between $125 and
$25,000; (ii) approximately 5.61 additional shares per five hundred dollars in
claims in the event allowed general unsecured claims of Envirodyne are between
$25,000 and $50,000; (iii) approximately 9.22 additional shares per five
hundred dollars in claims in the event allowed general unsecured claims of
Envirodyne are between $50,000 and $75,000; and (iv) approximately 13.58
additional shares per five hundred dollars in claims in the event allowed
general unsecured claims of Envirodyne are between $75,000 and $100,000. Refer
to Note 5 for a discussion of disputed claims which, if determined adversely to
Envirodyne, would result in the issuance of common stock.
The Company accounted for the reorganization using the principles of
fresh start reporting in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code." Accordingly, all assets and
liabilities were restated to reflect their reorganization value. A
reorganization value of the Company's equity of $135,000 was based on the
consideration of many factors and various valuation methods, including
discounted cash flows and comparable multiples of earnings valuation techniques
believed by management and its financial advisors to be representative of the
Company's business and industry. Factors considered by the Company included
the following:
6
<PAGE> 7
. Forecasted operating and cash flow results which gave effect to
the estimated impact of debt restructuring and other operational
reorgnaization.
. Discounted residual value at the end of the forecasted period
based on the capitalized cash flows for the last year of that
period.
. Competition and general economic considerations.
. Projected sales growth.
. Potential profitability.
. Seasonality and working capital requirements.
The excess of the reorganization value over the fair value of net assets and
liabilities has been reported as excess reorganization value and is being
amortized over a fifteen-year period. The Company continues to evaluate the
recoverability of excess reorganization value based on the operating
performance and expected undiscounted future cash flows of the operating
business units.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Principles of Consolidation
The consolidated financial statements include the accounts of
Envirodyne and its subsidiaries.
3. INVENTORIES, (DOLLARS IN THOUSANDS)
Inventories consisted of:
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 24,077 $ 20,358
Work in process 41,732 37,613
Finished products 58,661 52,512
-------- --------
$124,470 $110,483
======== ========
</TABLE>
Approximately 54% of the inventories at March 30, 1995 were valued at
Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing
cost by approximately $4.4 million at March 30, 1995.
4. DEBT OBLIGATIONS, (DOLLARS IN THOUSANDS)
As described in Note 1, Chapter 11 Reorganization Proceedings,
Envirodyne and certain of its domestic Subsidiaries emerged from Chapter 11 on
December 31, 1993.
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 12-month period commencing on
January 1 of the following years:
7
<PAGE> 8
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
1995 105%
1996 104%
1997 103%
1998 102%
1999 101%
2000 and thereafter 100%
</TABLE>
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.
In connection with the consummation of the Plan of Reorganization,
Envirodyne and certain of its subsidiaries (Borrowers) entered into a Credit
Agreement dated December 31, 1993 (Credit Agreement) with the lenders party
thereto (Lenders) and with Bank of America Illinois (formerly Continental Bank
N.A.), Citibank International PLC and Citicorp North America, Inc., as agents
for the Lenders. The Credit Agreement provides for a $195,000 facility,
consisting of a $100,000 domestic term loan facility, a $65,000 domestic
revolving credit facility (which includes a $27,000 domestic letter of credit
facility) and a $30,000 amortizing multicurrency revolving credit facility
(which includes a $3,000 multicurrency letter of credit facility). The
commitment under the amortizing multicurrency revolver was $27,300 at March 30,
1995. The initial borrowings under the Credit Agreement were used (i) to pay
indebtedness under the Postpetition Credit Agreement dated as of February 5,
1993 among the Debtors, the lenders party thereto (DIP Lenders) and Continental
Bank N.A., as agent for the DIP Lenders, (ii) to pay indebtedness under certain
foreign credit facilities, (iii) to pay the claims of subsidiary trade
creditors under the Plan of Reorganization and (iv) to pay certain fees and
expenses relating to the Plan of Reorganization and the Credit Agreement.
Obligations under the Credit Agreement are collateralized by substantially all
of the assets of Envirodyne and its domestic subsidiaries and by the pledge of
the capital stock of substantially all of Envirodyne's subsidiaries.
Availability of funds under the Credit Agreement is subject to a borrowing base
measured by certain assets of Envirodyne and its subsidiaries.
The available borrowing capacity under the Credit Agreement was
approximately $11 million at March 30, 1995.
Borrowings under the domestic term loan facility and the domestic
revolving credit facility bear interest, at the Company's election, at a rate
per annum equal to (i) the Bank of America Illinois base rate plus 1.5% or (ii)
the Eurodollar rate plus 2.75%, subject to step downs of up to 0.5% if the
Company meets certain debt and interest coverage tests. The domestic term loan
facility terminates on December 31, 1999 and is subject to quarterly repayments
of principal as follows:
<TABLE>
<CAPTION>
CALENDAR
QUARTERLY TOTAL
REPAYMENT REPAYMENT FOR
YEAR AMOUNT CALENDAR YEAR
- ---- --------- -------------
<S> <C> <C>
1995 $2,775 $11,100
1996 4,075 16,300
1997 4,450 17,800
1998 4,625 18,500
1999 6,300 25,200
</TABLE>
8
<PAGE> 9
The domestic revolving credit facility expires on December 31, 1999,
with a commitment fee of 0.5% per annum on the unused portion of the
commitment. The domestic letter of credit facility expires December 16, 1999,
with fees on the outstanding amount of the domestic letters of credit of 0.25%
per annum to the issuers and 2.5% per annum to the domestic Lenders, subject to
step downs of up to 0.5% if the Company meets certain debt and interest
coverage tests.
The multicurrency revolving credit facility permits borrowings in U.S.
Dollars, German Marks, French Francs or Pounds Sterling at an interest rate per
annum equal to the applicable Eurocurrency rate plus 2.75%, subject to step
downs of up to 0.5% if the Company meets certain debt and interest coverage
tests. The multicurrency revolving credit facility expires on December 31,
1999 and the commitments thereunder are subject to mandatory quarterly
reductions as follows:
<TABLE>
<CAPTION>
CALENDAR
QUARTERLY TOTAL
CALENDAR COMMITMENT REDUCTION FOR
YEAR REDUCTION CALENDAR YEAR
---- --------- -------------
<S> <C> <C>
1995 $ 500 $2,000
1996 950 3,800
1997 1,075 4,300
1998 1,150 4,600
1999 775 3,100
</TABLE>
There is a commitment fee of 0.5% per annum on the unused portion of
the multicurrency revolving credit facility. The multicurrency letter of
credit facility expires December 16, 1999, with fees on the outstanding amount
of the multicurrency letters of credit of 0.25% per annum to the issuers and
2.5% per annum to the multicurrency Lenders, subject to step downs of up to
0.5% if the Company meets certain debt and interest coverage tests.
Envirodyne's obligations under the Credit Agreement bear interest at
rates that are expected to fluctuate over time. Envirodyne is required under
the Credit Agreement to enter into interest rate protection agreements with
respect to a significant portion of the amounts outstanding from time to time
thereunder. Envirodyne has entered into $50 million of interest rate
protection agreements that cap the Company's LIBOR interest component (excludes
spread) at an average rate of 6.50% until January 1997. The fair value of
interest rate cap agreements is estimated by obtaining quotes from banks. At
March 30, 1995, the carrying amount and estimated fair value of interest rate
cap agreements were $1,021 and $353, respectively.
The Borrowers have made certain representations and have agreed to
certain covenants that restrict the operations of the Borrowers and their
subsidiaries' businesses. Among other things, the Borrowers may not, with
limited exceptions, place liens on their properties or assets, incur additional
indebtedness, make dividend or other distributions on capital stock, make
investments (other than cash equivalent investments), merge or consolidate with
any other person, dispose of assets outside the ordinary course of business or
exceed stated levels of capital expenditures. The Credit Agreement also
contains a number of financial covenants, including covenants relating to cash
flow, interest and fixed charge coverage ratios, net worth and debt to cash
flow levels.
Unless cured within any applicable grace period, events of default
include failure to pay principal, interest or other amounts due to the Lenders,
a material breach of a representation or warranty, certain events related to
employee benefit plans, certain events of bankruptcy or insolvency, defaults on
other indebtedness having a principal amount in the aggregate in excess of
$5,000, failure to discharge judgments in an amount in excess of $5,000, a
change of control (as defined) and failure to comply with covenants, including
the financial covenants described above.
9
<PAGE> 10
The Company and the Lenders entered into an amendment of the Credit
Agreement as of January 24, 1995 easing certain financial covenants and
permanently waiving the event of default arising from the ownership by the
Malcolm I. Glazer Trust (Trust) of more than 30% of the Company's Common Stock,
provided that the Trust's ownership does not later exceed 49% of the Company's
outstanding Common Stock. The Company is currently in compliance with the
terms of the Credit Agreement, including the financial covenants.
Outstanding short-term and long-term debt consisted of:
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 29,
1995 1994
---- ----
<S> <C> <C>
Short-term debt, current maturity of long-term debt,
and capital lease obligation:
Current maturity of Bank Term Loan (9.3%) $ 11,100 $ 11,100
Current maturity of Viskase Capital Lease Obligation 6,012 5,450
Current maturity of Viskase Limited Term Loan (5.9%) 2,062 1,882
Other 9,047 7,366
-------- --------
Total short-term debt $ 28,221 $ 25,798
======== ========
Long-term debt:
Bank Credit Agreement:
Term Loan due 1999 (9.3%) $ 77,800 $ 80,575
Revolving Loan due 1999 (8.9%) 62,112 32,524
10.25% Senior Notes due 2001 219,262 219,262
Viskase Capital Lease Obligation 141,182 147,194
Viskase Limited Term Loan (5.9%) 9,279 8,466
Other 1,309 1,337
-------- --------
Total long-term debt $510,944 $489,358
======== ========
</TABLE>
The fair value of the Company's debt obligation (excluding capital
lease obligation) is estimated based upon the quoted market prices for the same
or similar issues or on the current rates offered to the Company for the debt
of the same remaining maturities. At March 30, 1995, the carrying amount and
estimated fair value of debt obligations (excluding capital lease obligation)
were $391,971 and $352,504, respectively.
On December 28, 1990, Viskase and GECC entered into a sale and
leaseback transaction. The sale and leaseback of assets included the
production and finishing equipment at Viskase's four domestic casing production
and finishing facilities. The facilities are located in Chicago, Illinois;
Loudon, Tennessee; Osceola, Arkansas and Kentland, Indiana. Viskase, as the
Lessee under the relevant agreements, will continue to operate all of the
facilities. The lease has been accounted for as a capital lease.
The principal terms of the sale and leaseback transaction include: (a)
a 15 year basic lease term (plus selected renewals at Viskase's option); (b)
annual rent payments in advance beginning in February 1991; and (c) a fixed
price purchase option at the end of the basic 15 year term and fair market
purchase options at the end of the basic term and each renewal term. Further,
the Lease Documents contain covenants requiring maintenance by the Company of
certain financial ratios and restricting the Company's ability to pay
dividends, make payments to affiliates, make investments and incur
indebtedness.
Annual rental payments under the Lease will be approximately $19.2
million through 1997, $21.4 million in 1998 and $23.5 million through the end
of the basic 15-year term. Viskase is required to provide credit support
consisting of a standby letter of credit in an amount up to one year's rent
through at least 1997. This credit support can be reduced up to $4 million
currently if the Company achieves and maintains certain financial ratios. As
of March 30, 1995,
10
<PAGE> 11
the Company had met the required financial ratios and the letter of credit has
been reduced by $4 million. The letter can be further reduced in 1997 or
eliminated after 1998 if the Company achieves and maintains certain financial
ratios. Envirodyne and its other principal subsidiaries guaranteed the
obligations of Viskase under the Lease.
The following is a schedule of minimum future lease payments under the
capital lease together with the present value of the net minimum lease payments
as of March 30, 1995:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
- --------------------
<S> <C>
1996 $ 19,227
1997 19,227
1998 21,363
1999 23,499
2000 23,499
Thereafter 117,495
--------
Net minimum lease payments 224,310
Less:
Amount representing interest (77,116)
--------
$147,194
========
</TABLE>
The 1995 rental payment of $19,227 was paid on February 28, 1995.
Principal payments under the capital lease obligation for the years ended 1995
through 1999 range from approximately $5 million to $13 million.
5. CONTINGENCIES, (DOLLARS IN THOUSANDS)
A class action lawsuit by former employees of subsidiary corporations
comprising most of the Company's former steel and mining division (SMD) was
pending as of the commencement of the bankruptcy case in which the plaintiffs
are seeking substantial damages. The Company and the plaintiffs are currently
participating in a mediation process to attempt to resolve the case.
Envirodyne denies liability and in the absence of successful mediation or other
settlement negotiations will continue to vigorously defend these claims.
However, inasmuch as the Plan of Reorganization provides for the issuance of
common stock with respect to prepetition Envirodyne general unsecured claims
(refer to Note 1), an adverse finding of liability and damages could result in
substantial dilution to the holders of the common stock.
Litigation has been initiated with respect to events arising out of
the bankruptcy cases and the 1989 acquisition of Envirodyne by Emerald
Acquisition Corporation (Emerald) with respect to which, although Envirodyne is
not presently a party to such litigation, certain defendants have asserted
indemnity rights against Envirodyne. In ARTRA Group Incorporated v. Salomon
Brothers Holding Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates,
L.P., Donald P. Kelly, Charles K. Bobrinskoy, James L. Massey, William Rifkind
and Michael Zimmerman, Case No. 93 A 1616, United States Bankruptcy Court for
the Northern District of Illinois, Eastern Division (Bankruptcy Court), ARTRA
Group Incorporated (ARTRA) alleges breach of fiduciary duty and tortious
inference in connection with the negotiation and consummation of the Plan of
Reorganization. In ARTRA Group Incorporated v. Salomon Brothers Holding
Company Inc, Salomon Brothers Inc, D.P. Kelly & Associates, L.P., Donald P.
Kelly, Charles K. Bobrinskoy and Michael Zimmerman, Case No. 93 L 2198, Circuit
Court of the Eighteenth Judicial Circuit, County of DuPage, State of Illinois,
ARTRA alleges negligence, breach of fiduciary duty, fraudulent
misrepresentation and deceptive business practices in connection with the 1989
acquisition of Envirodyne by Emerald. The plaintiff seeks damages in the total
amount of $136.2 million plus interest and punitive damages of $408.6 million.
D.P. Kelly & Associates, L.P. and Messrs. Kelly, Bobrinskoy, Massey, Rifkind
and Zimmerman have asserted common law and contractual rights of indemnity
against Envirodyne for attorneys' fees,
11
<PAGE> 12
costs and any ultimate liability relating to the claims set forth in the
complaints. Upon the undertaking of D.P. Kelly & Associates, L.P. to repay
such funds in the event it is ultimately determined that there is no right to
indemnity, Envirodyne is advancing funds to D.P. Kelly & Associates, L.P. and
Mr. Kelly for the payment of legal fees in the case pending before the
Bankruptcy Court. Although the case is in a preliminary stage and the Company
is not a party thereto, the Company believes that the plaintiff's claims raise
similar factual issues to those raised in the bankruptcy cases which, if
adjudicated in a manner similar to that in the bankruptcy cases, would render
it difficult for the plaintiff to establish liability. Accordingly, the
Company believes that the indemnification claims would not have a material
adverse effect upon the business or financial position of the Company, even if
the claimants were ultimately successful in establishing their right to
indemnification.
In the Envirodyne bankruptcy case the United States Environmental
Protection Agency (USEPA), the Economic Development Authority (EDA), and
Navistar International Transportation Corp. (Navistar Transportation) filed
proofs of claim with respect to unreimbursed environmental response costs at
the location of the former SMD operations. The parties have agreed in
principle, subject to the negotiation of a definitive settlement agreement,
Bankruptcy Court approval and public comment pursuant to regulations applicable
to EDA and USEPA, to settle the claims against Envirodyne through the payment
of five thousand dollars to the USEPA and the issuance of 64,460 shares of
common stock to Navistar Transportation. In the event that the settlement is
not completed, Envirodyne believes that it has valid defenses to the claims and
will continue its objections to the claims. To the extent that USEPA, EDA or
Navistar Transportation were able to establish liability and damages as to
their respective proofs of claim, such parties would receive Common Stock under
the Plan of Reorganization in satisfaction of their claims.
Certain of Envirodyne's stockholders prior to the acquisition of
Envirodyne by Emerald failed to exchange their certificates representing old
Envirodyne common stock for the forty dollar per share cash merger
consideration specified by the applicable acquisition agreement. In the
Envirodyne bankruptcy case, Envirodyne is seeking to equitably subordinate the
interests of the holders of untendered shares, in which event such holders
would receive no distribution pursuant to the Plan of Reorganization. The
Bankruptcy Court granted Envirodyne's motion for summary judgment to equitably
subordinate the holders of untendered shares. Certain holders have appealed
the summary judgment to the United States District Court for the Northern
District of Illinois. If such holders were ultimately successful, Envirodyne
believes that the maximum number of shares of common stock that it would be
required to issue to such claimants is approximately 106,000.
In August 1993, Clear Shield National, Inc. received a subpoena from
the Antitrust Division of the United States Department of Justice relating to a
grand jury investigation of the disposable plastic cutlery industry. Clear
Shield National, Inc. has cooperated 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
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, (dollars in thousands)
The accompanying management's discussion and analysis of financial condition
and results of operations should be read in conjunction with the following
table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
MARCH 30, MARCH 31,
1995 1994
----------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net sales:
Food packaging products $138,596 $126,864
Disposable foodservice supplies 17,228 15,875
Other and eliminations (146)
------- -------
$155,824 $142,593
======== ========
Operating income:
Food packaging products $ 8,990 $ 10,153
Disposable foodservice supplies 1,264 1,148
Other and eliminations (1,565) (1,591)
------- --------
$ 8,689 $ 9,710
======= =======
Depreciation and amortization
under capital lease and
amortization of intangible expense:
Food packaging products $ 12,768 $ 11,499
Disposable foodservice supplies 1,110 1,333
Other 18 14
------- -------
$ 13,896 $ 12,846
======= =======
Capital expenditures:
Food packaging products $ 6,053 $ 6,638
Disposable foodservice supplies 1,578 709
Other 7
------- -------
$ 7,631 $ 7,354
====== ======
</TABLE>
Results of Operations
The Company's sales for the first three months of 1995 were $155.8 million,
which represented an increase of 9.3% from the first three months of 1994. Net
sales at Viskase increased due to the expansion of Latin American sales,
selected sales price increases, strong worldwide film sales, combined with the
favorable effects of foreign currency translation. Net sales at Clear Shield
increased 8.5% from the prior year primarily due to selling price increases.
Sandusky sales declined 21.2% due to the loss of the baby wipe business
combined with some reduced dairy and deli container sales.
Operating income for the first three months of 1995 was $8.7 million, which
represented a decline of $1 million from the first quarter of 1994. The
decline in operating income in 1995 is due to the continued increase in resin
prices, price competition in some foreign markets coupled with additional
selling, general and administrative expenses resulting from
13
<PAGE> 14
strategic expansions in foreign markets, including Europe, Latin America and
Australia and the decline in Sandusky's sales.
First quarter 1995 net interest expense totaled $13.4 million, which
represented an increase of $1.4 million from the first quarter of 1994. The
increase is primarily the result of both increased borrowings and higher
interest rates on the term and revolving loan facilities, combined with
additional amortization of deferred financing fees.
The tax benefit in the 1995 first quarter resulted from the benefit of U.S.
losses partially offset by the provision related to income from foreign
subsidiaries. Due to the permanent differences in the U.S. resulting from
non-deductible amortization and foreign losses for which no tax benefit is
provided, a benefit of $.2 million was provided on a loss before income taxes
of $4.1 million. The U.S. tax benefit is recorded as a reduction of the
deferred tax liability, and does not result in a refund of income taxes.
Liquidity and Capital Resources
Cash and equivalents decreased by $80 thousand during the three months ended
March 30, 1995. Cash flows used in investing activities of $7.6 million and
used in operating activities of $14.4 million exceeded cash flows provided by
financing activities. Cash flows used in investing activity consist of capital
expenditures for property, plant and equpment. Cash flows used in operating
activities were principally attributable to the Company's loss from operations
and an increase in operating assets and liabilities offset by the effect of
depreciation and amortization. Cash flows provided by financing activities
were principally attributable to borrowings under the Company's senior secured
bank credit facility net of scheduled payments under the Company's senior
secured bank credit facility, Viskase's capital lease obligation and Viskase
Limited's term loan.
Envirodyne and certain of its subsidiaries are parties to a $195 million Credit
Agreement (Credit Agreement) with a group of banks and financial institutions
(Lenders). The Credit Agreement provides for a $100 million term loan facility,
a $65 million domestic revolving credit facility and a $30 million amortizing
multicurrency revolving credit facility. Borrowings are subject to borrowing
base availability.
The Company expects to have sufficient funds available from cash flow from
operations and borrowings to meet its liquidity needs. The availability of
funds under the domestic and multicurrency revolving credit facilities are
subject to a borrowing base limitation measured by certain assets of the
Company. The available borrowing capacity under the Credit Agreement was
approximately $11 million at March 30, 1995.
The Company and the Lenders entered into an amendment of the Credit Agreement
as of January 24, 1995 easing certain financial covenants and permanently
waiving the event of default arising from the ownership by the Malcolm I.
Glazer Trust (Trust) of more than 30% of the Company's Common Stock, provided
that the Trust's ownership does not later exceed 49% of the Company's
outstanding Common Stock. The Company is currently in compliance with the terms
of the Credit Agreement, including the financial covenants. In the event that
the Company is unable to maintain compliance with the covenants, it will be
necessary to seek a waiver or amendment of such covenants from the respective
lenders. There can be no assurance that the Company will be able to obtain such
waivers or amendments.
14
<PAGE> 15
Capital expenditures for the first quarter of 1995 and 1994 totaled $7.6
million and $7.4 million, respectively. In 1995 and future years, capital
expenditures are expected to be approximately $30 million annually.
Envirodyne's obligations under the Credit Agreement bear interest at rates that
are expected to fluctuate over time. Envirodyne is required under the Credit
Agreement to enter into interest rate agreements in an amount equal to at least
50% of both the term loan outstanding and the multicurrency loans in excess of
$10 million outstanding. Envirodyne has entered into $50 million of interest
rate agreements that cap the Company's LIBOR interest component (excludes
spread) at an average rate of 6.50% until January 1997. Interest expense
includes $153 of amortization of the interest rate cap premium for the three
months ended March 30, 1995. The Company has not received any payments under
the interest rate protection agreements.
The Company has spent approximately $12 million to $17 million annually on
research and development programs, including product and process development,
and on new technology development during each of the past three years, and the
1995 research and development and product introduction expenses are expected to
be approximately $16 million. Among the projects included in the current
research and development efforts is the application of certain patents and
technology recently licensed by Viskase to manufacture cellulosic casings. The
commercialization of these applications and the related fixed asset
expenditures associated with such commercialization may require substantial
financial commitments in future periods.
The Company is contemplating the private placement of up to $160 million of
series A and $50 million of series B senior secured notes. Up to $50 million of
the proceeds of the private placement are expected to be used to finance the
purchase, in the open market or in private transactions, of 10-1/4% Senior
Notes, subject to price and market conditions, while the rest of the proceeds
would be used to repay the Company's domestic term loan facility, reduce the
amount of the Company's revolving credit obligations and pay the fees and
expenses of the private placement. The Company may reduce the amount of the
private placement by up to $50 million if the Company is unable to purchase the
10-1/4% Senior Notes at prices acceptable to the Company. No assurance can be
given that the Company will consummate the contemplated private placement, what
the terms and conditions of the private placement would be, or whether the
proceeds of the private placement would be used as the Company currently
expects.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
For a description of pending litigation and other contingencies, see Part 1,
Note 5, Contingencies.
Item 2 - Changes in Securities
No reportable events occurred during the quarter ended March 30, 1995.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders (the "Meeting") on May 10,
1995. The business conducted at the Meeting included (i) the election of
directors, (ii) the ratification of the Company's 1993 Stock Option Plan and
(iii) the ratification of the appointment of Coopers & Lybrand L.L.P. as the
Company's independent accountants for the fiscal year ended December 28, 1995.
The results were as follows:
<TABLE>
<CAPTION>
Election of Directors For Against Abstaining
- --------------------- --- ------- ----------
<S> <C> <C> <C>
Robert N. Dangremond 12,093,097 80,437 299,146
Avram A. Glazer 12,108,450 65,084 299,146
Malcolm I. Glazer 12,108,950 64,584 299,146
F. Edward Gustafson 12,136,930 36,604 299,146
Michael E. Heisley 12,113,889 59,645 299,146
Donald P. Kelly 12,094,297 79,237 299,146
Gregory R. Page 12,138,732 34,802 299,146
Mark D. Senkpiel 10,980,980 1,465,222 26,478
</TABLE>
<TABLE>
<CAPTION>
Ratification of 1993
Stock Option Plan For Against Abstaining
- --------------------- --- ------- ----------
<S> <C> <C>
12,273,561 175,944 23,175
</TABLE>
<TABLE>
<CAPTION>
Ratification of Appointment
of Coopers & Lybrand For Against Abstaining
- --------------------------- --- ------- ----------
<S> <C> <C>
12,442,506 25,122 5,052
</TABLE>
There were no broker non-votes on any of the matters presented.
Item 5 - Other Information
None.
16
<PAGE> 17
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On February 17, 1995 the Company filed a Form 8-K to file a copy of its
Amended and Restated By-Laws.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENVIRODYNE INDUSTRIES, INC.
Registrant
By: /s/
John S. Corcoran
Executive Vice President and
Chief Financial Officer
(Duly authorized officer
and principal financial
officer of the registrant)
Date: October 26, 1995
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1995
<PERIOD-END> MAR-30-1995
<CASH> 7,209
<SECURITIES> 0
<RECEIVABLES> 91,453
<ALLOWANCES> (2,446)
<INVENTORY> 124,470
<CURRENT-ASSETS> 250,997
<PP&E> 518,958
<DEPRECIATION> 46,166
<TOTAL-ASSETS> 922,013
<CURRENT-LIABILITIES> 136,706
<BONDS> 510,944
<COMMON> 135
0
0
<OTHER-SE> 127,358
<TOTAL-LIABILITY-AND-EQUITY> 922,013
<SALES> 155,824
<TOTAL-REVENUES> 155,824
<CGS> 113,689
<TOTAL-COSTS> 113,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 311
<INTEREST-EXPENSE> 13,434
<INCOME-PRETAX> (4,090)
<INCOME-TAX> (195)
<INCOME-CONTINUING> (3,895)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,895)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
