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